INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

1. GAAP
Accounting is the language of business.
It records the business transactions and communicates
the result of the business.
To make the language understandable to all the groups
interested in accounting, it should be based on certain
uniform, scientifically and universally accepted
principles.
AICPA termed such principle as, ‘Generally Accepted
Accounting Principles’ (GAAP).
AICPA was started in 1887, now has more that
4,30,000 members

2. GAAP
The accounting principles are classified into
two categories such as Accounting Concepts and
Accounting Conventions.
Accounting Concepts are the assumptions or
ideas or conditions upon which the science of
accounting is based. These are essential to prepare
the financial statements
The term “Conventions” denotes customs or
traditions or usage which guide the accountant for
the preparation of accounting statements. These are
also known as doctrines.

3. GAAP
ACCOUNTING PRINCIPLES
Accounting Concepts Accounting Conventions
• 1. Business Entity Concept 1. Convention of full disclosure
• 2. Money Measurement Concept 2. Convention of Consistency
• 3. Going Concern Concept 3. Convention of Materiality
• 4. Cost Concept 4. Convention of Conservatism
• 5. Dual Aspect Concept
• 6. Accounting Period Concept
• 7. Revenue Realization Concept
• 8. Matching Concept
• 9. Objective Evidence Concept
• 10. Accrual concept.

4. INTERNATIONAL ACCOUNTING STANDARDS (IAS)
In parallel with the US GAAP, UK developed
International Accounting Standards.
• International Accounting Standards (IAS) were
the first international accounting standards that
were issued by the International Accounting
Standards Committee (IASC), formed in 1973.
• The goal of IAS was to make it easier to
compare businesses around the world,
increase transparency and trust in financial
reporting, and foster global trade and
investment.

5. INTERNATIONAL ACCOUNTING STANDARDS (IAS)
• Globally comparable accounting standards
promote transparency, accountability, and
efficiency in financial markets around the
world.
• This enables investors and other market
participants to make informed economic
decisions about investment opportunities and
risks and improves capital allocation.
• Universal standards also significantly reduce
reporting and regulatory costs, especially for
companies with international operations and
subsidiaries in multiple countries.

6. IAS
 There has been significant progress towards developing a
single set of high-quality global accounting standards
since the IASC was replaced by the IASB
 International Accounting Standards (IAS) are older
accounting standards issued by the International
Accounting Standards Board (IASB), an independent
international standard-setting body based in London.
 The IAS were replaced in 2001 by International Financial
Reporting Standards (IFRS).
 The U.S. accounting standards body has been
collaborating with the Financial Accounting Standards
Board (FASB) since 2002 to improve and converge
American accounting principles (GAAP) and IFRS
 Currently, the United States, Japan, and China are the
only major capital markets without an IFRS mandate

7. NEED FOR IFRS
Even though, US-GAAP and UK-IAS were already
in practice, a number of accounting scandals
occurred in the last two decades.
Billions of dollars were lost as a result of
these financial disasters, which destroyed
companies and ruined peoples’ lives.
This necessitated a single set of high-quality global
accounting standards, resulted in IFRS.

8. NEED FOR IFRS
Let us have a glance over the top accounting scandals.
1. Waste Management Scandal (1998)
• Waste Management Inc. is a publicly-traded US waste
management company. In 1998, the company’s new CEO,
A Maurice Meyers, and his management team discovered
that the company had reported over $1.7 billion in fake
earnings.
• The Securities and Exchange Commission (SEC) found the
company’s owner and former CEO, Dean L Buntrock,
guilty, along with several other top executives.
• In addition, the SEC fined Waste Management’s auditors,
Arthur Andersen, over $7 million.
• Waste Management eventually settled a shareholder class-
action suit for $457 million.

9. NEED FOR IFRS
2. Enron Scandal (2001)
• Enron Corporation was a US energy,
commodities, and services company based out of
Houston, Texas.
• It was discovered in 2001 that the company had
been using accounting loopholes to hide billions
of dollars of bad debt, while simultaneously
inflating the company’s earnings.
• The scandal resulted in shareholders losing over
$74 billion as Enron’s share price collapsed from
around $90.75 in the mid of 2001 to under $0.26
in November 2001.
• About 20,000 employees had lost their jobs

10. NEED FOR IFRS
2. Enron Scandal (2001)
Enron employed an accounting method known as mark-to-market
(MTM) accounting. Under MTM accounting, assets can be
recorded on a company’s balance sheet at their fair market
value (as opposed to their book values). With MTM,
companies can also list their profits as projections, rather than
actual numbers. In the case, the actual cash flows that
resulted from their assets were substantially less than the cash
flows that they initially reported to the Securities and
Exchange Commission (SEC) under the MTM method.
In an attempt to hide the losses, Enron set up a number of special
shell corporations known as Special Purpose Entities
(SPEs). The majority of the SPEs were private corporations
that only existed on paper. The losses were reported under
more traditional cost accounting methods and not consolidated
with the accounts of Enron.

