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International Financial Reporting Standards (IFRS): Looking beyond compliance

Guest post by
Kamaljeet Singh Bhatia, Lead Consultant, Infosys

 

On 26-May-2011 the Securities and Exchange Commission, U.S. (SEC) issued staff paper associated with 'Work plan for consideration of incorporating IFRS' in which it outlines incorporating IFRS into U.S. GAAP after a certain period of 5 to 7 years. In Japan the ministry in charge of financial affairs announced that decision regarding IFRS adoption may not be made until 2012, thereafter at least 5 years would be needed to make preparations. There seems to be no decision on mandatory IFRS adaptation timelines and so far it seems to remain indecisive until FY2012-2013. However over the period there has been a growing acceptance from a number of other countries.

Though companies may have escaped compliance in the near term, there is a need to look at IFRS beyond compliance in the long term, In terms of benefits the obvious one, being a globally standard accounting method, is globally standardized financial statements making comparisons easier. This in turn would help companies reduce cost of borrowing if they wish to raise capital overseas. The most important benefit however, for larger companies having foreign subsidies, is internal consistency that IFRS adoption would bring. It will allow them to standardize, streamline their operation, auditing, training and thus speak a common accounting language across the board.

In reality the benefits stretch beyond accounting, Unification of accounting system would bring in usual benefits achieved through consolidation.

A) Implementation of shared services
B) Global visibility thorough establishment of management database
C) Information streamline & visualization thus improving cash flow management.

For a fairly large company moving to IFRS would take around 3-4 years of transition period, Even if mandatory IFRS adoption is postponed, it makes sense for the companies to start the unification project; this would not only bring in the benefits listed above but also give them a head start to become familiar to a new accounting system. Eventually the movement from GAAP to IFRS is inevitable.

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