CHAPTER ONE

The need for increased acceptance of IFRS

ONE KEY OBSTACLE IS THE PERSISTENCE of national accounting standards versus IFRS, as addressed here.

1.1 NATIONAL ACCOUNTING STANDARDS VERSUS IFRS

The role of finance and accounting professionals is critical to international business development, whether this involves importing, exporting, outsourcing, joint ventures, takeovers, start-ups or subsidiaries. The same can be said for related auditors. From the outset of any enterprise, or through subsequent and ongoing interaction with internationally located business people, the accuracy and timeliness of business reports facilitates decision making in executive offices and boardrooms. Clear communication of fundamental numbers and other information, however, can be clouded by a variety of factors that needs to be understood, and managed, in order to reduce the impact of these on profit.

Specifically, does an international entity abide by financial reporting standards that are in line with what is used in head office? We can foresee that IFRS will become the common language for finance and accounting professionals worldwide. In that regard, increasingly, we also know that IFRS is mandatory for foreign business when dealing with corporations, such as in the EU, whether for trading or investment purposes. This makes sense. For instance, there is a dire need for a prospective trader or investor to rely, with complete confidence, upon what a possible foreign supplier, business partner or acquisition target provides in terms of financial information. Consider this as a matter of satisfying the necessity for ongoing due diligence.

In comparison with IFRS, however, there are national standards in some countries that are antiquated, with any possible, necessary and expected development often held back by associated academics and bureaucrats. Such influential people, usually, are far behind the rest of the world in relation to what is required of modern finance and accounting practices. Also, they tend to serve a political agenda that avoids initiatives of developed countries, no matter how sound and sensible these might be. In addition, there can be a lack of adequate professional infrastructure in place in associated countries, with no obvious political to produce drafts of enhancement for public comment or future inclusion in existing standards. Compliance is another issue as to whether there are systems in place, such as through institutional infrastructure, to ensure conformity with any rules, whatever these might be.

Note: For more on this issue, as well as others affecting the integrity of financial reporting in an international business setting, see Reiman, C. (2010), ‘Accounting for International Differences', Cost Management (formerly The Journal of Cost Management), Thomson Reuters, Boston, November/December, Vol. 24, Issue 6, pp. 5–18; reprinted in AIA International Accountant, Association of International Accountants, Digital Edition Issue 61, November 2011, pp. 14–21.

1.2 PARTIAL ACCEPTANCE OF IFRS

Certainly, the translation of IFRS has provided the majority of countries with ready access, as addressed here. However, in contrast to the persistent upholding of national standards, there are countries that accept IFRS, although only partially. This is not in keeping with the general expectation of an international standard by which to assure global convergence, compatibility and comprehension of business reporting and underlying processes.

A recent example of related news arose in March 2012 when the Accounting Standards Council in Singapore determined that full convergence of ­Singapore Financial Reporting Standards with IFRS would not be implemented in 2012, as originally planned. India also has deferred its transition to IFRS.