Often people think that adopting International Financial Reporting Standards (IFRS) in Poland is something difficult. In many ways it is, but not as difficult as in some other European countries.

Poland about 15 years ago officially changed from a planned economy to a market economy by reinstating the 1936 Commercial Code and soon after issued the decree on accounting. This decree on accounting gave the basic concepts of reporting in a free market economy. Since then we have had the 1994 Accounting Law with subsequent amendments and a new Commercial Companies Code. These changes were based on the International Accounting Standards (IAS) and brought the Polish accounting legislation and hence reporting requirements close to these standards. However there are still many differences and problems.

The European Union in the wake of Enron WorldCom and later Parmalat chose to speed up the adoption of common reporting standards in all countries.

The first stage is for public quoted entities to report in IAS from 2005. IAS until recently was a set of standards which did not include items (paragraphs) which were considered as conflicting with those in some of the prominent developed economies. In addition the IAS included alterative ways of reporting some areas in the Financial Statements leading to different results or balances.

What is the difference between IFRS and IAS. The EU approached IFAC (International Federation of Accountants) and stated that they wanted reporting standards for all the member states to be the same. To get things started the EU adopted the IAS way, which is principle based and not rules based (i.e. substance over form). This fits in with the EU 8th directive on Auditors' Independence which is principle based. In order for IFAC to achieve its goal of having a set of comprehensive financial reporting standards they, used IAS as the base (eliminating some of the alternative treatments and exceptions to the rule), plagiarised the good bits from US GAAP and considered solutions for various problems as adopted by prominent economies. The result to date are 6 IFRSs, 31 IASs (revised for harmony) and 16 interpretation pronouncements totalling 2,300 pages. In the meantime where there is a point not considered by IFRS/IAS we are to go first to the various explanatory material (official interpretations and other authoritative sources), then check if the point is covered by US GAAP and if there is still a doubt, see what is "best practice".

However as US GAAP is more rules than principle based, it will need to change in order to go in the direction of the current thinking. Many of the required changes will be taken from IFRS's. This means that the two main world standards will become similar. The main differences will reflect the differences between the US and EU economies.

The adoption of IFRS in Poland is not for all firms. It is first voluntary and second limited to a specific group. To comply with the regulations to report in accordance with IFRS the Polish company must either be quoted on a stock exchange or be in a group where there is a quoted company. The second condition is that the Owners must pass a resolution requiring the Management Board to report to them in IFRS/IAS format. Therefore companies on the Warsaw Stock Exchange (WSE) have a choice of whether or not to adopt IFRS. If no Supervisory Board resolution is made, Polish listed company have to report using Polish GAAP.

We must remember that accountants and bookkeepers had a variety of roads to their present positions in companies and in the profession. Not all are experts in their field. Some are excellent and have no problem understanding revised or new concepts and implementing them. Others, however, still have problems with applying the original 1994 Accounting Law, without considering its later amendments and now IFRS/IAS. Therefore for many WSE listed companies it is more prudent not to adopt these European Standards.

Since Poland changed its Accounting Law over the past 11 years by using IAS as its main source of guidance, the differences between IFRS/IAS and Polish GAAP are not too great. The main differences are in the Notes to the Financial Statements where the devil lies in the reporting information as IFRS/IAS requires more detail. Another difference is that IFRS/IAS puts the emphasis on Fair Value. This means valuing the individual assets liabilities summarised in the Balance Sheet at their market values less liabilities. The emphasis is to report on the fair value of the company to the Shareholder. Polish GAAP is historic based (book value) with emphasis on getting the Income Statement or profit right. The emphasis is on the earnings per share or the income the Shareholder can earn. This change in emphasis in the reporting requirements reflects the long term decision making requirements of the market place - from short term returns to longer term investment.

Due to being involved on a day to day basis, the Owner Manager firms know; the value of their business, what is or is not in the Balance Sheet and how profitable it is. Therefore they do not need to adopt IFRS/IAS to the same level as public quoted companies, that is, where ownership and management are separated. We know that IFAC is working on a standard for SMEs. Lets hope that they come up with a reasonable standard which is not too complex for the accountants employed by the smaller companies. We must remember that SMEs make up about 80% of the GDP or over 95% of all firms in number and therefore we should not try to impose rules set for the troublesome minority on the majority.