IFRS…Global Accounting Standards are changing

IFRS -  International Financial Reporting Standards is a series of accounting standards, developed by the International Accounting Standards Board (IASB), that is becoming the global standard for the preparation of public company financial statements.

IFRS focuses on the standardization of financial reporting standards across international borders. This standardized reporting practice provides a uniform view of a corporations accounting statements. Companies with international subsidiaries can use consistent cross-company financial reporting.

More than 12,000 companies in approximately 113 nations have adopted IFRS, including listed companies in the European Union.  Other countries, including Canada and India, are expected to transition to IFRS by 2011.  Mexico plans to adopt IFRS for all listed companies starting in 2012.  Other countries, such as Japan and Mexico, have plans to converge (eliminate significant differences) their national standards to meet IFRS.

Over the years Enterprise applications such as Oracle eBusiness, Peoplesoft, and SAP, have evolved to embed more and more, of the local accounting standards and regulations. Embedding functionality to support GAPP, SOX, etc.

Whilst these applications are exceptional an keeping up with the continually changing landscape of Financial/Accounting regulations, conforming to IFRS has may people befuddled.

IFRS represents a series of guidelines, unlike GAAP, which provides exceptional detail in accounting practices. GAAP consists of volumes of detailed instructions, whilst OIFRS can be consolidated down to the size of a paperback novel.

As these guidelines are incorporated and consolidated into the current GAAP construct, companies face what seems like an impossible task on once again changing their accounting practices to ensure compliance.

Oracle eBusiness Release 12 introduces the concept of Sub Ledger Accounting (SLA). Sub Ledger Accounting provides a interim step to translate, and derive accounting logic, prior to recording GL Entries. Whilst SLA continues to be a buzz word, in the Oracle community, it’s regarded with both awe, and disdain. However, SLA proves to provide the most expedient  roadmap for corporations to start converting to IFRS.

SLA introduces a very powerful feature called Multiple Representation : A Single accounting entry can be represented for multiple reporting requirement. Organizations are able to have a primary ledger to represent primary accounting requirements such as GAAP. Accounting representations can be created to represent additional/secondary reporting requirement such as IFRS. Each secondary ledger can have a different subledger accounting method.

As IFRS becomes more widely adopted, expect to see greater adoption of SLA as a path to achieving global accounting compliance.