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The Convergence To IFRS - Reasons, Implications, Applicability, and Concerns
The Convergence To IFRS - Reasons, Implications, Applicability, and Concerns
Table of Contents
1. Introduction .............................................................................................. 3
2. International Financial Reporting Standards (IFRS) ................................... 3
2.1. History of IAS/ IFRS....................................................................................................................... 3
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1. Introduction
Since the emergence of Accounting in 1494 by the help of Luca Pacioli, the subject matter has continually evolved
and has become a prominent subject in the sphere of world business activities. Today, not many businesses and
nations can do without accounting. A lot of structures such GAAP, SSAP, IAS and IFRS have evolved at various
stages to guide the practice of accounting.
This report seeks to look in details The convergence to IFRS Reasons, implications, applicability, and
concerns by demonstrating the following:
The promulgation of various national accounting legislations to regulate the accounting profession in their
respective countries due to cultural differences.
Accounting rules which were different in various countries though they followed a set of accounting
standards established by accounting regulators to govern and regulate the accounting profession. E.g. the
UK had SSAP/FRS, USA had US GAAP, Canadian GAAP and Ghana had GNAS. Etc.
Differences resulting in lack of uniformity in financial statements prepared in different countries and such
failed to meet enhancing qualities of financial statements.
Translations of companies financial statements into other countries GAAP has resulted in huge losses.
Working in different countries as accounting professional or auditor was overly difficult due different
legislations and standard one is required to master. Etc.
The International Accounting Standards Committee (IASC) was established in mid-1973 with mandated of
developing new international standards, which would be accepted and implemented globally. The IASC lasted 27
years until March 2001, where IASC foundation, not for Profit Corporation incorporated in the USA and the parent
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entity of International Accounting Standards Board (IASB) was restructured to become IASB.
A series of accounting standards, known as the International Accounting Standards, were released by the IASC
between 1973 and 2000, and were sequentially numbered. The series started with IAS 1, and concluded with the IAS
41, in December 2000. In April 2001, when IASB become operational, they agreed to adopt the set of standards that
were issued by the IASC, i.e. the IAS 1 to 41, but that any standards to be published after that would follow a series
known as the International Financial Reporting Standards (IFRS). Currently, the IASB is based in London.
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September, 2014, The IFRS Foundation (IFRSF) has added 8 new jurisdiction profiles on the use of IFRS, bringing
the total number of profiles completed to 138 jurisdictions. The eight new jurisdiction profiles cover Afghanistan,
Angola, Armenia, Belize, Guyana, Peru, Philippines, and Vietnam. Countries which have adopted IFRS is analysed
by continent as follows:
Table 1:
Continents
Number of Jurisdictions
Percent of total
Europe
42
30%
Africa
20
15%
Middle East
5%
32
23%
Americas
37
27%
Totals
138
100%
(Source: www.ifrs.org)
Explanation:
Nearly all of the jurisdictions (128 of the 138) have publicly made commitment
supporting a single set of high quality global accounting standards. Only Albania,
Belize, Bermuda, Cayman Islands, Egypt, Macao, Paraguay, Suriname, Switzerland
and Vietnam have not.
The relevant authority in all but 8 of the 138 jurisdictions (Belize, Bermuda, Cayman
Islands, Egypt, Macao, Suriname, Switzerland and Vietnam) has made a public
commitment to IFRS as the single set of global accounting standards. Even in the absence
of a public statement, IFRS are commonly used by publicly accountable entities (listed
companies and financial institutions) in Belize, Bermuda, Cayman Islands, and Switzerland
114 jurisdictions (82 per cent of the profiles) require IFRS for all or most domestic
publicly accountable entities (listed companies and financial institutions) in their capital
markets. All but 2 of those have already begun using IFRS. Bhutan and Colombia will
begin using IFRS in 2021, and 2015 respectively. Some comments on the remaining 24
jurisdictions that have not adopted:
2. Commitment to IFRS:
3. Adoption of IFRS:
a.
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b.
c.
d.
e.
5.
The 114 jurisdictions that require IFRS for all or most domestic publicly accountable
entities include 7 that have no stock exchange but that require IFRS for all financial
institutions (Afghanistan, Angola, Belize, Brunei, Kosovo, Lesotho, Yemen). Of the
107 jurisdictions that do have stock exchanges, 6 do not require IFRS for listed
financial institutions (Argentina, El Salvador, Israel, Mexico, Peru, Uruguay) though
they do require IFRS for other listed companies. All of the others require IFRS for all
listed companies. Around 60 per cent of the 114 jurisdictions that require IFRS for all
or most domestic publicly traded companies also require IFRS for some domestic
companies whose securities are not publicly traded, generally financial institutions and
large unlisted companies. Over 90 per cent of the 114 jurisdictions that require IFRS for
all or most domestic publicly traded companies also require or permit IFRS for all or
most non-publicly traded companies.
6. Few modifications:
7.
The 138 countries made very few changes to IFRS, which were generally regarded as
temporary steps in the jurisdictions plans to adopt IFRS. For example, the EU itself
describes its IAS 39 carve-out as temporary, and the carve-out has been applied by
fewer than two dozen banks out of the 8,000 IFRS companies whose securities trade on
a regulated market in Europe. Several modifications related to IASB agenda projects
that are now completed, including loan loss provisioning, use of the equity method to
account for subsidiaries in separate company financial statements, and bearer
agricultural assets. Jurisdictions have already begun eliminating those
modifications. Several other modifications relate to projects currently on
the IASB's agenda, including accounting for rate-regulated activities. A few
jurisdictions deferred the effective dates of some Standards, particularly IFRSs 10, 11
and 12 and IFRIC 15, though many of those deferrals have now ended.
(Source: www.ifrs.org)
Overall, out of 196 countries in the world, 138 have adopted IFRS either fully or partial as their national accounting
standard. Over view of adoption is depicted by the map below:
Diagram Map 1:
Geographical representation of IFRS Adoption:
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IFRS Adopted
others
No Adoption
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7.0 Conclusion:
Under this report:
The convergence to IFRS Reasons, implications, applicability, and concerns has been looked in details by
demonstrating the following:
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Over all, it is concluded that whiles the adoption of IFRS has far reaching positive benefits, it is indicative that its
not applicable under all circumstance. Again, countries which fails to adopt IFRS now over time may be forced to
adopt it due exclusion.
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