The Recommendations were adopted at the Eurasia Association of Accountants and Auditors meeting on 21-22 May 2001 (see page 11).
1. Preamble
Business development accompanied by an increasingly important role of international economic integration sets new requirements to the uniformity and transparency of accounting principles applied in different countries.
The problem of different accounting systems is not peculiar only to the CIS countries. It has a global nature. The problem of accounting uniformity arises in the course of work of preparers and users of financial statements world-wide.
That is why, for accounting in the CIS countries, the end of the millennium is marked by the transition to International Accounting Standards.
The idea of the accounting procedures standardisation is implemented within the framework of the accounting uniformity process carried out by International Accounting Standards Board (IASB). IASB develops and publishes revised International Accounting Standards (IAS) designated «International Financial Reporting Standards» (IFRS) since 1 April 2001.
The bottom line of this approach is the development of a uniform set of standards applicable to any situation in any country.
2. Historical Aspect of World-Wide Accounting Co-ordination Efforts
The international co-ordination of accounting began in 1904, when the first World Congress of Accountants was held in Saint-Luis (USA). Before World War II, 4 more congresses were held and, beginning from the first post-war congress in London (1952), it was decided to hold a congress every 5 years.
The Sydney Congress (1972) formed the International Co-ordination Committee for the Accountancy Profession (ICCAP) that carried out its activities up to 1977. At the Congress in Munich, its reorganisation into the International Federation of Accountants (IFAC) was announced.
In 1973, through an agreement made by professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, Ireland, the United Kingdom and the United States of America, International Accounting Standards Committee (IASC) was formed. IASC is an independent body, with the objective of achieving uniformity in the accounting principles used by businesses and organisations around the world.
IASC was reorganised into the International Accounting Standards Board, which assumed its duties on 1 April 2001. IASB comprises experts in business, accounting, investments, education. IASB’s Headquarters are situated in London.
A new structure of IASB has been implemented since April 2001. The Nominating Committee headed by Mr. Arthur Levitt, Chairman of the U.S. Securities and Exchange Commission, was formed for this purpose in 2000. The Nominating Committee included the following members: President of the World Bank, chairmen of British, French and Hong-Kong Financial Services Authorities, Chairman of the Supervisory Board of Siemens AG (and Deputy Chairman of the German national accounting standards setter) and Chief Executive Officer of Deloitte Touche Tohmatsu.
The Nominating Committee appointed 19 outstanding individuals to serve on the Board of Trustees. Mr. Pol Volcker, former Chairman of the U.S. Federal Reserve Board, became the first chair of the Board. The Trustees will monitor IASB’s effectiveness in the public interest, raise its funds, and appoint the Members of a new Board, which will be solely responsible for the development of IFRS. Trustees have appointed Sir David Tweedie the first Chairman of IASB, the Board which will work within the framework of a new structure. Sir David Tweedie was formerly the Chairman of the U.K. Accounting Standards Board.
At present, apart from IASB, International Working Group of Experts on International Standards of Accounting and Reporting (ISAR) and Organisation for Economic Co-operation and Development Working Group on Accounting Standards (OECD WG) are involved in accounting standardisation. However, it is generally acknowledged that IASB plays a leading role in this process.
In June 2000, the European Union and many other countries decided to adopt and use IFRS instead of national standards by 2005. Many other countries that prepare consolidated financial statements in accordance with international standards will follow their lead. Given the fact that the USA is highly interested in this process, we may expect the rapid convergence of IFRS and US GAAP into a single system of standards.
Once IFRS are widely spread, capital markets, investors, government regulators will consider as unacceptable not only national standards but any deviations from IFRS.
In implementing IFRS in the CIS countries, it is necessary to take into account local laws which are to be brought into consonance with IFRS.
3. Advantages of International Standards
3.1. IFRS are aimed at providing the transparency of accounting and reflecting the real economic situation, which will enable users of financial statements to take the right decisions.
