Introduction
Recent events in the global capital markets underscores the importance of financial disclosure and transparency. This is beyond United States but markets around the world. As a result, many are examining which accounting and financial disclosure rules to follow. The standards issued by the IASB (International Accounting Standard Board) received most votes. Over 120 countries permits use of International Financial Reporting Standards (IFRS) above Generally Accepted Accounting Principles (GAAP). The primary difference between the two systems is that GAAP is focused on detailed rules and interpretations, while IFRS is focused on objectives and principles.
Sets of Standards
The accounting profession attempted to develop a set of standards, generally accepted and universally practiced. U.S standards, referred to as Generally Accepted Accounting Principles (GAAP), are developed by the Financial Accounting Standards Board (FASB). The internal control standards applicable to Sarbanes-Oxley (SOX) apply only to large public companies listed on U.S. exchanges. Problems such as ethics violations (Enron, WorldCom and AIG) have also occurred internationally, for example, at Satyam Computer Services (India), Parmalat (Italy), and Royal Ahold (the Netherlands).
IFRS & GAAP Definition
Generally Accepted Accounting Principles (GAAP) are set of rules and practices, having substantial authoritative support. Recognized as a general guide for financial reporting purposes. International standards are referred to as International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB).
The IFRS Way
IFRS is a set of accounting standards rapidly gaining worldwide acceptance. Promulgated by the London-based International Accounting Standards Board (IASB). It includes 14 members from 11 various countries. IFRS comprise of four main components: The International Financial Reporting Standards, the International Accounting Standards (IAS), the Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC), and the Standing Interpretations Committee (SIC). Nigeria companies are gradually gravitating towards IFRS
Difference Between IFRS & GAAP
IFRS tends to be simpler in its accounting and disclosure requirements; some people say more “principles-based.” GAAP is more detailed; some people say it is more “rules-based. ”This difference in approach has resulted in a debate about the merits of “principles-based” versus “rules-based” standards. U.S. regulators have recently eliminated the need for foreign companies that trade shares in U.S. markets to reconcile their accounting with GAAP.
Key Impacts of IFRS Implementation
Firstly, ‘Technical Accounting’: Overall approach to IFRS implementation. First time adoption policy considerations, including reporting dates and use of exemptions. Ongoing policy considerations, including alternatives and approach to “principles. Secondly, ‘Process and Statutory Reporting’: Internal controls and processes, including documentation and testing; management and internal reporting packages. It also includes global reporting packages, statutory reporting and opportunities around IFRS adoption. Thirdly, ‘Technology Infrastructure’: These includes general ledger and chart of account structure, performance metrics and global consolidation. Sub-system issues related to configuration and data capture and the capabilities to manage multiple GAAP accounting during transition are also inclusive.
Fourthly, ‘Organizational Issues’: Focuses on tax structures. treasury and cash management. legal and debt covenants. This includes people issues, with education and training, compensation structures. Internal communications, external and shareholder communications
Timeline for IFRS Implementation?
It is up to you. Consider: How an IFRS conversion would affect your business. How the company will assess the cost and benefits of adoption of IFRS. Also consider how many of your competitors have converted or are in the process of converting to IFRS. What’s the level of IFRS knowledge within the company and in the country? Given the far-reaching scope of IFRS, assess the potential effect of conversion on each department, i.e., Finance, HR, Tax, Legal, IT and Investor relations and make a decision without sentiments.
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