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The big switch – IFRS accounting standards
PRACTICE AREA GROUP: Tax
Proposals by the Accounting Standards Board, the accounting standard setting body for the UK and Ireland, will see Irish and UK Generally Accepted Accounting Principals (“GAAP”) replaced by a version of International Financial Reporting Standards (“IFRS”). Companies are advised to start planning for this conversion now.
Since 2005, only listed companies in Ireland were obliged to use IFRS. Unlisted companies had a choice between Irish GAAP and IFRS, with the vast majority of Irish companies opting to prepare their accounts in accordance with Irish GAAP. However, Irish GAAP is now set to be replaced by IFRS and although the precise date has yet to be confirmed, it is expected that all Irish companies will be required to adopt IFRS by 1 January 2012. Certain entities will have the option to use a small and medium sized entities’ version of IFRS which will be less onerous (particularly as regards disclosure requirements).
The introduction of IFRS will have a significant impact on the format of financial statements. IFRS has different disclosure requirements and the recognition criteria for various assets and liabilities differs from GAAP.
The conversion will require a significant amount of work for most companies. In addition, it is worth noting that financial information for 2011, forming part of the relevant company’s 2012 financial statements as the previous year’s accounts, will be required to be presented in the 2012 accounts in an IFRS format. Companies have therefore already begun their preparations for the change during the current year. The implications of adopting new accounting standards for companies’ tax liabilities and distributable profits should also be considered.