11. NEED FOR IFRS
3. WorldCom Scandal (2002)
• WorldCom was an American telecommunications
company based out of Ashburn, Virginia.
• In 2002, just a year after the Enron scandal, it was
discovered that WorldCom had inflated its assets by
almost $11 billion, making it by far one of the largest
accounting scandals ever.
• The company had underreported line costs by
capitalizing instead of expensing them and had inflated
its revenues by making false entries.
• The scandal first came to light when the company’s
internal audit department found almost $3.8 billion in
fraudulent accounts. The company’s CEO, Bernie Ebbers,
was sentenced to 25 years in prison for fraud, conspiracy,
and filing false documents.
• The scandal resulted in over 30,000 job losses and over
$180 billion in losses by investors.

12. NEED FOR IFRS
4. Tyco Scandal (2002)
• Tyco International was an American blue-chip security
systems company based out of Princeton, New Jersey.
• In 2002, it was discovered that CEO, Dennis Kozlowski, and
CFO, Mark Swartz, had stolen over $150 million from the
company and had inflated the company’s earnings by over
$500 million in their reports.
• Kozlowski and Swartz had siphoned off money using
unapproved loans and stock sales.
• The scandal was discovered when the SEC and the office of the
District Attorney of Manhattan carried out investigations related
to certain questionable accounting practices by the company.
• Kozlowski and Swartz were both sentenced to 8 to 25 years in
prison. A class-action suit forced them to pay $2.92 billion to
investors.

13. NEED FOR IFRS
5. Health South Scandal (2003)
Health South Corporation is a top US publicly traded
healthcare company based out of Birmingham,
Alabama.
In 2003, it was discovered that the company had inflated
earnings by over $1.8 billion.
The SEC had previously been investigating HealthSouth’s
CEO, Richard Scrushy, after he sold $75 million in
stock a day before the company posted a huge loss.
Although charged, Scrushy was acquitted of all 36 counts
of accounting fraud. However, he was found guilty of
bribing then Alabama Governor, Don Siegelman, and
was sentenced to seven years in prison.

14. NEED FOR IFRS
6. Freddie Mac Scandal (2003)
The Federal Home Loan Mortgage Corporation, also
known as Freddie Mac, is a US federally-backed
mortgage financing giant based out of Fairfax County,
Virginia.
In 2003, it was discovered that Freddie Mac had
misstated over $5 billion in earnings.
COO David Glenn, CEO Leland Brendsel, former CFO
Vaughn Clarke, and former Senior Vice Presidents
Robert Dean and Nazir Dossani had intentionally
overstated earnings in the company’s books.
The scandal came to light due to an SEC investigation into
Freddie Mac’s accounting practices.
Glenn, Clarke, and Brendsel were all fired and the
company was fined $125 million.

15. NEED FOR IFRS
7. American International Group (AIG) Scandal (2005)
• American International Group (AIG) is a US multinational
insurance firm with over 88 million customers across 130
countries.
• In 2005, CEO Hank Greenberg was found guilty of stock
price manipulation. The SEC’s investigation into Greenberg
revealed a massive accounting fraud of almost $4 billion.
• It was found that the company had booked loans as revenue in
its books and forced clients to use insurers with whom the
company had pre-existing payoff agreements. The company
had also asked stock traders to inflate the company’s share
price.
• AIG was forced to pay a $1.64 billion fine to the SEC. The
company also paid $115 million to a pension fund in Louisiana
and $725 million to three pension funds in Ohio.

16. NEED FOR IFRS
8. Lehman Brothers Scandal (2008)
• Lehman Brothers was a global financial services firm
based out of New York City, New York. It was one of
the largest investment banks in the United States.
• During the 2008 financial crisis, it was discovered that
the company had hidden over $50 billion in loans.
These loans had been disguised as sales using
accounting loopholes.
• According to an SEC investigation, the company had sold
toxic assets to banks in the Cayman Islands on a short-
term basis. It was understood that Lehman Brothers
would buy back these assets. This gave the impression
that the company had $50 billion more in cash and $50
billion less in toxic assets. In the aftermath of the
scandal, Lehman Brothers went bankrupt.

17. NEED FOR IFRS
9. Bernie Madoff Scandal (2008)
• Bernie Madoff is a former American stockbroker
who ran Bernard L. Madoff Investment
Securities LLC. After the 2008 financial crisis, it
was discovered that Madoff had tricked investors
out of over $64.8 billion.
• Madoff, his accountant, David Friehling, and
second in command, Frank DiPascalli, were all
convicted of the charges filed against them. The
former stockbroker received a prison sentence of
150 years and was also ordered to pay $170
billion in restitution.

18. NEED FOR IFRS
10. Satyam Scandal (2009)
• Satyam Computer Services was an Indian IT services
and back-office accounting firm based out of
Hyderabad, India. In 2009, it was discovered that the
company had inflated revenue by $1.5 billion, marking
one of the largest accounting scandals in India.
• An investigation by India’s Central Bureau of
Investigation revealed that Founder and Chairman,
Ramalinga Raju, had falsified revenues, margins, and
cash balances.
• During the investigation, Raju admitted to the fraud in a
letter to the company’s board of directors. Although Raju
and his brother were charged with breach of trust,
conspiracy, fraud, and falsification of records, they were
released when the Central Bureau of Investigation failed
to file charges on time.

