How big is the difference between IFRS and Irish GAAP

International Financial Reporting Standards

How different will existing IFRS be by 31 December 2005?
How different will these standards be to Irish GAAP?
What will be the effect of adopting IFRS on reported net income?
What are the key differences between IFRS and Irish GAAP?
Are there other areas which could differ from IFRS?

How different will existing IFRS be by 31 December 2005?

The new IFRSB has set out a very demanding agenda for the next few years. Its plan is to make significant improvements to the existing standards and to introduce new standards in time for widespread application throughout Europe. Thus we can expect significant differences, and in some areas these may be fundamental.

How different will these standards be to national GAAP by 31 December 2005?

IFRS has been developed for communicating with the world's capital markets, while around Europe many national standards were developed to support tax and other regulatory purposes. As a result the underlying principles can be very different, with IFRS focused on transparency through disclosures and increasing the use of fair value measurement for assets and liabilities.

This contrasts starkly with some national standards that require only limited disclosures and measurement that is often dictated by historical costs and prudence. The survey, "GAAP 2001", benchmarked national GAAPs against IFRS. It showed that there were major differences in GAAP of many European countries in the areas of: business combinations, financial instruments (including derecognition and embedded and other derivatives, in particular), special purpose entities, pensions, provisions and impairment, to name a few.

Generalisation is always dangerous. However, the most significant effects of adoption of IFRS in some countries will be: financial instruments, making provision for pensions and certain other employee benefits and the effect of some stringent impairment tests using market discount rates that will reduce the value of some assets.

For many, IFRS will have a more significant impact on the amount of information that companies disclose as the international standards tend to have many more disclosure requirements than national standards.

What will be the effect of adopting IFRS on reported net income?

The effect of adoption will depend upon the difference in the relevant accounting policies between IFRS and Irish GAAP. However, a common effect in practice in some countries is to charge expenses earlier and to defer the recognition of revenue, while in others it is to release provisions and require longer depreciation periods.

The effect of the requirement to use more fair values, particularly in relation to derivatives and some other financial instruments will, for many, lead to a significant increase in the volatility of items in the profit and loss account. Other areas identified as creating differences include larger provisions for deferred tax and pensions. Each company should conduct a preliminary impact assessment to determine the effect on its individual circumstances.

What are the key differences between IFRS and existingIrish Financial Reporting Requirements?

Irish requirements are based on the Companies Acts 1963 to 2001, and the European Communities (Companies: Group Accounts) Regulations 1992, reflecting EU Directives. Accounting standards generally accepted in Ireland are those issued by the United Kingdom Accounting Standards Board and its urgent Issues Task Force as promulgated in Ireland by the Institute of Chartered Accountants in Ireland.

The variances between Irish rules and IFRS that could lead to differences for many enterprises include:

	There is more restriction on the setting up of provisions in the context of business combinations accounted for as acquisitions
	Goodwill can be treated as having an indefinite life and therefore not be amortized � Proposed dividends are accrued as liabilities
	Trading, available-for-sale and derivative financial assets are not recognised at fair value
	Trading and derivative liabilities are not recognised at fair value
	Hedge accounting is permitted more widely
	An issuer's financial instruments which are legally shares are presented in equity irrespective of their substance, and compound instruments are not split into equity and liability components
	Disclosures relating to discontinuing operations may begin later
	Segment reporting does not use the primary/secondary basis; and it reports net assets rather than assets and liabilities separately
	Cash flow statements reconcile to a narrowly defined "cash" rather than to "cash and cash equivalents"
	On disposal of a foreign entity, the cumulative amount of deferred exchange differences in equity is not recognised in income

In certain Irish enterprises, these other issues could lead to differences from IFRS:

	Somewhat different criteria are used to determine whether a business combination is a uniting of interest
	The financial statements of a hyperinflationary subsidiary can be remeasured using a stable currency as the measurement currency
	Lessors recognise finance lease income on the basis of the net cash investment not the net investment
	Segment reporting can be avoided if the directors consider that it would be seriously prejudicial
	Revaluation gains and losses on investment properties are reported in the statement of changes in equity not in the income statement

For assistance in assessing the impact that IFRS conversion will have on your business, or help in developing a conversion plan please contact John McDonnell by telephone on 01 7048559 or by Email

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