What are the International Financial Reporting Standards and the International Accounting Standards?

The International Financial Reporting Standards (IFRS), in Polish MSSF, constitute a collection of general guidelines, what kind of financial information and to what extend should be disclosed.

The International Accounting Standards (IAS), in Polish MSR, constitute a collection of detailed guidelines specifying a way of registration and reporting of economic events.

IAS/ IFRS are and will be required throughout the consecutive reporting years. This is not only a temporary tendency, but requirements applied all over the world and elaborated by the International Accounting Standards Board (IASB), the institution establishing European accounting requirements.

Historical Overview

From eighties of the last century, growing competition has lead to large expansion of multinational corporations and globalization of financial and capital markets. These processes strengthen a need for international harmonization and standardization of many regulations related to important spheres of social and economic life.

In the contemporary world, standards have become a regulation that allows a higher grade of global order. It refers also to harmonization of accounting rules in the meaning of IAS. They ensure a comparability of financial statements of companies from different countries along with those that have other systems of accounting regulations. Accounting, that for a long time has been recognized as an universal language, currently thanks to IAS, becomes an international business language. It facilitates cooperation and coordination on global scale. It leads to better effectiveness in capital allocation, faster economic increase and reduction of capital costs.

IAS had been promoted by the International Accounting Standards Committee (IASC) that gradually was accepted by many other significant international institutions, and finally supported by the EU through a decision to introduce the IAS, from the beginning of 2005 at the latest, as the basis to prepare consolidated financial statements of the companied noted on the regulated EU's capital markets. In this respect, an Ordinance of the European Parliament and Council dated 19th July 2000 No. 1606/2002/WE (OJ L 243, 11/9/2002) and an Ordinance of the European Committee dated 29th September 2003 No. 1725/2003 (OJ L 261, 13/10/2003) were issued, under which the IAS were introduced, apart from the IAS 32 and the IAS 39 related to financial instruments.

The European Union decided to introduce the IAS to limited extent due to two reasons:

• Pro-competition strategy aiming at integration and development of capital markets in the EU;
  
  
• Adjustment to requirements of the unified EU financial services market, in particular, for international investors.

In this situation, it was decided to introduce the IAS as the basis for consolidated financial statements of public companies and, in certain conditions, banks and other financial institutions, a number of which amounts to 7000 approximately. The public companies noted at the stock exchange are obliged to apply IAS and IFRS, that were introduced by the EU countries based on the cited Ordinance 1606.

Application of IAS and IFRS in Poland

Following the above mentioned Ordinance, the Accounting Law dated 29th September 1994 was amended and commencing with 1st January 2005 the amended regulations came into force according to which the IAS, called also the IFRS, are to be applied while preparing financial reports by emitents of stocks issued or the one who apply for their issuing to public in Poland or in the EU. 

Therefore, the company has to obey the requirements and report according to the international standards. The later the Management Board take the decision to introduce the international regulations, the worse for the company, its employees, stockholders, and the possibility to enquire potential investors. In result, the companies can loose a lot if they do not introduce the IAS/the IFRS.