IFRS is heading for creating a global standard

An opinion of a chief executive of the world’s biggest audit network, that the world’s accounting leads to a uniform system of accounting standards, which will be built up on principles and jointly shared by all decisive states, financial markets and traded companies, was considered a long-term strategic target by some six years ago, or an ambitious vision separated from reality by others - however, today this vision clearly starts to realize and brings new demands on accountants and auditors as well.

I would like to have a look back here, to see the milestones on this journey and what can we expect in the field of accounting and followup audit in the near future. Introduction of international accounting standards IFRS for listed companies in Czechia and another 22 countries of EU (apart from Malta and Cyprus that use IFRS as national standards), in Australia and South Africa were the beginning of this important shift. IFRS standards are also used for many years already by banks in Russia, Romania and Bulgaria joined after their EU accession, Japanese, Canadians and China are preparing for transition to IFRS.

Main role of the eu?

European Union played first fiddle at application of these standards until the end of 2007 and could afford to introduce robust approval mechanism for their acceptance into EU law, because on the other side of the Atlantic there was the economic power of USA, which adhered to the American accounting policies US GAAP. Change happened at the end of 2007, when SEC allowed non-American companies listed in the USA to present final statements prepared in accordance with IFRS standards for 2007 already, without the necessity to reconcile differences to US GAAP. Apart from that it started a massive public discussion, if American companies should also have a possibility to choose between US GAAP and IFRS, and its results not only support the possibility of this choice, but often ask for creation of a plan of a compulsory transition to IFRS for all American listed companies. However, USA strictly require application of IFRS in the form issued by the International Accounting Standards Board (IASB). The truth is that apart from a certain delay at adopting new IFRS from the side of EU there is only one difference between IFRS issued by IASB and those adopted by EU, that is simplification of application of hedge accounting, which is used by some banks in the EU. However, if the decisive non-EU world financial markets require full application of IFRS - and the attitude of the United States clearly indicates that - the European mechanism of adopting the already issued standards into EU law becomes impractical and in future, for creation of individual world accounting standards it will probably represent rather a safety fuse for negotiations than a real tool for adjusting IFRS to European needs.

Speedy removal of differences

It follows from a round-table discussion in January this year in attendance of top representatives of the IASCF foundation publishing IFRS, Federation of European Accountants FEE, preparers of final statements represented by the organization BusinessEurope, European Banking Federation and European Federation of Insurance and Reinsurance Companies, European Financial Reporting Advisory Group EFRAG and institutional investors on new approaches and European view on the new situation, that it is necessary to quickly remove differences between full and by EU adopted versions of IAS 39 and also the necessity of a strategic shift of the role of European bodies and organizations in creation of the new IFRS standards. It follows from conclusions of this discussion that if Europe wishes to keep its important influence on the final form of standards, it must concentrate its effort maximally on stages preceding the approval of the new standards and actively participate in all stages of the formal commenting proceedings. However, such a solution will require cooperation of public structures concentrated around the European Commission and the Parliament as well as entrepreneurial circles operating currently within EFRAG and important participation of expert and financial resources of everybody concerned.

Contribution of czech law makers

Use of IFRS enables today not only national, but also international comparability of financial statements, and this is a challenge for all preparers and their auditors, which requires maximum quality of information for investors and demands on management and auditors of this information corresponding to it. Based on comparison of available financial statements compiled in accordance with IFRS it is obvious that many Czech preparers still owe some information to this aim. In future, together with development of an account platform on the basis of XBRL, the language barrier will be overcome, which enables full comparability of all financial statements according to criteria chosen by a user, which will further increase the pressure of users, regulators and, as a final consequence, also of auditors on quality and a completeness of financial information that are presented by the companies about themselves. Current contribution of Czech lawmakers to the strengthening of the audit quality is the currently discussed new bill on auditors, which incorporates requirements of the EU directive on statutory audit into the Czech law, constitutes public oversight of the quality of the audit, defines public interest entities that will be obligated to establish an audit committee and whose auditors will have to satisfy increased demands on independence and transparency of their activities. In this context the only remaining thing is to wish this new law a smooth journey through the legislation procedure, so that it could carry out its function of further increasing of the audit quality, its credibility and added value, which business organization obtain from auditors and to wish preparers of financial statements in accordance with IFRS an early cancellation of the duty to keep Czech books for tax purposes. *