4Asignificantnumberofentitiesandcountriesaroundtheworldhave
adoptedInternationalFinancialReportingStandards(IFRS)asth
eirbasisforfinancialreporting,oftenregardingtheseasamea
nstoimprovethequalityofinformationoncorporateperformance
.However,whiletheadvantagesofacommonsetofglobalreporti
ngstandardsarerecognised,thereareanumberofimplementation
challengesattheinternationalandnationallevelsiftheobjec
tiveofanimprovedandharmonisedreportingsystemistobeachi
eved.Required:(a)Discusstheimplementationchallengesfacedby
theInternationalAccountingStandardsBoard(IASB)ifthereist
obeasuccessfulmovetoInternationalFinancialReportingStand
ards.Answer(a)InternationalFinancialReportingStandards(IFRS
)wereinitiallydevelopedforthepreparationofgroupaccounts
oflistedcompanies.TheuseofIFRSisgrowingsuchthatinsome
countriesthatarebuildingorimprovingtheiraccountingregula
toryframework,IFRSbasedcorporatereportsaredeemedtobemor
ereliableandrelevantthanlocalGAAPreports.Inmanyofthese
countriesIFRSarethestatutoryrequirementforlegalentities
and,therefore,animplementationissuethathasarisenisthatt
henationallawhastobereconciledwiththerequirementsofIFR
S.Anotherimplementationissuerelatestosmallandmedium-sized
enterprises(SMEs)intermsofwhetheraseparatesetofstandard
sshouldbedevelopedandwhatshouldbetheunderlyingconceptua
landmethodologicalbasisforsuchstandards.Effectiveimplement
ationrequirescontinuousinteractionbetweentheInternationalA
ccountingStandardsBoard(IASB)andnationalregulators.TheIAS
BhasissuedadraftMemorandumofUnderstandingontheroleofA
ccountingStandardSettersandtheirrelationshipwiththeIASB.
ItidentifiesresponsibilitiesthattheIASBandotherstandards
ettersshouldadopttofacilitatetheongoingadoptionoforconv
ergencewithIFRS.Withtheincreaseinthenumberofentitiesapp
lyingIFRS,thedemandforimplementationguidanceisgrowing.Th
eInternationalFinancialReportingInterpretationsCommittee(IF
RIC)hasbeengiventhetaskofmeetingthisdemandbuttheremay
beaneedforadditionalcopingmechanismsasalimitednumbero
finterpretationshavebeenissuedsincetheinceptionofIFRIC.V
ariationsintranslationofIFRScouldintroduceinconsistency.I
nsomecountriesthecapacityforhighlytechnicaltranslationis
lowandtheremaybeaconflictwithexistingnationalterminolo
gyandlegislation.Additionally,timelagsinthelocal“endorse
ment”processandintranslatingnewIFRScouldmeanthatfinanci
alreportsmaynotbeconsistentwiththelatestbodyofstandard
s.AdditionallythesuccessfulimplementationofIFRSwilldepend
upontherobustnessofthelocalregulatoryframework.Effective
corporategovernancepractices,highqualityauditingstandards
andpractices,andeffectiveenforcementoroversightmechanisms
willberequiredtounderpintheIFRs.Oftenendorsementofthes
tandardsisrequiredaspartoftheimplementationprocess.Fore
xample,intheEuropeanUnion,afterIFRShavebeenissuedbythe
IASB,theymustgothroughanendorsementprocessbeforecompani
eslistedintheEuropeanUnionarerequiredtoapplythem.This
processcouldcreatestandardsthatdifferfromthoseoftheIASB
.ImplementationofIFRScanhaveimplicationsforanumberofleg
islativeareas.Themorecomplextheregulatoryframework,themo
reproblemswillarise.Therecanbetax,pricecontrolandcompa
nylawimplications,andcertainsectors,suchasbankingandins
urance,maybesubjecttoadditionalregulationthatmayrequire
specialreportingrequirements.Entitiesmayfindthattheyarei
nbreachofexistingcovenantswithlenderswheretheprovisiono
ffundingisbasedonnationalGAAPratios.Similarlycorporatela
wmaysetouttherequirementsondistributionofdividendsandu
nlessthenecessarycorporatelawamendmentsaremadethendivide
nddistributionswouldbebasedonnationalGAAPwhichmightcrea
teconfusion.Aninternationalmechanismfortheco-ordinationof
enforcementofIFRSisrequired.IOSCOprovidesaninfrastructure
forenforcementwithrespecttopubliclylistedcompanies.IOSCO
hasputforwardproposalsfortheregulatoryinterpretationand
enforcementofIFRS.Onamorelocallevel,theEuropeanUnionha
sestablishedtheCommitteeofEuropeanSecuritiesRegulatorswho
seroleistoimproveco-ordinationamongsecuritiesregulatorsa
ndensureimplementationoflegislationintheEuropeanUnion.The
complexnatureofIFRSandthesheervolumeofstandardsmaketh
etaskofimplementationdifficult.Thestandardsaredeemedtob
e“principlesbased”andthismayleadtoinconsistenciesofappl
ication,particularlyincountrieswithoutacriticalmassofexp
eriencedaccountants.Mostaccountantswillhavebeentrainedto
applydomesticaccountingstandards,andwherethereareoptions
inIFRS,thenitislikelythattheaccountingpracticeclosestt
otheirNationalGAAPwillbechosen.SimilarlyIFRSsutilisefai
