Ifrs

Adopting International Accounting Standards

Following a European Union mandate, from January 1, 2005 onwards approximately 7000companies whose stock is publicly traded on European stock exchanges were required to issue all future financial accounts in a format agreed upon by the International Accounting Standards Board (IASB).
In addition, some 65 countries outside of the EU have also committed to requiring that public companies issue accounts that conform to IASB rules.   Even American accounting authorities, on international projects, have been trying to mesh their rules with those of the IASB.
Historically, different accounting practices made it very difficult for investors to compare the financial statements of firms based in different nations.   For example, after 1997, Asian crisis a United Nations analysis concluded that prior to the crisis two-thirds of the 73 largest East Asian banks hadn’t disclosed problem loans and debt from related parties, such as loans between a parent and its subsidiary.   About 85% of the banks didn’t disclose their gains or losses from foreign currency translations or their net foreign currency exposures, and tw-thirds failed to disclose the amounts they had invested in derivatives.   Had this accounting information been made available to the public – as it would have been under accounting standards prevailing at the time in many developed nations – it is possible that problems in the East Asian banking system would have come to light sooner, and crisis that unfolded in 1997 might not have been serious as it ultimately was.

In another example of the implications of differences in accounting standards, a Morgan Stanley research project found country differences in the way corporation pension expenses are accounted for distorted the earnings statements of companies in the automobile industry.   Most strikingly, while the US auto companies charged certain pension costs against earnings, and funded them annually, Japanese auto... [continues]

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