From 1 January 2019, many of Ukrainian companies are required to switch to IFRS.What are the difficulties related to transition to IFRS:
From 1 January 2019, many of Ukrainian companies are required to switch to IFRS. What to expect from transformation? How can a transition affect your company?
- Transition to IFRS means that the reporting becomes more transparent and open. Particularly IFRS reporting, in addition to key reports, includes comprehensive disclosures of all material captions of a balance sheet and profit and loss statement, disclosure of non-balance sheet matters (for example, contingent liabilities), a detailed description of accounting policies, and description of financial risk management. This information allows a user to see a bigger picture of financial position of the company and its going concern compared to NAS reporting.
- One of the fundamental principles of IFRS is the accrual basis. Accordingly, all incurred expenses should be reflected in the relevant period. As a result, IFRS reporting contains many provisions. For instance, allowance for bad debts, provision for unused vacations, provision for impairment of assets. In practice this means that usually expenses for the period calculated under IFRS significantly exceed expenses calculated under NAS.
- What about income? Revenues from sales are recorded in accordance with INCOTERMS. Revenues from rendering of services are recorded equally to execution – if provided by the contract.
- IFRS standards contain many judgmental provisions that may be treated differently for different businesses. Using judgements may significantly affect the financial result of the period that is why it is necessary to involve professional consultants for preparation of reporting and to perform annual audit.
- IFRS standards are constantly evolving and changing according to new business challenges, so it is important to maintain an up-to-date knowledge base.
So, what are the advantages of IFRS reporting?
- IFRS standards are generally accepted in Europe, and this means that your reporting will be understandable to foreign investors, banks and stock exchanges. If you are looking for funding, you will not need to postpone potential negotiations for 3-6 months for the preparation and audit of the accounts – everything will be done already.
- For CFOs and CEOs IFRS reporting allows to see the objective results of the company.
- Applying of IFRS standard and mandatory audit will allow to create benchmarks for different industries.
- Slowly, but confidently, Ukrainian tax recording is moving to IFRS recording, which means that for good use of IFRS, a company can reduce its profit before tax.
What are the difficulties related to transition to IFRS:
- Time costs for preparation of IFRS reporting.
- The cost of recruiting qualified staff and consultants, especially for the first use of IFRS.
- Annual audit costs.
- The need for continuous training of staff for the proper use of accounting judgments and maintaining an up-to-date knowledge base under IFRS.
What CHP proposes:
- Full support in the first implementation of IFRS:
- Preparation of accounting policy of the company;
- Selection of principles for transition;
- Assessment of accounting judgements;
- Analysis of IASs and IFRSs applicable to the company.
- Outsourcing of IFRS recording.
- Annual audit and semi-annual or quarterly review of IFRS reports.
So who benefits from the transition to IFRS? – Our customers!