Global financial reporting has witnessed a shift towards International Financial Reporting Standards (IFRS) over the past decade. These guidelines and accounting standards are for Dubai-based audit firms and all other users of financial statements for public sector entities.
There are over 120 nations around the world that would allow or enable the execution of IFRS or rather financial reporting regulations considerably based upon the IFRS by all their reporting entities. International Accounting Standard Board (IASB) is positive that IFRS usage will rise over the next decade and supports the idea for harmonization in corporate reports. Organizations such as the World Bank (World Bank), G-20 (International Organization of Securities Commissions), and IOSCO support harmonization of corporate reports.
In the last decade, thousands of public sector entities and organizations in Dubai and UAE made the switch to IFRS-based financial reporting. In the next few years, many more will transition to IFRS-based financial reports.
A great advantage for late adopters is being able to learn from others who have made the significant change. Companies in Dubai and UAE that adopted the use of IFRS earlier, had a difficult learning curve. Financial audit teams who are still transitioning to IFRS can draw from their previous experience when developing a transition strategy.
When faced with applying the new financial reporting framework’s principles, requirements and principles to their financial statements, the first thing that most financial statement preparers in Dubai, UAE or other audit services is to identify the differences in accounting treatment.
The company will need to review its accounting policies, including their choices regarding presentation and identification. The IFRS 1 should be carefully reviewed by any reporting entity.
The following steps will ensure a successful implementation of IFRS:
- Clarify when IFRS 1 will be used, i.e. Which financial statements are covered under IFRS 1?
- Identify the date of transition to IFRS and prepare an opening statement describing your financial situation at that time.
- Select the appropriate policies to retroactively apply IFRS compliant accounting strategies for all periods in your financial statements.
- You can decide whether to apply these exemptions in full retrospect to the new accounting policies.
- All disclosures required by the notes to financial statements should be prepared.
These issues are critical and should be addressed by auditors in Dubai, UAE. The larger implications of adopting IFRS may present greater challenges and could have unforeseen consequences. This transition can be beneficial for the organization and its stakeholders if planned well.
Here are some larger implications internal auditors need to be aware of as they plan for the transition.
- Unit-level business processes; Especially, the need to capture information for disclosure under IFRS.
- To be able to accurately apply the new financial reporting requirements and make transitional adjustments, it is important to make system modifications and improve internal control.
- It may be necessary to make changes to the internal information systems and reporting.
- Performance measurement can be affected by changes in profit measurement. This could have an impact on bonuses and remuneration packages.
- Dubai Audit Services: How to Measure Liquidity and Solvency, as Well As Their Impact on Debt Covenants.
- Consider tax implications and determine whether items will be taxed differently depending on the accounting treatment.
- Training finance staff and non-finance employees is essential to become IFRS-literate as well as to respond to information requests.
- Management of investor relations and communication to external stakeholders regarding changes in financial statements.
- The key components of a successful transition are calculating the cost and ensuring there is sufficient budget and funding.
- Consider the importance of executive sponsorship to ensure that the transition project is not seen as an accounting issue and that the transition team has complete support.
These are just a few of the possible consequences.
Audit services in Dubai, UAE must be able to properly plan to determine the larger implications and provide a solution. Avoiding pitfalls and minimizing costs is crucial, as well as considering the potential benefits. We recommend that reporting entities conduct a SWOT and comparative analysis when planning a transition to determine the potential benefits or weaknesses.
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