Three Projects in the Work Plan, Research Paper Example

Three Projects in the Work Plan of the International Financial Reporting Standards (IFRS) Foundation

According to its official website, the International Financial Reporting Standards Foundation is an “independent, not-for-profit organisation” who major goal is to “develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted International Financial Reporting Standards” based on clear principles and ideals (IFRS, 2014).

These reporting standards have been fully developed by the International Accounting Standards Board (IASB) which is also an independent body but is part of the IFRS Foundation (IFRS, 2014). In order to create these and other standards, as of July 30, 2014, the IASB has a number of on-going major projects or work plans with the aim being to help initiate shared reporting standards on a global basis.

Insurance Contracts

As noted by the IFRS Foundation, insurance contracts continue to be an important area in the world of finances, especially because the insurance industry has gone international with contracts that usually contain long-term and often uncertain obligations. From an accounting perspective, most of today’s insurance contracts fail to “provide users with the information they need to meaningfully understand the insurer’s financial position, performance and risk exposure.” One important result of this situation is that accounting practices in the insurance industry have become diverse, meaning that not all insurance companies utilize the same standards and principles (IFRS, 2014).

The first phase of this project was completed in March of 2014 via the issuance of IFRS 4 which according to the IFRS Foundation was limited in scope, due to only offering slight improvements related to insurance accounting standards; however, it did help to enhance “disclosures on amount, timing and uncertainty” related to future cash flows from insurance contracts. The second phase of this project is currently underway and when completed will result in new standards that will “eliminate inconsistencies and weaknesses in existing practices” via a single principle-based framework that will affect virtually every insurance contract (IFRS, 2014).

Leases

Another area of concern for the IFRS Foundation is leases which like insurance contracts are in need of new standards that will help to create principles that lessees and lessors, the first being the individual that rents land or property and the second the tenant (Lessee, 2014), can utilize to reveal pertinent information concerning financial statements related to monetary amounts and the “uncertainty of cash flows arising from a lease,” being the profit made by the lessee. Also, much like insurance contracts, current accounting practices are diverse on a global scale (IFRS, 2014).

Thus, new standards of practice will provide lessors with a “complete and understandable picture of an entity’s leasing activities” related to lease assets and operational liabilities (IFRS, 2014). This project has passed through four earlier stages with the current stage being board deliberations and agenda papers on sub-leases, lease modifications and contract combinations, and lessee accounting models and accounting paradigms (IFRS, 2014).

SMEs

The third major project or work plan is perhaps the most important of the three, due to potentially affecting millions of small businesses around the globe via altering their accounting practices and principles. This is known as the IFRS Self-Contained Standard Manual, composed of 230 pages that outlines in great detail all of the accounting “needs and capabilities of small and medium-sized entities” or SMEs which on a global scale make up more than 95% of companies in current operation (IFRS, 2014). This manual is always being updated with new information and guidelines for small and medium-sized businesses and in many ways is far less complicated than what are known as GAAPs or Generally Accepted Accounting Principles which are often “legalistic and prescriptive” and specify “mandatory accounting procedures” related to accounts and statements (GAAP-IFRS, 2014).

In order to help implement the standards and principles contained in this manual, the IFRS Foundation has so far accomplished the following goals and objectives–1), a free downloadable copy of the manual which is intended for private, non-commercial use in more than a dozen languages, such as Spanish, Russian, and Chinese; a fully explained guidebook which consists of “illustrative financial statements and a presentation and disclosure checklist;” 3), an SME Implementation Group which oversees new recommendations and makes amendments to the current manual; 4), free downloadable training materials designed to help SMEs to implement the standards; 5), regional training workshops that are available throughout the world and especially in nations that are just beginning to emerge as a global economic entity; 6), a fully updated monthly newsletter with information on how to adopt and implement the standards; and 7), free downloadable board and staff presentations that brings the viewer into the boardroom itself for on-on-one discussions with the people responsible for creating the manual (IFRS, 2014).

References

GAAP-IFRS. (2014). Retrieved from http://www.gaap-ifrs.eu/en/national-gaap- commentary

IFRS. (2014). Retrieved from http://www.ifrs.org/Pages/default.aspx

Lessee. (2014). Retrieved from http://www.investopedia.com/terms/l/lessee.asp