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Download PDF 2013 Interpretation And Application Of International Financial Reporting Standards (IFRS) With Website By Bruce Makenzie


The stated goal of the IFRS Foundation and the International Accounting Standards Board (IASB) is to develop, in the public interest, a single set of high-quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles.

There were once scores of unique sets of financial reporting standards among the more developed nations (“national GAAP”). The year 2005 marked the beginning of a new era in global conduct of business, and the fulfillment of a thirty-year effort to create the financial reporting rules for a worldwide capital market. For during that year’s financial reporting cycle, the 27 European Union (EU) member states, plus many others in countries such as Australia, New Zealand, Russia, and South Africa adopted International Financial Reporting Standards (IFRS).

Since then, many countries, such as Argentina, Brazil, Korea, Canada, Mexico, and Russia have adopted IFRS. China has substantially converted their national standards in line with IFRS. All other major economies, such as Japan and United States have established time lines to converge with or adopt IFRS in the near future.

2007 and 2008 proved to be watershed years for the growing acceptability of IFRS. In 2007, one of the most important developments was that the SEC dropped the reconciliation (to US GAAP) requirement that had formerly applied to foreign private registrants; thereafter, those reporting in a manner fully compliant with IFRS (i.e., without any exceptions to the complete set of standards imposed by IASB) do not have to reconcile net income and shareholders’ equity to that which would have been presented under US GAAP. In effect, the US SEC was acknowledging that IFRS was fully acceptable as a basis for accurate, transparent, meaningful financial reporting.

This easing of US registration requirements for foreign companies seeking to enjoy the benefits of listing their equity or debt securities in the US led, quite naturally, to a call by domestic companies to permit them to also freely choose between financial reporting under US GAAP and IFRS. By late 2008 the SEC had begun the process of acquiescence, first for the largest companies in those industries having (worldwide) the preponderance of IFRS adopters, and later for all publicly held companies. A new SEC chair took office in 2009, expressing a concern that the move to IFRS, if it were to occur, should perhaps move more slowly than had previously been indicated. In the authors’ view, however, any revisiting of the earlier decision to move decisively toward mandatory use of IFRS for public company financial reporting in the US will create only a minor delay, if any. Simply put, the worldwide trend to uniform financial reporting standards (for which role the only candidate is IFRS) is inexorable and will benefit all those seeking to raise capital and all those seeking to invest.

It had been highly probable that nonpublicly held US entities would have remained bound to only US GAAP for the foreseeable future, both from habit and because no other set of standards would be viewed as being acceptable. However, the body that oversees the private-sector auditing profession’s standards in the US amended its rules in 2008 to fully recognize IASB as an accounting standard-setting body (giving it equal status with the FASB), meaning that auditors and other service providers in the US may now opine (or provide other levels of assurance, as specified under pertinent guidelines) on IFRS-based financial statements. This change, coupled with the promulgation by IASB of a long-sought standard providing simplified financial reporting rules for privately held entities (described later in this chapter), has probably increased the likelihood that a broad-based move to IFRS will occur in the US within the next several years. The SEC commissioner and chair have confirmed that they are committed to a single set of global standards and are still considering the incorporation of IFRS in the US for US issuers.

The impetus for the convergence of historically disparate financial reporting standards has been, in the main, to facilitate the free flow of capital so that, for example, investors in the United States will become more willing to finance business in, say, China or the Czech Republic. Having access to financial statements that are written in the same “language” would eliminate what has historically been a major impediment to engendering investor confidence, which is sometimes referred to as “accounting risk,” which adds to the already existing risks of making such cross-border investments. Additionally, the permission to list a company’s equity or debt securities on an exchange has generally been conditioned on making filings with national regulatory authorities, which have historically insisted either on conformity with local GAAP or on a formal reconciliation to local GAAP. Since either of these procedures was tedious and time-consuming, and the human resources and technical knowledge to do so were not always widely available, many otherwise anxious would-be registrants forwent the opportunity to broaden their investor bases and potentially lower their costs of capital.

The historic 2002 Norwalk Agreement—between the US standard setter, FASB, and the IASB—called for “convergence” of the respective sets of standards, and indeed a number of revisions of either US GAAP or IFRS have already taken place to implement this commitment, with more changes expected in the immediate future. The aim of the Boards was to complete the milestone projects of the Memorandum of Understanding (MOU) by the end of June 2011.

Although the Boards were committed to complete the milestone projects by June 2011, certain projects such as financial instruments (impairment and hedge accounting), revenue recognition, leases, and insurance contracts have been deferred due to the complexity of the projects and obtaining consensus views. Details of these and other projects of the standard setters are included in a separate section in each relevant chapter of this book.

Only after these projects are completed will the US make a final decision on the adoption of IFRS in the US. Although the target date to make the decision was for 2011, at date of completion of this book no decision was made. Until this issue is resolved, IFRS and US GAAP will remain the two comprehensive financial reporting frameworks in the world, with IFRS gaining more and more momentum.
With the convergence projects ending, the IASB has started with a new agenda consultation process on the future work program of the IASB. Most respondents requested a period of stability, but indicated that the framework project must be completed and that a theoretical definition for Other Comprehensive Income (OCI) should be developed.


  • Chapter 1: Introduction to International Financial Reporting Standards
  • Chapter 2: Conceptual Framework
  • Chapter 3: Presentation of Financial Statements
  • Chapter 4: Statement of Financial Position
  • Chapter 5: Statements of Profit or Loss and Other Comprehensive Income, and Changes in Equity
  • Chapter 6: Statement of Cash Flows
  • Chapter 7: Accounting Policies, Changes in Accounting Estimates, and Errors
  • Chapter 8: Inventory
  • Chapter 9: Property, Plant and Equipment
  • Chapter 10: Borrowing Costs
  • Chapter 11: Intangible Assets
  • Chapter 12: Investment Property
  • Chapter 13: Impairment and Noncurrent Assets Held for Sale
  • Chapter 14: Consolidations, Joint Arrangements, Associates, and Separate Financial Statements
  • Chapter 15: Business Combinations
  • Chapter 16: Shareholders’ Equity
  • Chapter 17: Share-Based Payment
  • Chapter 18: Current Liabilities, Provisions, Contingencies, and Events After the Reporting Period
  • Chapter 19: Employee Benefits
  • Chapter 20: Revenue Recognition, Including Construction Contracts
  • Chapter 21: Government Grants
  • Chapter 22: Leases
  • Chapter 23: Foreign Currency
  • Chapter 24: Financial Instruments
  • Chapter 26: Income Taxes
  • Chapter 27: Earnings Per Share
  • Chapter 28: Operating Segments
  • Chapter 29: Related-Party Disclosures
  • Chapter 30: Accounting and Reporting by Retirement Benefit Plans
  • Chapter 31: Agriculture
  • Chapter 32: Extractive Industries
  • Chapter 33: Accounting for Insurance Contracts
  • Chapter 34: Interim Financial Reporting
  • Chapter 35: Inflation and Hyperinflation
  • Chapter 36: First-Time Adoption of International Financial Reporting Standards

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