19. IFRS
Moving Toward New Global Accounting Standards
• As of 2018, 144 jurisdictions required the use of IFRS
for all or most publicly listed companies, and a further
12 jurisdictions permit its use. As of 2020 more than
150 jurisdictions use IFRS.
• The United States is exploring adopting international
accounting standards. Since 2002, America's
accounting-standards body, the Financial Accounting
Standards Board (FASB) and the IASB have
collaborated on a project to improve and converge the
U.S. generally accepted accounting principles (GAAP)
and IFRS.
• IFRS is thought to be a more principles-based
accounting system, while GAAP is more rules-based.

20. IFRS
• International Accounting Standards (IAS) are
now renamed as International Financial
Reporting Standards (IFRS), and are gaining
acceptance worldwide.
• In the last few years, the international
accounting standard-setting process has been
able to claim a number of successes in
achieving greater recognition and use of IFRS.

21. IFRS
• A major breakthrough came in 2002 when the
European Union (EU) adopted legislation that
requires listed companies in Europe to apply
IFRS in their consolidated financial statements.
• The legislation came into effect in 2005 and
applies to more than 8,000 companies in 30
countries, including countries such as France,
Germany, Italy, Spain, and the United Kingdom.
• The adoption of IFRS in Europe means that IFRS
has replaced national accounting standards and
requirements as the basis for preparing and
presenting group financial statements for listed
companies in Europe.

22. IFRS
• Outside Europe, many other countries also have
been moving to IFRS. IFRS had become
mandatory in many countries in Africa, Asia,
and Latin America.
• In addition, countries such as Australia, Hong
Kong, New Zealand, Philippines, and Singapore
had adopted national accounting standards that
mirror IFRS.
• According to one estimate, about 80 countries
required their listed companies to apply IFRS in
preparing and presenting financial statements in
2008.
• Many other countries permit companies to apply
IFRS all over the world

23. IFRS
• Countries that have Adopted IFRS
• Countries in which some or all companies are required
to apply IFRS or IFRS-based standards are listed below.
• Africa:
• Botswana, Egypt, Ghana, Kenya, Malawi, Mauritius,
Mozambique, Namibia, South
• Africa, Tanzania
• Americas:
• Bahamas, Barbados, Brazil (2010), Canada (2011),
Chile (2009), Costa Rica, Dominican
• Republic, Ecuador, Guatemala, Guyana, Haiti,
Honduras, Jamaica, Nicaragua, Panama,
• Peru, Trinidad and Tobago, Uruguay, Venezuela

24. IFRS
Countries that have Adopted IFRS
• Asia:
• Armenia, Bahrain, Bangladesh, Georgia, Hong Kong, India (2011), Israel,
Jordan,
• Kazakhstan, Kuwait, Kyrgyzstan, Lebanon, Nepal, Oman, Philippines,
Qatar, Singapore,
• South Korea (2011), Sri Lanka (2011), Tajikistan, United Arab Emirates
• Europe:
• Austria, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia,
Cyprus, Czech
• Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary,
Iceland,
• Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia,
Malta,
• Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Russia,
Serbia, Slovakia,
• Slovenia, Spain, Sweden, Turkey, Ukraine, United Kingdom
• Oceania:
• Australia, Fiji, New Zealand, Papua New Guinea

25. IFRS
• The adoption of standards that require high-quality,
transparent, and comparable information is welcomed
by investors, creditors, financial analysts, and other
users of financial statements.
• Without common standards, it is difficult to
compare financial information prepared by entities
located in different parts of the world.
• In an increasingly global economy, the use of a single
set of high-quality accounting standards facilitates
investment and other economic decisions across
borders, increases market efficiency, and reduces the
cost of raising capital.
• IFRS are increasingly becoming the set of globally
accepted accounting standards that meet the needs of
the world’s increasingly integrated global capital
markets.

26. IFRS
Abbreviations
• ARC Accounting Regulatory Commission
• ASAF Accounting Standards Advisory Forum
• DP Discussion Paper
• EC European Commission
• ED Exposure Draft
• EFRAG European Financial Reporting Advisory
Group

27. IFRS
Abbreviations
• GAAP Generally Accepted Accounting Principles
• IAS International Accounting Standard
• IASB International Accounting Standards Board
• IASC International Accounting Standards
Committee (predecessor to the IASB)
• IFRIC Interpretation issued by the IFRS
Interpretations Committee
• IFRS International Financial Reporting Standard

28. IFRS
Abbreviations
• IFRS Standards All Standards and Interpretations
issued by the IASB (i.e. the set comprising every
IFRS, IAS, IFRIC and SIC)
• PIR Post-implementation Review
• SEC US Securities and Exchange Commission
• SIC Interpretation issued by the Standing
Interpretations Committee of the IASC
• SMEs Small and Medium-sized Entities
• XBRL Extensible Business Reporting Language
• XML Extensible Markup Language