It is important for an investor to compare the status and results of domestic enterprises in which he wants to acquire securities (shares or bonds) and to compare them with those of other companies in the same sector irrespective of the country where he wants to invest. Conversely, each state wishes to have information prepared in accordance with uniform methods to analyze the contribution of companies operating in the country, whatever their nationality, in particular to determine the property tax.
At the international level, that information has become necessary because of the globalization of financial markets. International comparisons of the accounts of companies whose securities are listed on global financial markets, require that those accounts are prepared under the same rules. That is why the International Accounting Standards Board establishes standards of publication of financial information "referred to International Financial Reporting Standards (IFRS), formerly named International Accounting Standards (IAS) and whose application is recommended for companies in the world wide. European settlement dating from 2002 made it mandatory for listed companies based in the European Union. In the United States, the stock exchanges (SEC) are moving towards the recognition of IFRS by allowing foreign companies applying these standards to be listed on U.S. exchanges.
The International Financial Reporting Standards, better known within the accounting profession and financial under their English name International Financial Reporting Standards or IFRS accounting standards are standards developed by the Office of international accounting standards for listed companies or investors in order to harmonize the presentation and clarity of their financial statements.
Challenges of IFRS
After the financial scandals of the early 2000s in Europe and the United States (Enron, WorldCom ...), governments are committed to enhance the quality of financial reporting in order to restore public confidence, savers and investors. This broad movement has resulted in the adoption of a set of texts whose common goal is to improve financial security. The year 2005 has seen the implementation of IFRS (International Financial Reporting Standards, known as IAS until 2001 for the International Accounting Standards) existing since 1973 for all companies making a public offering.
The adoption and application of international accounting standards within the European Union are governed by Regulation (EC) 1606/2002 of 19 July 2002, which defines the criteria for application of a standard.
The European regulation of 19 July 2002, requires companies doing an offer to the public to present their consolidated accounts under IFRS, it is primarily intended to ensure greater accountability. Indeed, the presentation of the accounts of these enterprises according to the harmonized standards will facilitate the understanding and especially the comparison to the European level.
They will require significant computer facilities, in large groups and SMEs. The change in accounting will affect all businesses and will transform the functioning of financial markets, businesses, economies, and the compilation. The change to international standards IAS / IFRS will have so much impact. The objective is to restore the clarity of the accounts of companies, investor confidence in equity markets, being undermined over the past five years by repeated scandals and the explosion of the debt of companies.The control work will become easier, faster and accessible to beginners.
Two new policies are added:
- primacy of economic over the legal accounts should give an accurate picture of the company and its assets (e.g. leasing returns to assets)
- materiality: information should be included in the Annex only if it can influence the choices of users.