THE importance of the International Financial Reporting Standard (IFRS) can never be over-estimated, as it is what can effectively make global convergence achievable. BUKKY OLAJIDE examines how the IFRS is gradually paving the way for a global reporting language.DEVELOPMENT of high quality, compatible accounting standards that could be used worldwide was one of the reasons why the International Accounting Standards Board (IASB) of the United Kingdom and Financial Accounting Standard Board (FASB) of the United States have been working together since 2002 to bring about a common set of accounting standards by the end of 2011. At their joint meeting in 2002 in Norwalk, known as the Norwalk Agreement, in Connecticut, United States of America, both acknowledged their commitment to making their existing financial reporting standards fully compatible as soon as practicable, as well as coordination of future work programmes to ensure that once achieved, compatibility would be maintained. The International Accounting Standards Board (IASB) is an independent accounting standard setting body that is based in London. The body which is becoming the global Standard for the preparation of public company financial statements, has 15 members from nine countries, including the United States. It began operations in 2001 when it succeeded the International Accounting Standards Committee and it is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, national funding regimes, and other international and professional organizations throughout the world. Presently, approximately of 90 countries have fully conformed with the IFRS as promulgated by the IASB while the remaining, especially the major countries have established timeliness for convergence with or adoption of IFRS. Countries that have complied included Australia (which has issued an equivalent of IFRS, European Union (that have required all listed EU companies to use IFRS since 2005) and Ghana (which phased out Ghana Accounting Standards for all companies since 2009) as well as Canada (who has decided that the use of IFRS will be required for Canadian publicly accountable profit oriented enterprises for financial periods beginning on or after 1 January, 2011. Other conformed countries include India. The Institute of Chartered Accountants of India (ICAI) has announced that IFRS will be mandatory in India for financial statements for the periods beginning on or after 1 April 2011. In South Africa, all companies listed on the Johannesburg Stock Exchange have been required to comply with the requirement of IFRS, since 1 January 2005. In the United States of America, the U.S securities and exchange Commission has proposed to move to IFRS by 2014. Coming home to Nigeria, the Federal Executive Council made public its decision to adopt IFRS with effect adoption date set at January 1, 2012. The importance of IFRS is such that continuous awareness needs to be created. In the light of this, recently, Ahmed Zakari and Co. (Chartered Accountants) in conjunction with ento (Consulting (Financial and Management Consultants organised a training course in Lagos. Titled Known All IFRS, the course was aimed at enlightening participants essentially in getting to understands all pros and couse of IFRS and what it entails in its entirely. Speaking on Revenue under IFRS, the Managing Partner of Ahmed Zakari and Co. Chartered Accountants, Ismaila Zakari explained that the objective of the Framework for the preparation and presentation of financial statement defines income as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that results in increases in equity, other than these relating to contributions from equity participants. According to Zakari, because income constitute both revenue and gain, revenue arises from an entitys ordinary activities while gains, however include such items as the profit on deposal of non current assets, or on retranslating balances in foreign currencies, or fair value adjustments to financial and non financial assets. Stating objectives further, the Managing Partner said that the principal issue with revenue recognition is determining the point where it is probable that future economic benefit will flow to the entity. The decision as to when and how revenue should be recognised has a significant impact on the determination of net income for the year (that is the bottom line) and thus it is a very critical element. In his paper titled Nigerias Transition to IFRS, Konstantinos ISanis, an IFRS specialist with Eutop Consulting Limited stated the benefits for the National Regulatory Bodies. According to Tsanis, the Nigerian Accounting Standards Board (NASB) will be alert to best international practise, that is, IFRS, to guide them in the establishment of improved reporting practices in Nigeria. There will be better ability to attract and monitor listings by foreign companies consequence of a higher standard of financial disclosure. The IFRS expert however mentioned challenges posed by IFRS adoption, stating governance and financial sustainability of the standard setter. According to him, how the International Accounting Standard Board balance independence and accountability are challenges of moving from voluntary donation funding model to a more stable platform. Concerning political and sovereignity issues, Tsanis observed that Europe sees itself as the biggest customers, the IASB sees the United States as the biggest prize while some countries are willing to adopt full IFRS without retaining some power to adopt or amend, others are not. Other challenges include cultural and economic factors. can a single set of reporting standards truly meet the needs of economies at very different stages of developments asked Tsanis. Principles versus rules is a need for certainty which prevails in some jurisdictions, said the IFRS specialist. He advocated the use of fair value in emerging economies as well as capacity for change and change management and diverging views on the purposes of financial reporting. To pave the way for a global reporting language, Tsanis stressed a need for stability, simplification, understandability, practicality, even-houdedness and responsiveness. Is global convergence achievable The IFRS specialist thought very much so, saying that while it is achievable but not without compromises, it is a journey without a fixed date. Tsanis and further that some of the challenges generations, for example, in many countries, new accountants are trained only in IFRS Strong enforcement mechanisms laws and corporate governance systems) also are necessary while IASB should continue to work on stakeholder engagement and governance, he said. Also speaking on the effects of changes in foreign exchange rates, the IFRS Team leader with Ahmed Zakari and Co, Ekiyor Lewis stated that the objectives of this is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity, as well as how to translate financial statements into a presentation currency. Despite this, the standard shall still be applied. For instance, he said, in translating the results and financial position of foreign operations that included in the financial statements of the entity by consolidation, proportionate consolidation or the equity method. Lewis explained that functional currency is the currency of the primary economic environment in which the entity operates while presentation currency is the currency is the currency in which the financial statements are presented. In recognizing exchange difference, the team leader explained that exchange differences arising on the settlement of monetary items or on translating an entitys monetary items at rates different from which the were translated initially, or reported in previous financial statements which should be recognised in profit or loss in the period in which they are so Lewis explained further that if the underlying economic activities change in such a way that there is change in the functional currency of an entity, the new functional currency should be applied prospectively from the date of the change in circumstances. The entity should not restate amounts previously recorded as these reflected the economic reality at that time while all amounts should be retranslated into the new functional currency at the date of the change, he said. Talking about hyperinflation economies, Lewis said where an entity has a functional currency, that is, the currency of a hyperinflationary economy, it is required to restate its functional currency financial statements in accordance with IAS 29 financial reporting in hyperinflationary economies. Also an IFRS expert with Entop Consulting, Innocent Okwuosa spke on intangible Assets. He explained that the objective of this standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another standard. According to him, this standard requires an entity to recognise an intangible asset if, an only, if specified criteria are met.
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