Why IFRS Matters
After decades of development, a set of comprehensive, universally applicable accounting standards, the International Financial Reporting Standards (IFRS – usually pronounced as one word, ifris), is in the process of being adopted by most of the world. It has already been made the basis of South Africa’s Generally Accepted Accounting Principles (GAAP).
This is a major boon for business concerns, investors, and accountants. “Financial results are now directly comparable, and don’t need to be adjusted for different jurisdictions. For example, the results of subsidiaries in different countries can now be included in their holding companies’ financial statements without extensive conversion.”
“Not only can international investors now more accurately compare the performance of companies around the world, but they can be confident that the standards in South Africa are as high as that found anywhere else, which naturally encourages capital investment in this country.”
The only additions to IFRS, in South Africa’s case, are specific interpretations which are issued to deal with accounting situations peculiar to this country. Currently, there are four of them, covered by our AC 500 series of standards, dealing with South Africa’s secondary tax on companies (STC) regime, BEE transactions, substantively enacted tax rates, and the treatment of retirement funds, specifically defined benefit plan assets in this country.
What makes IFRS so universally applicable is the fact that it is based on broad accounting principles which can be applied to a almost any situation, rather than being a set of rules and regulations which are specific to particular contexts and which tend to lead to a large number of finely nuanced rules being devised for every conceivable accounting situation.
“The United States has always had a rules-based accounting system, and their accountants consequently have to cope with far more complexity than we do, we believe the IFRS guidelines amount to about 3,000 pages of text, while the sum total of all US accounting rules runs to tens of thousands of pages.”
The United States has recognised the advantages of adopting IFRS and committed itself, in principle, to a convergence of US GAAP with IFRS in the near future. “I imagine this will not be an easy process, since it will require a completely new accounting mind-set, but the advantage of having companies which operate in the world’s largest economy speaking the same IFRS-based accounting language as the rest of the world will be enormous. I, for one, look forward to that day.”
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