International accounting standards
International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) are international accounting standards that form the basis for understanding the accounting principles and methods used in the world.
The development of the international capital market and integration, especially within the framework of the European Union and OECD organizations, created the foundations for the free flow of capital and direct investment. Along with this development, there was a need to standardize financial reporting as a tool enabling making necessary analyzes and comparisons in order to make financial decisions.
Despite many years of attempts to harmonize accounting principles applied in different countries are still characterized by a large discrepancy. As a result, financial statements and conclusions in them may not be comparable, although they describe the same economic operations.
The organization that was responsible for the development of unified accounting principles is the International Accounting Standards Committee (IASC). The IASC is an independent private organization, which in 1973 aimed to unify the accounting principles applied by enterprises and other organizations.
According to the Constitution of the IMSS, the goal of this organization is:
- formulating and publishing - in the public interest - accounting standards that should be followed when presenting financial statements, as well as promoting standards in order to comply with them and accept globally
- activities aimed at improving and unifying accounting regulations and standards as well as procedures for presenting financial statements
The scope of IAS is different in different countries. Many countries have adopted IAS as the national accounting standard. In Poland, the provisions of the Accounting Act are mandatory. In the absence of regulations in the act, an enterprise should be guided by national accounting standards, and only then by International Accounting Standards.
However, it should be mentioned that from January 1, 2015, all companies listed on the stock exchanges of the European Union Member States, and therefore also on the Warsaw Stock Exchange, must prepare consolidated financial statements in accordance with IFRS. The Polish Accounting Act also imposed this requirement on all banks.
Types of differences in accounting standards
These differences boil down to different rules:
- disclosure of revenues and costs in accounting books,
- measuring revenues and costs in relation to individual reporting periods,
- valuation of assets and liabilities as at the balance sheet date, and discrepancies in the scope and type of additional information required
The content of International Accounting Standards
International Accounting Standards specify, among others:
- the presentation of financial data,
- methods of valuation of individual assets and liabilities,
- the scope of information to be disclosed in the financial statements,
- presentation of the cash flow statement,
- methods of presenting fixed assets.
Qualitative features of reports that the preparers should be guided in preparing the financial statements are:
The elements of the financial statements are:
- profit and loss account,
- additional information, i.e. introduction to the financial statements and additional information and explanations.
and, for individuals who are subject to the annual examination requirement:
- statement of changes in equity (fund)
- Cash Flow
The possibility of applying International Accounting Standards
According to the Accounting Act, there is a fairly wide voluntary application of IAS, however, it should not be forgotten that the decision in this respect is taken only by the entity approving the financial statements, e.g. The General Meeting of Shareholders.
The conditions under which financial statements may be prepared on the basis of IAS:
- The entity preparing the report is an issuer of securities on one of the regulated markets of the European Economic Area countries, which includes EU Member States as well as Norway, Iceland and Liechtenstein (e.g. it is listed on the Warsaw Stock Exchange).
- Financial report according to The IAS may also prepare an entity that is an issuer of securities and strives for admission of its securities to trading on one of the regulated markets of the countries of the European Economic Area (the process has started, i.e. submitting relevant documents to the Polish Financial Supervision Authority).
- The issuer of securities has the possibility to prepare financial statements on the basis of IAS, also when it intends to apply for admission of its securities to trading on one of the markets of the European Economic Area (such intention is usually indicated on the basis of a resolution of the AGM that sets the market, on which the turnover is planned, as well as the presumed date of its commencement)
- The financial statements may also be prepared by an entity that is part of a capital group, in which the parent (e.g. the owner with the majority of shares) prepares consolidated financial statements based on IAS.
- Possibility to prepare financial statements in accordance with IAS also has an entity - a branch of a foreign company that reports on the basis of IAS.
However, it should be noted that the use of International Accounting Standards in the above cases is voluntary, i.e. that the company is not obliged to prepare sound financial statements according to the Accounting Act. However, this does not mean that this act will not be taken into account at all. It should be used in issues that have not been defined by IAS.
It should also be remarkable that, theoretically, each entity may prepare financial statements in accordance with IAS, but they will be supplementary, supplementary, next to the reports prepared compulsorily in accordance with the provisions of the Accounting Act.
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- GAAP, U. (2000). International accounting standards.
- Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of accounting research, 46(3), 467-498.
- Ashbaugh, H., & Pincus, M. (2001). Domestic accounting standards, international accounting standards, and the predictability of earnings. Journal of accounting research, 39(3), 417-434.