3.2. In developing IFRS, experts use the best internationally recognised principles. That is why, International Financial Reporting Standards are logically clear from the economic standpoint.
3.3. IFRS are sufficiently simple to be understood by all users of financial statements world-wide who have the adequate knowledge of business, economics, accounting and finance.
4. Economic Prerequisites of the Transition to International Financial Reporting Standards in the CIS Countries
4.1. Accounting systems of the CIS countries are modified planned-economy-oriented systems that do not reflect the economic reality. That is why, they are hardly suitable for decision making purposes under conditions of the market economy.
4.2. The development of accounting systems of the CIS countries after the collapse of the USSR was chiefly tax oriented. Thus, financial statements that were convenient for tax authorities became meaningless for investors and other users of financial statements.
4.3. To sustain a stable and high economy growth, the CIS countries need significant investments.
Many companies that plan to raise funds from lenders and shareholders will need to prepare financial statements in accordance with IFRS, because some major financial institutions refuse to consider investment projects unless financial statements are prepared in accordance with IFRS.
4.4. Enterprises interested in raising foreign capital face the problem of preparing two sets of financial statements and ordering two audits for the same period. The adoption of international standards will enable companies to cut financial statements preparation costs, especially in case of consolidating financial statements of enterprises that have operations in different countries.
4.5. Since the early 1990-s, significant changes have been made in accounting systems of the CIS countries. Accounting reform programmes implemented by CIS governments are directed towards the partial, step-by-step transformation to IFRS. As a consequence, there are frequent changes in effective laws, leading to additional expenses that could have been avoided.
4.6. Lack of transparency of existing accounting systems allows managing directors of some enterprises to conceal the true financial position of their enterprises. The transition to IFRS financial statements will facilitate the timely detection of such facts.
4.7. Lack of reliable and meaningful financial statements of commercial banks impedes the functioning of an efficient banking system, the establishment of full correspondent relations around the globe.
4.8. It is impossible to fully assert the rights of small shareholders until they are provided with reliable and meaningful financial statements. National standards, as a rule, do not meet this criterion.
5. Recommendations for the Accounting Reform
5.1. It is necessary to provide legal support to the transition to IFRS. First of all, it is important to rescind those provisions of the regulatory acts that impede the transition to international standards.
5.2. The law should allow the entities that adopted IFRS not to submit the statements prepared in accordance with national standards to regulatory authorities and relieve them of the responsibility to maintain dual-standards accounting records.
5.3. Publicly traded companies, their subsidiaries, banks and other financial institutions should be required to make the transition to IFRS.
5.4. When a large state share holding is offered for sale, it is necessary to consider the advisability of the preparation and inclusion of IFRS financial figures (preferably, audited) in information materials.5.5. If unitary enterprises are required to be audited, it is necessary to develop a programme for their transition to IFRS.
5.6. For small businesses, it is necessary to develop guidelines for applying IFRS or for applying national standards based on IFRS.
5.7. For companies that report their financial information in accordance with IFRS, it is necessary to develop a method of accounting for tax liabilities, with tax computations based on the IFRS system. As for small enterprises, a simplified system of translating financial accounting figures into performance indicators should be developed for tax purposes.
5.8. The government statistical authorities should modify official methods of processing and using statistical information received from enterprises.
5.9. It is necessary to develop a recommended chart of accounts based on IFRS requirements for the purpose of applying this chart of accounts during the transition period.
5.10. It is necessary to prepare and ensure the wide distribution of detailed manuals, case studies and explanations relating to the practical application of IFRS.
5.11. Sufficient funds should be appropriated for the reform implementation process, in particular, for:
- providing recommendations regarding the transition from the old accounting system to IRFS;
- providing recommendations and training for enterprise employees and staff of government agencies (tax authorities, statistical agencies, securities market regulators, etc.) in the area of IRFS practical applications;
- making the relevant amendments to regulatory acts which are currently based on national accounting standards.
Developed by International Regional Federation of Accountants and Auditors «Eurasia» Internet site: http://www.irfaa-eurasia.org.