EU’s Adoption of IFRS

EUs Adoption of IFRSIntroductionFrom world-class January 2005, totally European countries are required under EU law to use the IFRS1standards for their fiscal describe statements, which includes conjunctions 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 requirement, it is a requirement of the standards that, for comparison purposes, the antecedent year fiscal included within the statements must be recomputed to mull over a true IFRS position. The chief(prenominal) proposals for these standards and their first year usage are contained within IFRS 1.The variety show of standards has had a signifi potfult preserve upon m adepttary inform in the UK. Therefore the intention of this paper is to discuss why the EU felt it necessary to adopt the IFRS allow an understand of the IFRS main remainders and to ascertain the areas in which this has affected the UK insurance coverage methods, outlining the key areas of potpourri by comparing them to the antecedent 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 member states of Europe, including those that rich person converted to capitalism from the former commie bloc, which included countries much(prenominal) as Poland and Romania. These differences deport been determined by the political and capitalist attitudes of individual nations and can be separated into two main groups, those where securities industrys and reporting is dictated by the state, with weak comeliness markets, and those driven by commerce, where the equity market is strong.It has long been legitimate that the differing financial reporting standards that have existed in the historical has led to difficulties, particular in harm of global trade and financing (Gregoriou and Gab er 2006, p.460). The EU recognised that, within its own region, this was affecting the flow of capital and finance between member states. In an attempt to speech communication this issue, the explosive charge 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 improving the globalisation of trade and financial activities, which entrust become less complex. In addition to the US, an ever-increasing number of countries have adopted IFRS, thus it was that a matter of time before the EU acquiesced. The intention is to move towards a organization of fairer set (Bruce 2004), and to make the EU as a regional and international trading bl oc far much competitive.However, the EU adoption of the standards, intended to be relatively straightforward, was not without difficulties (Bruce 2004). In the initial stages in that location were areas of gainsay and, in particular, parts of the standards that the EU would not accept, for shell IFRS 39 the standard that deals with fair value, although this has belatedly 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 latest implemented in January 2007, although well-nigh of these have not affected the underlying core focus of the standar ds. Whilst all(prenominal) standard has a delineate objective, there are a number of overall goals embodied within the process.ObjectivesThe key focus and goal of the world(prenominal) Financial Reporting Standards is to achieve a position where, globally, iodine 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 end up 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 toughie for corporate governance 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 also develop management data and channelize to reduction of riskIndividually, the standards have their own goals. For example, IAS 1.7 focuses on the origination of the financial statements and Cash Flow in a manner that is understandable to everyone. Similarly, the objective of IFRS 7 are to ensure that corporate management discloses all learning that has had an impact upon the business during the year covered within the financial statements. In particularly, emphasis is move upon the accuracy of the corporate equilibrium 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 keepsakes. This situation was exacerbated in situations of the increasing incidence of mergers and acquisitions. Where a corporation takes over or merges with another, the approach 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. below 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 on the watch 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 bankable 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 justifiable 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 feature prominently within the IFRS standards. The presentation requirements in particular determine the wa y in which the financial data should be analysed within each segment of the corporations 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 describe how revenue, finance costs, and profit or loss distribution should be displayed.As indicated earlier, the IFR standards include numerous requirements in respect of the information that corporations are expected 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, throw out disclosures are expected to be made in relation to the how t he business has complied with corporate governance rules and regulations and the estimation 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 impacted 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 conceptualization of the accounts. The exceptions applicable in this case are defined as follows Bus iness combinations.Employee benefitsShare paymentsCumulative interpreting differencesFinancial 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. Except for an addition of 8 million.Under the UK GAAP system, firma were allowed to accou nt for divided provisions within the profit and loss account. IFRS standards state that this should not be the case, and that the dividends can just 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 Ac counting Standards in the European Union. European Accounting Review, Vol. 14, issue 1, pages 127-153.Nobes, C. and Parker, R. (2006). proportional 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