EU’s Adoption of IFRS

EUs Adoption of IFRSIntroductionFrom 1st January 2005, all European countries atomic number 18 required under EU constabulary to use the IFRS1standards for their fiscal reporting statements, which includes bow windows domiciled within the UK (Nobes and Parker, 2006, p.103). This applies to all year-ends that complete after that date. In addition to this fate, it is a requirement of the standards that, for comparison purposes, the previous year pecuniary included within the statements must be recomputed to reflect a true IFRS bewilder. The main proposals for these standards and their first year usage are contained within IFRS 1.The transpose of standards has had a world-shaking impact upon pecuniary reporting in the UK. Therefore the intention of this paper is to discuss why the EU felt it necessary to adopt the IFRS add an understand of the IFRS main goals and to ascertain the areas in which this has affected the UK reporting methods, outlining the chance upon areas of cha nge by comparing them to the previous financial reporting methods used.Adoption of IFRS by the EUIn previous books (published in 1998 and before), Nobes and Parker (2006) discussed the Varity of different standards that were being operated within the ingredient states of Europe, including those that hire converted to capitalism from the former communist bloc, which included countries such(prenominal) as Poland and Romania. These differences have been determined by the political and capitalist attitudes of respective(prenominal) nations and can be separated into two main groups, those where markets and reporting is driven by the state, with weak equity markets, and those driven by business, where the equity market is strong.It has long been accepted that the differing financial reporting standards that have existed in the past has led to difficulties, particular proposition in terms of inter subject area trade and financing (Gregoriou and Gaber 2006, p.460). The EU recognised tha t, within its own region, this was affecting the flow of capital and finance between member states. In an attempt to address this issue, the commission sought to achieve harmonisation through raising legislation and regulations. However, when these failed to work, somewhat reluctantly the commission then changed its position and became an active supporter of the US dominated IFRS standards (Nobes and Parker 2006, p.105).IFRS standards have become increasing accepted as an international method of financial reporting, primarily because of its benefits in up(p) the globalization of trade and financial activities, which leave alone become less complex. In addition to the US, an ever-increasing number of countries have adopted IFRS, thus it was barely a publication of meter before the EU acquiesced. The intention is to move towards a system of fairer values (Bruce 2004), and to make the EU as a regional and international concern bloc far more competitive.However, the EU bankers ac ceptance of the standards, intend to be relatively straightforward, was not without difficulties (Bruce 2004). In the initial stages there were areas of dispute and, in particular, split of the standards that the EU would not accept, for example IFRS 39 the standard that deals with fair value, although this has recently been adopted in a limited form. Furthermore, despite IFRS, differences between the financial reporting methods used in Europe still exist (Nobes and Parker (2006, p.19). Nevertheless, in view of the pressure from a number of stakeholders, it is inevitable that the impact of individual national standards will continue to be eroded in favour of a globally recognised system (Nobes and Parker 2006, p.13)Executive summary of IFRSIFRS 1, the mainstay of the standards has seen two amendments, the current implemented in January 2007, although most of these have not affected the underlying core focus of the standards. Whilst each standard has a defined objective, there are a number of oerall goals embodied within the process.ObjectivesThe key focus and goal of the International Financial insurance coverage Standards is to achieve a position where, globally, whiz system will be seen to be the norm and form the basis upon which all trade, capital and financially motivated decisions in the international marketplace will be relied upon. The intention is that, through the acceptance of these standards, existing investment barriers will cease to exist as well, which will improve capital market performance.Furthermore, it is intended to promote reliable system of universal accuracy and comparability, together with a method that will ensure a standard model for corporate government that can be referred to equally by all stakeholders, whether they are involved with the corporation or not. It is stated that the improvement to the reporting processes will in any case stupefy management data and lead to reduction of riskIndividually, the standards have their own goals. For example, IAS 1.7 focuses on the presentation of the financial statements and Cash Flow in a direction that is understandable to everyone. Similarly, the objective of IFRS 7 are to ensure that corporate management discloses all information that has had an impact upon the business during the year covered within the financial statements. In particularly, emphasis is placed upon the accuracy of the corporate balance sheets, cash flows, as these are the areas where historically, as has been evidenced in cases such as Enron, and WorldCom, significant issues of financial stability arose, causing the loss of millions of jobs and investment monies. Achieving reliability within these areas is one of the fundamental goals of IFRS.Once of the main difficulties that arose with previous standards was the method of accounting for value, particularly with respect to assets and other balance sheet items. This situation was exacerbated in situations of the increasing incidence of me rgers and scholarships. Where a corporation takes over or merges with another, the cost of such a move, known as the goodwill payment, under the historical cost convention would be reflected in the balance sheet as the current value. However, goodwill is not a tangible asset in the sense that one can physically touch or use it. Its value will fluctuate in accordance with market determinates. Under the IFRS system items such as goodwill have to be accounted for in respect