International!! The thought that comes to anyone’s mind first-time is that the IFRS is internationally applied, actually by all countries across the globe. You should be right to a larger extent, but let’s focus on the exception in this writing.
The IFRS foundation was established in 2001, replacing the defunct IASC (International Accounting Standards Committee) which was founded in 1973. Its major role is to harmonize accounting needs and treatments for countries in its area of Jurisdiction, the need to have comparable, consistent, and reliable books of accounts.
Over 132 jurisdictions use IFRSs including East Africa, Australia, Brazil, Canada, Chile, the European Union, GCC countries, Hong Kong, India, Israel, Malaysia, Pakistan, Philippines, Russia, Singapore, South Africa, South Korea, and Taiwan among others. It should puzzle you when you don’t see economies like the US, it uses the US – GAAP for the private sector and GAGAS (Generally Accepted Government Accounting Standards) for the Government. Other countries like Algeria, Egypt, and Iran (l implementation by only financial institutions) among others haven’t adopted the stated reporting. These use local GAAP.
Most of these countries have maintained the use of their local GAAP (Generally Accepted Accounting Principles) citing challenges like;
- high adoption/transition costs from local GAAP to the use of standards,
- absence of significant differences between local GAAP and the IFRS,
- limitation of the IFRS and stringent measures in tailoring them to the entity and sector-specific needs due to their generic nature,
- the judgment that local GAAP is stronger than IFRS.
Other countries have partially adopted to use of the standards in companies that do not have public accountability, listed institutions, only financial institutions. It should surprise you when you don’t hear of IFRS in Korea but rather hear K-IFRS (Korean International Financial Reporting Standards), it’s only an adjustment in the nomenclature which literally means IFRS in Korea.
Given the slow as well as the non-adoption of the standards, countries continue to face accounting challenges while dealing with those that have fully or partially adopted their use. Alignment of local GAAP gets tough due to varying interpretations of given aspects in accounts, and variation in languages and meaning of key terms. A case in point is the US GAAP and IFRS variations.
Over time, you realize that the cost of aligning GAAP to IFRS could exceed the cost of adoption and implementation of the standards much as the standards may not adequately address the local accounting needs of some countries.
Food for thought, should companies fully or partially adopt IFRS? Or use local GAAP and keep aligning them to IFRSs when dealing with international entities that have fully adopted them?
By Eugene Mulinzi
