International Financial Reporting Standards (IFRS) is a financial statement that sets out guidelines for making financial statements around the world credible, transparent and easy to read. The guidelines also outline how companies should handle and report on accounting, reporting types of transactions, and other financial matters.
IFRS set common rules so that financial statements can be consistent, transparent and comparable around the world. IFRS are issued by the International Accounting Standards Board (IASB). They specify how companies must maintain and report their accounts, defining types of transactions and other events with financial impact. IFRS were established to create a common accounting language, so that businesses and their financial statements can be consistent and reliable from company to company and country to country.
IFRS are designed to bring consistency to accounting language, practices and statements, and to help businesses and investors make educated financial analyses and decisions. The IFRS Foundation sets the standards to “bring transparency, accountability and efficiency to financial markets around the world… fostering trust, growth and long-term financial stability in the global economy.” Companies benefit from the IFRS because investors are more likely to put money into a company if the company’s business practices are transparent.
The Ethiopian government has been undertaking various activities to prepare and present credible, transparent and easy-to-read financial reports based on the financial sector. The government set up the Ethiopian Accounting and Auditing Board to lead the sector.
The Board finalized its first five-year strategic plan on July 7, 2020. Leaders of the Ministry of Finance and the Ethiopian Accounting and Auditing Board recently issued a press statement on the progress of the implementation of the five-year plan in collaboration with the reporting bodies.
State Minister of Finance, Dr. Eyob Tekalign, said that one of the tasks that the government has decided and is working to streamline the financial system is to turn the entire accounting system into an international financial system (IFRS). To do this, the Ethiopian Accounting and Auditing Board has been established and a lot of work has been done over the past five years.
Dr. Eyob Tekalign added that many institutions have also started implementing the international financial system. In particular, financial institutions and public enterprises are implementing almost all international financial reporting standards, he said. However, while many institutions are still in their infancy, many of them that should have been started implementing are still in their beginning stage.
As to Dr. Eyob, the board has not been able to achieve the desired results due to various problems over the past five years. He noted in a June assessment that the International Financial Reporting System (IFRS) had not been implemented at the required level.
He further stated that there are internal and external factors that hindered the implementation of the International Financial Reporting System. How to overcome those obstacles and how the Board can implement the global financial system in the future; He said the institutions have been consulted on how to implement it.
According to Dr. Eyob, In order to strengthen the institutions that started the implementation and to enable those who did not start the application to start the application in a short period of time, it has been revised to improve the preparation and presentation of the country’s international financial reporting. The main focus of the review is on how to streamline the implementation of the global financial system by supporting institutions.
According to him, the process of preparing and presenting international financial reports is divided into two parts. These are known as full international financial reporting standards and small international financial reporting standards, Dr. Eyob further explained.
As the entire implementation of IFRS is costly and labor intensive, it should be implemented by large institutions. In the past, the requirements for IFRS implementing institutions were so low that many small and medium enterprises were forced to implement a comprehensive financial reporting system. He noted that even institutions that did not need significant financial services were fully operational and incurred unnecessary costs.
However, according to the revised roadmap and standards, it is clear which institutions should implement the entire IFRS minimum. According to the new amended criteria, high-income, high-debt, or large-scale employers are required to implement a full IFRS.
As detailed by Dr. Eyob Tekalign, there are many benefits to implementing international financial reporting. It saves time, energy and money by preparing various financial reports. It benefits not only companies but also the country in terms of better tax and financial systems.
Chairperson of the Ethiopian Accounting and Auditing Board, Hikmet Abdalla, for her part said that the new roadmap is based on the implementation of the full IFRS and Micro FRS institutions. Large organizations implement full international reporting standards, while small and medium-sized enterprises have been identified to implement IFRSME, which serves small and medium-sized enterprises.
According to Hikmet, there is no set standard set in which institutions in the world should implement the whole and which should partially implement. She noted that there has never been also in the case of Ethiopia. However, given the current situation in Ethiopia, it has been decided which ones will implement the entire IFRS and which ones will implement the smaller one.
Accordingly, the entire International Financial Reporting Unit will be divided into two. These are known as with high public interest and with other public interest.
According to Hikmet, banks, insurance companies, other financial institutions, partially or fully state-owned enterprises, share companies, cooperative unions, regulated consumer associations, regulated Consumers’ associations, charities and associations regulated by concerned bodies and members of the Ethiopian Commodity Exchange with high public interest are included in those who implement the full standards.
Other public interest institutions are that have annual sales of 300 million and more, total assets of 200 million and more, total debt of 200 million and above, and a workforce of 200 and above. Hikmet explained that those which meet two of the four criteria are expected to implement full International Financial Reporting Standards.
Extending her explanation, Hikmet said that the implementation of full international financial reporting requires a lot of work and is expected to be implemented by large institutions. Because they have capital markets in other countries; the largest companies in the capital market are implementing full International Financial Reporting Standards. She noted that there are activities underway to start the capital market in Ethiopia, so that companies that want to enter the capital market will be benefited if they start implementing the full standards of IFRS from now on.
As to Hikmet Abdalla’s detail, four requirements have been set for small and medium-sized enterprises (SMRs) that should partially implement International Financial Reporting. Institutions with annual sales of 20 million to 300 million, total assets of 20 million to 200 million, total debt of 20 million to 200 million and 20 to 200 permanent employees are expected to implement IFRS. In addition, institutions that meet two of the four criteria must also implement the system.
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Hikmet said that all institutions that are required to implement the full IFRS should start implementing it by 2023. Institutions that are required to implement the IFRS SMS for small and medium enterprises should implement by 2024. According to her, all the institutions that have not yet started and need to fully implement have three years to start the implementation and the small and medium enterprises have to start within four years.
Institutions that have started implementation should notify the Ethiopian Accounting and Auditing Board. The board will continue to support and assist in solving problems in the implementation process, she said.
As per Hikmet’s explanation, the revised roadmap improves many things. Ethiopia’s implementation of International Financial Reporting Standards brings many benefits. Many international organizations that want to invest in countries set a standard for the countries whether or not they have started using International Financial Reporting. Institutions that want to invest in Ethiopia are also concerned about what kind of Financial Reporting Standards Ethiopia will use.
Therefore, if Ethiopia begins to address the problems in the implementation of International Financial Standards In the right way, it will contribute to increasing the flow of foreign investment, as well as contribute to the stability of the market and the transparency of the country’s financial system, she said.
Read the original article on Ethiopian Herald.
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