BACKGROUND OF IFRS

Users of financial statements have always demanded transparency in financial reporting and disclosures. 

However, the willingness and need for better disclosure practices have intensified only in recent times. Globalization has helped Nigerian Companies raise funds from offshore capital markets. This has required Nigerian companies, desirous of raising funds, to follow the Generally Accepted Accounting Principles (GAAP) of the investing country. 

The different disclosure requirements for listing purposes have hindered the free flow of capital. This has also made comparison of financial statements across the globe impossible. An International body called International Organization of Securities Commissions (IOSCO), to harmonize diverse disclosure practices followed in different countries initiated a movement. The capital market regulators have now agreed to accept IFRS

(International Financial Reporting Standards) compliant financial statements as admissible for raising capital. This would ease free flow of capital and reduce costs of raising capital in foreign currencies. 

Most jurisdictions that report under IFRS, including the EU, mandate the use of IFRS only for the listed companies. However, in INDIA, IFRS would apply to a wider group of entities than their international counterparts. This is primarily because of a large number of private enterprises getting covered under the size criteria based on their turnover and/or their borrowing. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use International Financial Reporting Standards (IFRS).

The policy makers in India have also realized the need to follow IFRS and it is expected that a large number of Indian companies would be required to follow IFRS from 2011. This poses a great challenge to the makers of financial statements and also to the auditors.

Meaning of IFRS

International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. IFRS is a principles-based accounting system, meaning it is objective-oriented allowing for more presentation freedom.

Objectives of IFRS

·         To develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions;

·         To take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies.

·         To bring about convergence of national accounting standards and International Accounting standards and International Financial Reporting Standards (IFRS) to high-quality solutions

Ajibola Aderonke is an auditor at professional services firm Ernst & Young (EY). She previously worked another Big 4 accounting firm PwC. She can be reached at ajibolaaderonke@gmail.com for ideas and suggestions. The post above and its ensuing comments, if any, is purely the opinion of the writer.