of the fair value at the time of the statements. Therefore, the core objective is that the statements reflect a realisable value rather than one that may have been eroded over time.To ensure that the financial statements of individual corporations reflected these objectives, IFRS also requires officers of the company and external experts to warrant that all the statements made, and financial information provided within the statements have been prepared in accordance with those objectives.The process of measurement is another key factor within the reporting standards. Here again, concentrating upon the relationship to the current fair value, the individual standards set our prescribed rules and guidelines as to how each item contained within the financial statement should be measured and what will be recognised as an acceptable method. Meticulous attention is paid to the valuation of assets, which apart from the year of acquisition when cost can be used, should have been based upon current realisable value as certified from a reliable and expert source, unless there is a excusable reason for not doing so. These measurement guidelines are also extended to debts, other liabilities and equity items contained in the financial statements.Requirements for presentation and disclosure in financial statements run around prominently within the IFRS standards. The presentation requirements in particular determine the way in which the financial data should be analysed within each segment of the corporat ions main financial statements and supporting notes. The purpose of this is to ensure that relevant information cannot be, either deliberately or inadvertently, concealed from interested stakeholders. For example, IAS 1.68 identifies the minimum requirement for information analysis in the business balance sheet, and there are similar instructions in IAS 1.81 that relate to the revenue statements, which identify how revenue, finance costs, and advance or loss distribution should be displayed.As indicated earlier, the IFR standards include numerous requirements in respect of the information that corporations are expect to disclose, as can be evidenced from the information checklist that has been prepared by Deloitte (2005), one of the big four auditing firms. In addition to all of the factors already discussed within this papers, further disclosures are expected to be made in relation to the how the business has complied with corporate governance rules and regulations and the assessm ent of risk.Despite the arguments that have arisen in various circles in respect of individual aspects of the IFRS system, it is generally accepted that they do provide a framework which, when fully implemented and adopted internationally, will be of benefit in relation to the globalisation of trade.A case study of the IFRS impact on a UK corporationThe financial statement of every UK Corporation has been affected by the implementation of IFRS and it has wedge upon the resultant financial information. To provide an example of these changes British Telecom is being used as an example. The 2006 statements in support of this analysis are attached in the appendix of this paper.As is allowable under IFRS 1, BT has availed itself of some of the exemptions and exceptions that are provided for in the preparation of the accounts. The exceptions applicable in this case are defined as follows business organisation combinations.Employee benefitsShare paymentsCumulative translation differences Financial InstrumentsIn the main, these exceptions relate to the retrospective treatment of the above items together with other aspects of the treatment of these items at the date of transition. For example, IFRS 3 is not being applied in a retrospective manner to business combinations.Pages 111 and 112 of British Telecoms annual report for 2006 outlines the major areas of change that have impacted on the financials Equity. The most important change relates to the reduction in equity. Brought about mainly by the change in employee benefits and adjustment to leases, this has seen a reduction of 3.9 billion.Profit. As can be seen from the pages referred to, there was little impact from IFRS on the returned profit earned by the business during the year, with the debit and credit amounts cancelling themselves out. extract for an addition of 8 million.Under the UK GAAP system, firma were allowed to account for divided provisions within the profit and loss account. IFRS standards state t hat this should not be the case, and that the dividends can only be included within the year that they are payable, therefore these has been excluded.Assets and Liabilities. In terms of the Individual items heading, as can be seen, there have been a number of significant changes, for example with the reorganisation and re-evaluation of the various assets. However, overall the net reduction of the equity format of the balance sheet was only just over 200 million.In terms of the cash flow statement, there has been no change to the cash flow that has been generated by the business during the year. In essence, this shows that whilst UK business have been concerned with the impact of IFRS, when one takes into account that all competitors are likewise affected, these changes make little or no difference to the market position of BT.BibliographyWhittington, Geoffrey (2005). The adoption of International Accounting Standards in the European Union. European Accounting Review, Vol. 14, issue 1, pages 127-153.Nobes, C. and Parker, R. (2006). Comparative International Accounting. 9th Edition. FT Prentice Hall. UK.Deloitte (2005). IFRS 7 A disclosure checklist. Retrieved 1 May 2007 from http//www.iasplus.com/fs/0510ifrs7checklist.pdfGregoriou, Greg N and Gaber, Mohamed (2006). International Accounting Standards, Regulations, Financial Reporting. Butterworth-Heinemann Ltd. Oxford, UK.Blake, John and Amat, Oriol (1993). European Accounting. FT Prentice Hall.Perry Michelle (2005). IFRS The Next Steps. Accountancy Age. London, UK.Flower, John (2004). European Financial Reporting Adapting to a changing World. Palgrave Macmillan. London, UK.Bruce, Robert (2004). Setting a new standard. Financial Times. London, UK.IFRS (2007). Summary of reporting standards. IFRS. Delaware, US. Retrieved 1 May 2007 from http//www.iasb.org/NR/rdonlyres/8177F9A2-EB2F-45A3-BBF3-3DE7DCB13E1A/0/IFRS7.pdfFootnotes1 International Financial Reporting Standards