Your firm is planning to move to International Financial Reporting Standards (IF

Question

• Your firm is planning to move to International Financial Reporting Standards (IFRS) reporting within the next fiscal year. Analyze the risks and rewards by moving to IFRS and the impact that technology will have on the change. Include the advantages and disadvantages of IRFS compared to the Generally Accepted Accounting Principles (GAAP). Provide specific examples to support your analysis.
• Develop a proposal for migrating your firm to IFRS from GAAP. Discuss how you will educate your users in IFRS.

• Your firm is planning to move to International Financial Reporting Standards (IFRS) reporting within the next fiscal year. Analyze the risks and rewards by moving to IFRS and the impact that technology will have on the change. Include the advantages and disadvantages of IRFS compared to the Generally Accepted Accounting Principles (GAAP). Provide specific examples to support your analysis.
• Develop a proposal for migrating your firm to IFRS from GAAP. Discuss how you will educate your users in IFRS.

Explanation / Answer

IFRS is the future of accounting standards. Some countries have already made it mandatory for companies (in particular public listed companies) to adopt IFRS. The movement from GAAP to IFRS is important for many reasons. The most important advantage associated with IFRS is the uniformity in the information available in the financial statements of the company. It will become easier for a company having subsidiaries across the world to prepare financial statements with the use of same accounting standards. Earlier, it would have been difficult to comply with the accounting and reporting requirements of different countries and consolidation of financial statements (of the parent company and subsidiaries) at year end because of multiple set of accounting standards required to be followed by subsidiaries operating in locations different from the parent company. Further, the investors in different countries will find it easier to understand the information available in the financial statements, improving the scope for foreign investments.

While the advantages associated with adoption of IFRS cannot be overlooked, the cost of movement from GAAP to IFRS can be very high. As a result, many small businesses may not find it beneficial to move to IFRS. Accounting systems may have to be modified to suit the requirements of IFRS. This can increase the complexity and time required for successful transition. It has further been argued that the financial statements prepared in compliance with IFRS are not as detailed as the ones prepared in accordance with GAAP. The transition will also require changes in the course curriculum of professional accounting courses, thereby, increasing the effort and training cost of accountants. However, while the initial costs associated with the implementation of IFRS may appear to be high, the benefits in the form of uniform application of accounting standards and reduced cost of compliance will outweigh these transition costs over a period of time.

The successful movement from GAAP to IFRS would depend to a large extent on the cooperation and involvement of employees and management in the transition process. While, initial resistance may be encountered, educating employees on the benefits of IFRS can reduce the complexities associated with the transition. The transition should be organized in small phases and over a period of time (say 2 to 3 years or more, depending on the size of the organization). Conducting IFRS related workshops at regular intervals and organizing seminars with accounting experts can provide highly fruitful results. Distribution of study materials and providing sponsorship for professional training/accounting courses can also improve the knowledge base of employees. Implementation of relevant technology is essential for ensuring smooth and timely transition.

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