Introduction to IAS/IFRS

Marco Venuti 2018

Risk and Accounting

The structure of IASB

The standard setting process

The introduction of IFRS in EU

Endorsement mechanism

The introduction of IAS/IFRS in Italy

The IASB – FASB convergence

The SME project

Agenda

Pagina 2

The International Accounting Standard Board (IASB)

• International Accounting Standards Board (IASB)– Independent, privately funded accounting standard setter

based in London– Responsibility to develop International Financial

Reporting Standards (IFRSs) (previously International Accounting Standards (IASs)

• The objectives are:– To develop a single set of accounting standards

» High quality, understandable, global and enforceable– To promote their use and rigorous application– To work actively with national standard setters

» To bring about convergence of national accounting standards and IFRSs

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The structure of IASB

The standard setting process

• Main steps1. Setting the agenda2. Planning the project3. Developing and publishing the Discussion Paper (DP)4. Developing and publishing the Exposure Draft (ED)5. Developing and publishing the Standard6. Process after the standard is issued

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The standard setting process

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Research

StandardSetter / EFRAG

DiscussionPaper (DP)

Exposure Draft (ED)

Others

Comment analysis

9‐15 months 9‐15 months

Comment analysis

EffectiveDate

12‐18 months

Feedbackstatement

IFRSpublished

Active Projects

Roundtable

Two year post implementation 

review

Agenda decision

The standard setting process

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The standard setting process

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The standard setting process

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The introduction of IFRS in EU

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23 March 2002

Lisbona – The EuropeanCouncil decided to

accelerate the process ofharmonization of

Accounting  rules and established the deadlineof 2005  for the adoptionof common accounting 

principles

19 July 2002 2003 ‐ 2004 2005‐2006

The European Council of Ministers approved the 

regulation that would require all EU companies listed on a 

regulated market to prepare accounts in accordance with International Accounting 

Standards for accounting periods beginning on or after 1 January 

2005.(Regulation EU n. 1606/2002)

The EU Commissionendorses the International accounting Standards in 

European Union.

All EU companies listed on regulated markets in the EU to use endorsed 

IAS for consolidated accounts.

The introduction of IFRS in EU

IAS Regulation (1606/2002/EC)

• Directly applicable in all Member States• Fast , no national variations

• All EU companies listed on regulated markets in the EU to use endorsed IAS for consolidated accounts as from 2005

• Non-EU issuers outside the scope • (But: Equivalence under Prospectus and Transparency

Directives)

• Optional extension of the scope: – unlisted companies– individual accounts

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Endorsement mechanism

• “Objective is to get political and legal endorsement of IAS

• Criteria– IAS not contrary to “true and fair view” principle of Accounting

Directives– IAS must be conducive to public good (competitiveness and

convergence)– IAS must be understandable, relevant, reliable and comparable

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Endorsement mechanism

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EuropeanParlament

IASB

EFRAG

Interest GroupARC

European

Commission

Council

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Endorsement mechanism

Tempistica media della procedura di endorsement in Europa

Endorsement mechanism

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EFRAG

Endorsement mechanism

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The introduction of IFRS in Italy

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IAS Optional application

Listedcompany

Company withlisted financial

instrumentsbanks

ConsolidatedFS

IndividualFS

Company controlled by:- Listed company• banksCompanies withconsolidated financialstatement or controlledby a company with a consolidated financialstatement

Listed and notlisted insurance

companies

Excluded application

IASMandatory from 2006

Other companies

IAS Optional

application

Small companies(art. 2435-bis c.c.)

Excluded application

IASmandatory from

2005

In Italy the European Rule 1606/2002 have been effected through the emanation ofthe Legislative Decree n. 38/2005

IndividualFS

IndividualFS

IndividualFSConsolidated

FSConsolidated

FSIndividual

FS

IASmandatory

The Italian jurisdition Code civil: Limited Companies: Individual Financial Statements

(FS) Legislative Decree 127/1991: Limited Companies Consolidated FS

Reg. EC 1606/2002- Legislative Decree 38/2005imposing or permitting the application of the IAS/IFRS in relation to a large number of enterprises (publicly accountable enterprises and othes): Consolidated and/or Individual FS

Legislative Decree 173/1997: insurance companies: individual FS

Legislative Decree 87/1992: not regulated financial institutions: Consolidated and Individual FS.

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US GAAP – IFRS convergence

• 2007 SEC accepts filling from FPI’s without reconciliation to US GAAP

• 2008 – SEC announced a series of steps to potentially lead to the required use of IFRS by US issuers by 2014.  Also announced that certain domestic large groups could use IFRS for their 2010 filings.  Final decision on use of IFRS for all filers to be taken in 2011, possibly with a 2014 effective date

• 2010 – Update on ‘road map’ issued• 2012 – SEC decided to postpone the implementation of the ‘road map’

• The IASB and US FASB have an objective of convergence of IFRS and US GAAP

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US GAAP – IFRS convergence

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IAS/IFRS in the world

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The SME project

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The SME project• The FRS for Small and Medium-sized Entities (SMEs) is a set of

high quality financial reporting principles that is tailored for thecapabilities of smaller businesses and for the needs of those whouse non-publicly accountable enterprises financial statements.

Pros:• Improve access to credit

– supports lending based on financial statements– vendors evaluate finances of buyers– foreign loans and suppliers

• Improve access to equity capital– non-management investors– foreign venture capital

Cons:Complexity, administrative burden, similarity to full IFRS andsubstance and frequency of changing

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The SME project

Who is the standard aimed at?

Millions of companies (over 99%)!•The 52 largest stock exchanges in the world together have only around 45,000 listed companies globally•Europe has roughly 25 million private sector enterprises•USA has roughly 20 million private sector enterprises•UK alone has 4.7 million private sector enterprises–99.6% have fewer than 100 employees

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The SME project

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Who is planning to use it?