WHAT IFRS WILL MEAN FOR YOUR BUSINESS

       Last year's financial crisis, which brought down some of the biggest names in world banking, and whose aftershocks have been felt in economies the world over, has a new scapegoat. Politicians and bankers, trying to deflect some of the blame, pointed the finger at accounting standards, the rules by which accountants must abide, claiming the huge losses incurred by the banks were only exacerbated by the accounting requirement to write down investments to the current market price, which had plummeted, in some cases to almost nothing.
       One year on and many are claiming that the "green shoots of recovery" are being seen. However, the shockwaves are still being felt. Moves are underway to make accounting simpler. There are calls for less reliance on the teams of specialist accountants that are needed to interpret the finer details of specific standards. Many, including some of the world's top CFOs, now think that financial statements have become too complex - voluminous, full of tables and data but with little in the way of clear explanation.
       Many readers also probably think that accounting used to be much simpler. Why have audit fees increased? Why value assets at market price when you have no intention to sell? Why can't we create reserves for the bad times in order to even out the profits over the long term, thus creating longer term stability? Accounting in Thailand is changing too and over the next three years or so, there will be similar debate locally.
       International Financial Reporting Standards, referred to as IFRS, make up the accounting and financial reporting framework that now is used in more than 100 countries around the world. Countries soon to adopt the system include India, Indonesia, Malaysia, and Korea with Thailand not too far behind. There is even a roadmap for convergence between US GAAP and IFRS, something that would have been unthinkable not that long ago due to fundamental differences in the accounting methodology between Europe and the US.
       IFRS are not perfect - far from it. There are flaws. As Sir David Tweedie, the IASB (International Accounting Standards Board - the body that sets the standards) chairman, is fond of remarking, he has yet to fly on an aircraft that is recorded on the balance sheet of an airline company. But it is accepted by most that what we have now is a big improvement on what we had before.
       It is a misconception to think that IFRS only affects listed companies. It has created the opportunity for countries that have not yet developed a financial reporting framework to quickly put in place a globally accepted set of standards that local companies can follow. Cambodia is a good example of a country where this has happened. In addition, the recently issued IFRS for Small- and Medium-Sized Entities offers a scaled-down, simpler and more cost-effective version that can only be of benefit to other developing countries who want to raise their accounting game.
       The benefits of a global set of high-quality accounting standards are considerable. Cross-border comparability increases access to additional capital markets around the world. Additional disclosure requirements improve the transparency of a company's activities. The performance of a company in Hong Kong now can be compared meaningfully with one in Germany. No longer is it necessary to decode local accounting practice when trying to understand company performance. This is a major advantage, not just for investors, but also for potential suppliers and customers.
       Despite criticisms that accounting has become over-complicated, IFRS are here to stay. The IASB is now in a phase of both revising existing standards and issuing new ones.
       We are moving towards a requirement for management to issue a commentary on the company performance and intentions, further enhancing the understanding, quality and usability of the financial statements.
       Although accounting has undergone significant changes in the last decade and there are more changes ahead, it now appears more likely than ever that the world eventually will be using a common set of standards.
       Jonathan Fryer is a UK Chartered Accountant working for Mazars Thailand.