Introduction to IFRS - Copy.pdf

20 July 2011

Introduction to IFRS

© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Outline

Overview of IFRS

Nigeria’s Transition to IFRS

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Overview of IFRS

© 2011 KPMG Professional Services, a partnership registered in Nigeria and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Nigeria.

What is IFRS

What is IFRS?• IFRS is a globally-accepted set of accounting standards and interpretations

established by the International Accounting Standards Board (IASB) and itsinterpretative bodies the International Financial Reporting Interpretations Committee(IFRIC) and Standing Interpretations Committee (SIC).

• IFRS are a set of investor-oriented standards and are more principles based ratherthan prescriptive (rule based)

• IFRS is mainly designed for, and used by, listed, 'for-profit‘ companies

• IFRS does not provide as much detailed and prescriptive implementation guidance asother GAAP e.g., U.S GAAP. As a result, there are more instances when judgmentmust be exercised.

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© 2011 KPMG LLP, a UK limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Composition of IFRSs

• IFRS comprise the following:− International Financial Reporting Standards (IFRS) – (13 in issue)

− International Accounting Standards (IAS) – (29 in issue)

− Interpretations originated from the International Financial Reporting Standards Interpretations Committee (IFRIC) – (15 in issue)

− Standing Interpretations Committee (SIC) – (11 in issue)

• Current individual IASs will remain – they will not be renamed IFRSs ∴ IAS 18 ≠ IFRS 18!!

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IFRS 10, 11, 12 & 13

are new


The appeal of IFRS

• Comprehensiveness

• Comparability

• Competitiveness

• Dynamic & Responsive

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The appeal of IFRS

• Comprehensiveness

IFRS is robust, comprising of standards and interpretationswhere divergent practices have been noticed

IFRS covers many areas where local GAAPs do not providespecific guidance e.g., Revenue, Share-based Payments

IFRS literature includes Basis for Conclusions (BC), ApplicationGuidance (AG), Illustrative Examples (IE), ImplementationGuidance (IG), Dissenting Opinion (DO). The additionalliterature provide insights and transparency about thestandards

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The appeal of IFRS

• Comparability

no industry/ country specific standards e.g., SAS 10, SAS 15,SAS 16, SAS 25

same accounting principles across industries/ sectors

increased transparency in financial reporting providinginvestors with comparable and sufficient information to enablethem understand the risk profiles of entities and make informedjudgements and decisions

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The appeal of IFRS

• Competitiveness

improved comparability of financial statements with peers andcompetitors

improved access to global capital market and investment

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The appeal of IFRS

• Dynamic & Responsive

continuous review and evaluation of the relevance of eachstandard

amendments issued in response to global financial crises

consideration of expected loss model for impairment offinancial instruments

continuous annual improvement project

issue of IFRS for SMEs

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The appeal of IFRS

Conversion to IFRS is however not without its `birth’ pains:

• Significant one-time costs of converting to IFRS

• Complexity of the new requirements

• Increased use of judgments which, coupled with the prevalence of options permitted by the standards have led to concerns about consistency of application

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IFRS is used in many countries around the world, including China, Hong Kong and Russia, most European countries under the jurisdiction of the EU.

Countries in Africa include Kenya, Zimbabwe, South Africa, Zambia, Malawi, Tanzania, Ghana and Sierra Leone.

IFRS is used around the world

Current state of IFRS adoption

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IFRS is fast becoming the globally accepted accounting framework

Widespread IFRS adoptions began in 2005, and the standards are now in use in more than 100 countries.

IFRS Adoption Map

Countries that require or permit IFRS or have fixed dates to implement

Countries seeking convergence with the IASB or pursuing adoption of IFRS

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IFRS vs. SAS: Key principles compared

Strictly Principles based

Measurement based on concepts like

Fair valuation

Amortised cost

Net present value calculations

Effective Interest rate calculations

Current exit value (for insurance contracts)

Impairment based on principles and methodologies that are consistently applied

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IFRS SAS

A mixture of principles and rules

Measurement largely based on historical cost

Impairment largely based on rules

Presenter

Presentation Notes

The IS Alert begins by emphasizing the role of the engagement partner on the audit. The Alert focuses on how important it is for the engagement partner to take responsibility for the direction, supervision and performance of the audit engagement. This includes emphasizing to the engagement team the importance of: Complying with professional standards, legal and regulatory requirements and relevant KPMG policies. This of course includes the need for compliance with clarified ISAs. Planning and performing the audit with professional scepticism; Considering the competence and capabilities of individual members of the engagement team, and whether appropriate specialists are involved on the audit It also reminds partners of the need to appropriately address significant matters that arise during the audit which may include Modifying the planned approach appropriately Determining that appropriate consultation takes place and that conclusions resulting from such consultations have been implemented


IFRS vs. SAS: a high level comparison of major statements

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IFRS SASStatement of accounting policies Statement of accounting policies

Notes to the accounts Notes to the accounts

Balance sheet Balance sheet

Profit and loss account or income statementProfit and loss account or Income statement

Statement of other comprehensive income

Statement of cash flows Statement of cash flows

N/A Value added statements

N/A Five-year Financial Summary

Statement of changes in equity N/A

Statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of its financial statements

N/A

Presenter

Presentation Notes

NASB’s position on early adoption is a bit unclear. You may wish to deflect questions on early adoption to NASB officials.

Nigeria’s Transition to IFRS


Transition timetable

2014

• IFRS reporting by Other SME’s

• Audit procedures• Investor

communications• Compliance

monitoring

2013

• IFRS/Quarterly reporting by PIE’s

• Audit procedures• PIE Investor communications• Compliance monitoring for Listed & SPE’s

• SME’s Prepare opening SFP &

comparative figs• PIE/SME investor

communications• Dry Runs for

SME’s

Reporting Date:

SME’s

2012

• IFRS/Quarterly reporting by

listed & SPE’s• Audit procedures

• Investor communications• PIE’s prepare opening SFP &

comparative figs• Dry Runs for

PIE’s• SME’s commerce

transition planning

2011

• Transition adjustments

• Prepare IFRS Opening

Statement of Financial Position

(SFP)• “Dry Runs” for

Listed & SPE’s • Prepare comparative

figures

2010

• Awareness• Assessment

• Legislative changes• Training

• Planning/Impact analysis

• Transition adjustments/Opening Statement of Fin

Pos

Reporting Date:

Other PIE’s

Reporting Date: (Listed &

Significant public entities)

Transition Date: SME’s

Transition Date: Other

public Interest entities (PIE’s)

Transition Date: Listed &

Significant Public Entities

(SPE’s)IFRS Competence

Alignment with other initiatives and training for appropriate personnel

realisation and standardisation of statutory reporting

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Conclusion

" There are no secrets to success.

It is the result of preparation, hard work, and learning from failure. "

Colin Powell


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Documents

Introduction to IFRS - Copy.pdf