How do we count money? It comes as a surprise to many investors that different countries may count and account for money differently. The International Financial Reporting Standards – IFRS - are a set of accounting policies designed to make counting money a similar and common practice no matter where you are in the world… or bean counting, as the case may be.
Historically, even before the unification of Europe and some of their currencies, it was clear that standardizing financial reporting was a necessity. The analysis and determination of a company’s value by an international investor was a highly complex operation. Methods of accounting for Assets, Revenues or Liabilities varied by country, making comparison of financial statements a nightmare to investors and the bread and butter of many consulting companies.
Issues of transparency are of higher importance given the “sudden” financial meltdown that recently assaulted seemingly solid and healthy corporations – or so it was believed based on their published financials. The adoption of common methods of accounting for similar transactions worldwide could have lead to different interpretations of their published set of financials and saved fortunes.
IASC and IASB
Since 1973 the International Accountings Standards Committee (IASC), now International Accounting Standards Board (IASB) is responsible for developing and promoting the use and application of common standards on a global scale: the IFRS. The IASB includes in its ranks representatives from the Accounting Boards of countries such as the ones listed below:
- the Netherlands
- United Kingdom
- United States
Currently, over 120 countries worldwide have adopted in full, or an agreed version of IFRS that makes sense to their culture and businesses, the USA being the last of the largest world economies yet to adopt it.
SEC timeline proposal
The Securities and Exchange Commission – SEC is the organization that requires the adoption of new Reporting Standards for the corporations traded in the US stock markets. Last January, it proposed the voluntary adoption by US companies in 2009, and mandatory conversion beginning in Fiscal Year 2014. The discussion of the proposed timeline is far from over and the date itself, fluid.
The latest news on IFRS adoption worldwide is:
IFRS Adoption in Brazil
On 28 January 2010 the Brazilian Federal Council of Accounting and the Brazilian Accounting Pronouncements Committee formally agreed with the IASB that by the end of 2010 it would have fully converged to IFRS.
IFRS Adoption in Japan
In December 2009 the Japanese Financial Services Agency (FSA) permitted certain qualifying domestic companies to apply IFRSs for fiscal years starting on or after 31 March 2010.