rvaluemeasurementextensivelyandmarketinformationisrequire
dtomoreaccuratelyreflectthevalue.Thenatureofthismarket
informationwillvaryaroundtheworld.Ifmarketinformationis
notavailable,analternativesourcecanbeobtainedbysimulati
ngahypotheticalmarketorbyusingmathematicalmodelling.Expe
rienceofsuchtechniqueswillvaryworldwide,andthisexperienc
ewillbevariableinsuchareasasactuarialestimation,impairm
enttesting,andvaluingsharebasedpayments.Theconceptsseto
utinIFRSmaybenewtosomeaccountingprofessionalsandmaybe
difficulttograsp.InternationalFinancialReportingStandards(I
FRS)areasetofaccountingstandardsdevelopedbytheInternatio
nalAccountingStandardsBoard(IASB)thatisbecomingtheglobals
tandardforthepreparationofpubliccompanyfinancialstatement
s.Andtheywereinitiallydevelopedforthepreparationofgroup
accountsoflistedcompanies.Withthedevelopmentofeconomy，th
euseofIFRSisgrowingmoreandmore,andsomecountriesarebu
ildingandimprovingtheiraccountingregulatoryframeworkbyIFR
S,foritsmorereliabilityandrelevancethanlocalGAAPreport
s.Approximately120nationsandreportingjurisdictionspermitor
requireIFRSfordomesticlistedcompanies,althoughapproximatel
y90countrieshavefullyconformedwithIFRSaspromulgatedbyt
heIASBandincludeastatementacknowledgingsuchconformityin
auditreports.Othercountries,includingCanadaandKorea,areexp
ectedtotransitiontoIFRSby2011.MexicowillrequireIFRSfor
alllistedcompaniesstartingin2012.Stillothercountrieshav
eplanstoconvergetheirnationalstandardswithIFRS.Inspiteo
fthis,therearestillanumberofimplementationchallengesat
theinternationalandnationallevelsiftheobjectiveofanimpr
ovedandharmonisedreportingsystemistobeachieved.No.1Thes
copeofapplicationofit.Companieshasitsowncharacteristics,
operatingmodeandmanagementability,thusitwillgeneratedif
ferentadaptability.Someadapttothischangeeasily,othershav
edifficultyinit.Forexample,IFRSdoesnotpermitLastIn,Fir
stOut(LIFO)andusesasingle-stepmethodforimpairmentwrite-d
ownsratherthanthetwo-stepmethodusedinU.S.GAAP,makingwri
te-downsmorelikely,whichisunfitforsomecompaniesinthepa
stinUS.No.2Effectiveimplementationrequirescontinuousintera
ctionbetweentheInternationalAccountingStandardsBoard(IASB)
andnationalregulators.TheIASBhasissuedadraftMemorandum
ofUnderstandingontheroleofAccountingStandardSettersandt
heirrelationshipwiththeIASB.Itidentifiesresponsibilitiest
hattheIASBandotherstandardsettersshouldadopttofacilitat
etheongoingadoptionoforconvergencewithIFRS.No3AsIFRSg
rowsinacceptance,mostCPAs,financialstatementpreparersandau
ditorswillhavetobecomeknowledgeableaboutthenewrules.Oth
ers,suchasactuariesandvaluationexpertswhoareengagedbyma
nagementtoassistinmeasuringcertainassetsandliabilities,ar
enotcurrentlytaughtIFRSandwillhavetoundertakecomprehens
ivetraining.Professionalassociationsandindustrygroupshave
beguntointegrateIFRSintotheirtrainingmaterials,publication
s,testing,andcertificationprograms,andmanycollegesanduniver
sitiesareincludingIFRSintheircurricula.Sometextbooksare
alreadycoveringIFRS,primarilyinacomparativepresentationto
theirinstructionsonU.S.GAAP.NewtextbookscoveringIFRSarec
urrentlybeingwrittenandshouldbeincirculationinthereason
ablynearfuture.No4Withtheincreaseinthenumberofentities
applyingIFRS,thedemandforimplementationguidanceisgrowing
.TheInternationalFinancialReportingInterpretationsCommittee
(IFRIC)hasbeengiventhetaskofmeetingthisdemandbutthere
maybeaneedforadditionalcopingmechanismsasalimitednumb
erofinterpretationshavebeenissuedsincetheinceptionofIFR
IC.No5itmayarisemuchcost,suchasTrainingcosts,humanres
ourcescostandcontinuouseducationcost.itwilltakealargea
mountofmoney,timeandpeopleforitsapplication.Forinstance
,TheconceptssetoutinIFRSmaybenewtosomeaccountingprof
essionalsandmaybedifficulttograsp.Inaddition,itwilltak
etheriskofchangingrulesofIFRSatanytimeNo6Thecomplex
natureofIFRSandthesheervolumeofstandardsmakethetasko
fimplementationdifficult.Thestandardsaredeemedtobe“principlesbased”andthismayleadtoinconsistenciesofapplication,particularlyincountrieswithoutacriticalmassofexperiencedaccountants.Mostaccountantswillhavebeentrainedtoapplydomesticaccountingstandards,andwherethereareoptionsinIFRS,thenitislikelythattheaccountingpracticeclosesttotheirNationalGAAPwillbechosen.No7Itwillalsoinvolvesomefollowingquestions.Suchas,Whetherexternaluserscanunderstandyourreportandconcludeusefulaccountinginformationfromyourfinancialreport,andyourleveloffinancialreportcanimproveornot.Afterall,itsultimatepurposeistoreflectthestateoftheeconomy. |
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