International Accounting Standards A presentation by the assistant lecturer, Department of accounting CHATZICHRISTOS CHRISTOS

I.A.S - I.F.R.S.2 What the IAS are TTTThe I.A.S. are the categorization of the basic accounting principles, rules and policies that accountants should use (and auditors to check if they are) for the preparation of the Financial Statements. TTTThe principles used are very general s s s so as to cover the need of all member countries.

I.A.S - I.F.R.S.3 What Financial Statements are:  The Balance Sheet  Income Statement  Notes/Disclosures  Cash Flow statement  Statement of changes in Equity Obligatory from the Greek Law, 2190/1920

I.A.S - I.F.R.S.4 Who are the Users of the Financial Statements  Equity investors  Lenders  Employees  Analyst / Advisers  Business contacts  Government  The Public

I.A.S - I.F.R.S.5 Regulatory Framework The IASC Foundation International Accounting Standards Board (IASB) Former IASC International Financial Reporting Interpretations Committee (IFRIC) Standard Advisory

I.A.S - I.F.R.S.6 Regulatory Framework The “birth” of an IAS  The IASB identifies a subject and appoints an Advisory Committee to advise on the issues  The IASB publishes an Exposure Draft for public comment  Following the consideration of comments received on the draft the IASB Publishes the final text of the standard

I.A.S - I.F.R.S.7 Implementation of the IAS  Neither the IASC nor the Accountancy profession has the power to enforce compliance with IAS  The international Organization of Securities Commissions (IOSCO) recommended that its members including U.S. Securities and Exchange Commission permit multinational issuers to use IAS to prepare their financial statements for cross border offering and listings.  The E.U. proposed that by the year 2005, all EU listed companies should have to prepare their F.S. in compliance with the IAS

I.A.S - I.F.R.S.8 Development of the IAS  IASC has published,from 1973 until March 2001, 41 Standards.  From march 2001 and on, any standard published,should be called International Financial Reporting Standard (IFRS) (The first IFRS is now in a draft mode, and it contains the rules that should be used for the first time, implementation of the IAS)

I.A.S - I.F.R.S.9 Standing Interpretation Committee It was established in 1996 so as to:  Give an insight view, for a “blurring” standard  To publish temporary rules for immediate subjects, that are not being dealt by the IAS The role of the committee is very important because it controls the right usage of the IAS, and prevents Creative Accounting

I.A.S - I.F.R.S.10 Creative Accounting Is used:  for “beatifying” the Balance Sheet  Increasing/Decreasing profits  Generally show the view of the management for the financial Statements and not The true and fair view that they meant to.

I.A.S - I.F.R.S.11 Examples of Creative Accounting CCCConstruction Companies show payments in advance as Income (IAS 11) PPPProvision for Future Penalties (eg. Law or Tax) (IAS 12) RRRRecognition of Goodwill (IAS 38) SSSSale and Leaseback (Financial Lease) (IAS 17, SIC 27) e.g. A company owns a building which sells to the lessor and “rents” it back for its remaining useful life. The company improves its Cash flow statements (by the price sold), and recognizes a profit for the sale. The company not only should not recognize the sale but it must also recognize a loan with a mortgage for the building

I.A.S - I.F.R.S.12 Examples of Creative Accounting E.g. A company has receivables worth 10,000 Euros, and “sells” them to a Subsidiary (or a fictional ) Factoring Company for Euros, ( the remaining Balance is a financial cost) 1. T he parents B.S. is shown with better ratios 2. T he group is not consolidating the subsidiary, since there is no such obligation. What should be done: IIIIn the consolidated B.S. intragroup transactions must be eliminated (if a link was found by the auditors,) or AAAA loan should be recognized

I.A.S - I.F.R.S.13 Examples of companies used Creative Accounting 1. Enron 2. WorldCom 3. Rite AiD 4. Adelphia 5. Vivendi Universal 6. Xerox 7. AOL Time Warner 8. Global Crossing 9. Tyco 10. Halliburtin 11. Elan 12. Kmart

I.A.S - I.F.R.S.14 General Accounting Principals used by the Framework for the preparation and preparation of F.S. 1. Matching accruals concept 2. Going Concern 3. Consistency 4. Comparative Information 5. Prudence 6. Substance over legal form 7. True and Fair Presentation

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I.A.S - I.F.R.S.16 The True and Fair Presentation Requires  The (NBV) assets (CGU’s) of a company Should be presented either : 1)Cost less Depreciation (Benchmark) 2)The Revalued Amount (Allowed alternative) Companies should make (underIAS16),regular revaluations, and review for impairment losses (IAS 36)

I.A.S - I.F.R.S.17Criticism  There is a skeptical view for the IAS’s treatment as an allowed alternative is given to benchmark treatment on several IAS.  This might cause a mix up But The primary scope of the IAS is to present to users the “True and Fair view” of the Financial position of an enterprise and not to assist auditors / Tax authorities

I.A.S - I.F.R.S.18 Different models of accounting Anglo-Saxon model Differences French – German model LessCodingMuch Almost none Tax influence Much Self adjusting Regulation of profession With Law Framework o Cyprus o USA o UK Examples Greece Greece France France Germany Germany

I.A.S - I.F.R.S.19 Different models of accounting The 2 Model Converge the Last years E.U. Directives World recognition and establishment of the IAS

I.A.S - I.F.R.S.20 Thank you I want to express my gratitude to the company GlobalTraining that allowed me to use their material