IFRS and IFRS for SMEs are developed by the International Accounting Standards Board (IASB), and the concepts and principles that underpin drafting an IFRS are outlined in the Conceptual Framework for Financial Reporting. The aim is to develop standards that bring transparency, accountability and efficiency to financial markets around the world. The IASB’s standard-setting work serves the public interest by fostering trust, growth and long-term financial stability in the global economy. For business, the use of a single, trusted accounting language derived from standards based on the framework lowers the cost of capital and reduces international reporting costs.
Bongeka Nodada, South African Institute for Chartered Accountants project director: financial reporting, says that non-compliance with IFRS could have far-reaching implications for a company and this could flow through to the economy (for example, through job losses), hence it is essential that the key role players in a company should commence now to review the implications of the changes to the conceptual framework.
The conceptual framework has recently been revised and it will not only assist the IASB in the standard-setting process, but it will enable those who use the financial statements of companies to interpret and analyse the standards. It will also assist companies when selecting accounting policies when a particular IFRS standard does not address a transaction.
The changes may also have financial implications for companies, which would need to review their information systems to ensure that the required adjustments to the information systems, if required, are implemented before the revisions come into effect. The impact on the company’s liquidity, solvency and other financial ratios, debt covenants, financial performance and the balance sheet would need to be assessed. Whilst this affects companies, this impact is likely to flow through to the employees particularly where their performance measures or share-based payments are aligned with IFRS numbers.
From 1 July 2018, the Companies and Intellectual Property Commission will require companies to file financial statements via XBRL. Thus, consideration should also be given to the likely impact on the company’s XBRL filing process which may also have further financial consequences for companies. There could be other implications for a company, which is why it is essential that the review process commences soon. Board members and shareholders should start asking the right the questions now to ensure that a company has considered the impact of the changes.
The major changes include:
