International Financial Reporting Standards (IFRS) is a set of rules, principles, guidelines, and interpretations aimed at the optimization of financial reporting structure. In contrast to national standards, which require precise implementation, IFRS are less restrictive, providing the entity with a degree of flexibility within the parameters set.
The legislation of Ukraine provides for the transition of a significant number of domestic companies to IFRS: large enterprises, mining enterprises, public joint stock companies, financial organizations, and other types of public interest entities (PIE).
Transition to IFRS is a strategic step, a condition for further development and prosperity of the company. Hence, this procedure is an important condition for entering the international market as well as for obtaining loans and financing from foreign banks or venture funds. No investor will finance your project unless you have high-quality financial documentation prepared in accordance with globally accepted rules. The very fact that a company has IFRS financial statements is a tacit sign for an investor that a company takes its project seriously.
Transition to IFRS: where to start
This process involves several steps. The very first thing to do is to decide on the date of transition to IFRS. For example, it may be January 01, 2018 or January 01, 2019. In the first case, the company will submit its first IFRS financial statements for 2019. The second case provides more time for transition—documentation should be submitted for 2020. The choice of the date depends on the reporting requirements of the enterprise as well as the level of tax risks. It is necessary to make the appropriate calculations in advance, in order to understand in which case the tax consequences specifically for your company will be lower. Only by understanding this issue we can move on to the next stage—the development of accounting policies under IFRS.
The accounting policy under IFRS is a set of rules, methods, and regulations for the preparation of financial statements. The purpose of its elaboration is to establish, among the variety of existing rules, the most favourable option of their application for an enterprise that is transitioning to IFRS.
Overall, international standards do not impose strict requirements for the company's accounting policy. However, it does have to take into account a number of important points, such as:
- reporting periods for submission of financial statements;
- dates of preparation of annual and interim financial statements;
- functional and presentation currency;
- level of materiality of financial statements, etc.
The next step is to determine the difference
We are talking about possible differences in the results provided by the practice of submission of financial statements already in force at the enterprise, and the one that is required by international standards. If there are such differences, it is necessary to identify the reasons for their occurrence. As a rule, they are related to errors in the application of requirements of Ukrainian Accounting Standards (UAS) or differences between UAS and IFRS.
Last in chronology, but not least in importance, is technical adaptation. In this case, it involves the improvement of accounting software under IFRS, or a transition to a new, more appropriate solution.
Generally, the procedure for the transition to IFRS is quite complicated. It requires accountants and other professionals involved in the process to be careful and pay attention to details. Any error may affect the financial results of the enterprise. In order to avoid such problems, it is more reasonable to contact qualified specialists.
Kreston GCG has extensive experience not only in auditing but also in transforming IFRS financial statements. Our experts will assist your company not only in the preparation of the financial statements in accordance with international requirements, but will also provide recommendations on how to work with the new standards and conduct a training for your employees, if necessary.