Transition to IFRS: the hows and the whys
International financial reporting standards (IFRS) are a set of rules, principles, recommendations and interpretations aimed at optimizing the structure of financial statements. Unlike national standards, which require precise execution, IFRS are less stringent and give accountants a certain freedom of action within their specified parameters.
The Ukrainian legislation does not yet provide for a transition of all domestic companies to international standards of financial reporting. Today, this requirement is only compulsory for extractive companies, publicly traded companies, certain financial institutions, as well as organizations of public interest. This, however, does not mean the companies out of the list can relax.
The transition to IFRS is a necessary strategic step, a pre-condition for companies to develop and prosper. Therefore, this procedure is important to enter the international market and to obtain loans or other funding from foreign banks or venture capital funds. No investor will agree to invest in your project if you do not have proper financial documents prepared according to generally accepted global rules. For investors, the availability of financial statements is an unspoken sign of the company reliability and its serious approach to the project implementation.
Transition to IFRS: where to start
This process involves several stages. The first thing to do is to determine the date of transition to IFRS. The law gives two options to choose from: 1 January 2017 and 1 January 2018. In the first case, a company will submit financial statements for 2018 (prepared under IFRS). The second option leaves more time for transition as it requires to submit the documents for 2019. The choice of date depends on the degree of tax risks. One is required to run calculations to see what circumstances carry fewer tax consequences for the company. Only having settled this matter, one can move to the next stage – development of IFRS accounting policies.
Accounting policies are sets of rules, methods and regulations to prepare financial statements. They should be developed to adopt the optimum solution (from the variety of existing standards) to be then applied at a company that moves to IFRS.
In general, international standards do not impose strict requirements as to what an accounting policy should be. That said, it should take account of many important issues such as:
- submission periods;
- dates to prepare annual and interim reports;
- functional and presentation currencies;
- level of materiality.
Next step is to identify the difference
That is, to identify possible differences between financial statements prepared under financial reporting standards at your company and financial statements prepared under international financial reporting standards. If such differences are in place, then you must address their causes. Most causes are associated with errors in the application of Ukrainian Accounting Standards. The second most frequent cause is differences between the IFRS and Ukrainian Accounting Standards.
The last but not least is the technical adaptation. By technical adaptation, we mean a transition to newer software that is more fit for IFRS accounting.
Overall, the transition to IFRS is a labor-intensive procedure. It requires accountants and other professionals engaged to be more careful and attentive to details. Any mistake can affect the financial results and its credibility in the eyes of investors, stakeholders and others. To avoid these problems, it is better to engage qualified professionals. Kreston GCG has a vast experience in financial auditing and transformation of statements to IFRS. Our experts will not only help your company to make its financial statements compliant with international requirements but also provide useful guidelines to handle the new standards and will even train your employees if there is such a need.
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