Steps Taken to Adopt and Implement IFRS in
By mahdi Goodarzi & Mojde Rezaee
Preparing a suitable environment for local businesses along with creating transparency for earning foreign investors’ trust is a necessity, which will be encouraged and accelerated by adopting and implementing IFRS.
“Attracting foreign investment” is a key term in getting the most out of opportunities unveiled after sanctions removal such that policy makers have assumed it to contribute to a 22% share in the 6th Development Plan bill for reaching the estimated 8% economic growth in the next year. What makes the realization of this goal hit the rocks, however, is the lack of required infrastructures for absorbing foreign investment. The latest credit rating done by the Transparency International shows Iran in the 130th place; although up by 6 steps, it still indicates the improper place of the country. Low rating along with un-transparent information on companies and economic activities has turned Iran into a high-risk investment destination.
As markets evolve and move towards globalization, differences between local and international financial reporting standards become more and more of a challenge for stakeholders. The increasing growth in international trade, capital inflows and economic connectivity over the last 2 decades has resulted in the formation of commonly accepted accounting principles among most countries such that there are only 23 out of 153 countries, including Iran, that do not use such global standards. It is worth mentioning that even Islamic countries use international standards.
First to Address
The most important step for implementing IFRS is to deeply identify and analyze the differences between the Generally Accepted Accounting Principles in each organization and those of the IFRS. These might be seen in accounting principles and processes, designing and determining financial reporting patterns, the cost of turning to such standards as well as analyzing and identifying information clarification requirement which is vital for preparing IFRS-compliant reports.
Based on international experience, successfully applying international standards calls for creating the required infrastructures and platforms, reforming rules and regulations, updating accounting information systems plus training, which will be briefly stated below:
Removing tax-related impediments and reforming rules and regulations
- Removing tax-related impediments in regard with applying international standards and removing obstacles ahead of implementing the accounting principle 15 pertinent to investments.
- Accepting differences in accounting basics according to standards for calculating deferred tax
- Adopting international standards by regulatory bodies, including the Central Bank of Iran, the Central Insurance, Tax Organization, etc. in preparing financial statements for companies under their supervision
Removing issues pertinent to measuring fair value
- The quality of valuating assets plays an important role in measuring companies’ fair value, whose most important feature is its reliability; it is because in doing so, the value is determined merely based on a person judgment, which itself calls for high level of precision since the required indices have not been yet formulated. It is worth mentioning that the international financial reporting standard number 13 deals with the measurement of fair value and its requirements. As the result, adopting the necessary approaches to improve and assure the quality of valuation reports and formulating the necessary rules and regulations are deemed necessary.
- Currently, there are a limited number of trained and experienced accountants and auditors in regard with the IFRS. Adopting international standards for the listed companies and financial institutions along with their subsidiaries will result in demand growth for such resources. Furthermore, auditors must train the personnel on how to audit IFRS-compliant financial statements and legislators must also understand its requirement. In this regard, universities, the Securities and Exchange Organization, the Audit Organization, the Iranian Association of Certified Public Accountants and professionals with expertise on IFRS play a significant part for the following group:
- managers and auditors
- independent auditors
- internal auditors
- auditing committees’ members, and
Applying IFRS is required to facilitate the absorption of foreign investment, ease the entrance of Iranian firms to international capital markets and make the comparability of Iranian companies with foreign ones possible. In this regard, the Audit Organization has taken the preliminary steps for adopting the said standards in particular companies and the translation of the standards have been verified by the IFRS Foundation; therefore, the “Iran Profile” has been prepared on the IFRS webpage holding information about Iran and the signed agreements.
According to the latest approval on IFRS by the SEO board on 8 November 2016, all listed insurance companies and companies with capitals of IRR 10,000 bn and above, the total of 77 companies, have been mandated to release their financial statements in compliance with IFRS.
Currently, finding the differences between national standards and international ones and preparing IFRS-compliant sample statements, both in English and Persian, are among the projects being worked on in the Standard and Training Committees of this organization.
There are 43 standards in the IFRS, 19 of which do not hold any/huge differences with our current standards; there are 9 that are different from ours, which need considering; there is 1 standard with significant difference along with 14 standards in the international reporting system which are absent in ours; among those absent in the country, standards related to financial instruments and income tax create the most challenges in implementing those standards.
As another step, IFRS Steering Committee was formed with representatives from the Ministry of Economy and Financial Affairs, Audit Organization, the Securities and Exchange Organization, whose undertaking falls within the following:
- preparing infrastructures and applying international financial reporting standards along with removing obstacles ahead of measuring tax and fair value;
- forming specialized committees supervised by the steering committee; and
- coordinating with the IFRS Foundation regarding the receipt of official permission to translate standards
This was followed by forming Specialized, Technical and Specialized, Fair Value and Training working groups.
Capital markets structures are instantly changing and globalizing, which necessitate new and therefore, common accounting principles among nations. Since Iran’s National Accounting Standards are derived from the international ones, the idea to implement such globally accepted standards in the country is not far-fetched. This is a huge national project, calling for extensive academic, legal and professional preparation. If implemented successfully, on the other hand, it will qualitatively improve national economy, connect Iran to international financial markets with no intermediary and upgrade financial reporting structure in the country.
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