What are International Financial Report Standards?


According to Cairns D. (2007) he said that International Financial Report Standards are implementing to measurement to make accounting fair and true by corporate with the European Union. They try to make value-based standards by IASB (International Accounting Standards Board). IASB is keep develop IFRS to be more full fair value accounting. Another meaning from Dr. Epstein (2010), IFRS are a set of accounting standards developed by the IASB that is becoming the global standard for the preparation of public company around the world about a financial statements. The IASB is an independent organization based in London, United Kingdom.

Now a day, more than 120 countries have required public companies to follow IFRS for present a report because European Union (EU) was announcement a require to use IFRS at the beginning in January 2005. Therefore, many companies are trade securities or do some business with EU, they need to follow this regulates by prepare their unification financial statement in pursue IFRS and incorporate with European. It send a directly affect too many countries have imperative to accept IFRS and adopt with their national standards to match with EU has requirement.

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The purpose of IFRS

In a present, when we do the business, we will do as a globalization. It means that we need to contact with people around the world. Therefore, it is difficult to understand financial statement of difference countries because they will have their own accounting principles. The main purpose of IFRS would like to present the true and fair view of accounting information because if information of accounting is true and fair so that the financial report will have to provide a good quality and reliable. Another purpose is IFRS would like to make international standard as a global standard, it will help for trade cross-border investors. IFRS is provide information to investors for decision making, better understanding of accounting, easier for comparisons and present financial statement in the same basic as its foreign competitors.

Why we need the IFRS?

Before we have IFRS, we was used GAAP (Generally Accepted Accounting Principles). GAAP was responsible for set a standards, procedures and accounting rules for recording in financial report and statement by the United States. GAAP was helped for better financial decisions and the economy run more efficiently. The United States has very confidence in GAAP that is the best standard accounting and financial report in the world. Therefore, United Stated demand every countries would be follow their regulations and standard. However, GAAP is not complete to cover all statement because it will have opportunity to cheat. Thus, some company has used an opportunity to gain more profit by adjust the accounting to present that a company has a good liquidity of financial so that many investors will interest to investment at this company and also high risk for investors.

In the real situation of Enron Corporation, that is a big company about the energy in Downtown Houston, Texas in United States. This company was established in 1985 by Mr. Kenneth Lay. Enron Corporation has an opportunity from Fortune magazine in top 10 companies have employees more than 20,000 peoples. Unfortunately, in late 2001 Enron Corporation was bankruptcy because the company has adjust the number of accounting and financial statement to present for publics in fake information's because the company has snatch to find out make more profit. Therefore, the stock price and value of Enron Corporation will rise so that many investors are investment in this company. Many investors are buys a lot of stock because they believes that the accounting statement and financial report of company have transparency and reliable. It shows that it will keep going up in the positive way. In real, the company has adjust the accounting statement and financial report to make its good and attractive investors to investment within this company. According to Batson (2002) said that Enron Corporation do not follow generally accepted accounting principles (GAAP) because he got information from other banks. He think the bank also know that Enron Corporation is not represent the real information within annual report. The transaction of the off-balance sheet has something wrong after Enron corporation has joint-venture partner with other company because the named "Fishtail" and "Bacchus" were plan only to cover a fault in revenues of Enron Corporation. After this is situation, it make affect to economic of United States because employees were lose a job, the United States stock market was drop down and current price was depreciation. It means that value of property is decrease and obligation is increase. You can find more information as appendix A.

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According to the New York Times (1984) in 1976, Frigitemp Corporation is concession to build a ship. This company was responsible for decorate and build in the ship and other. Frigitemp was used Capital account is means that the company has bring a quarter of the amount for payment to present that money as a income of company before the project is actually completed but it will put on the condition as contract in the long-term. Many contractors always use capital account for doing statement by required a 25 percent of the fund of project to make at revenue before start to do the project. This money is not use for the project at all but it will tell that this money will bring for using in the project and make a fake receipt to charge customer to bring the money out first.

This process will help to increase the income of company by told the customer that would like to bring some money for purchase more equipment but company was not use it as told the customer. Moreover, It will add up value of company to show that company keeps growing up in the positive. However, the Capital account to the capital as percentage of work completed made a problem because in 1974 the company got a big project to build a ship by using this contract. The company has setup the condition in contract that customer need to give money in advance to order a wooden deck. After that company made a fake transaction that was payment for supplier but the real is supplier do not remove the wood from forest. Many contractors were cheating the Firgitemap also they request to withdraw a half of fund from Firgitemap. The problems will be the money is not enough for construct so that the company needs to use a fund of anther project to support the previous project. The company always do the same thing to keep the accounting statement of each year is not lose by using the future income to show in the present time. The company is create a slush fund and do not have a transparency for public. You can find more information as appendix A.

Another situation of the company was Long Distance Discount Services, Inc. (LDDS) by Hattiesburg Mississippi in 1983. It was change the company name to LDDS WorldCom and last name was WorldCom. This company was doing about the telecommunication and Communications in Ashburn, unincorporated Loudoun County, Virginia in United States.

In 2003, WorldCom was bankruptcy, it was the company give money to CEO for borrow in a lot of money during the stock price of WorldCom was go down and made up a transaction of accounting statement to look well and it was affect to employees in company because in 1997, Salomon Smith Barney was Financial Analysis Professor. He was management about dividend to employees (Employee Stock Option Plan) by give a good price for influence employees to purchase a stock and open opportunities for employees to borrow money from company to purchase a stock. It shows that employees have a high risk because if the stock price was going down, it mean that employees will be debtors of Salomon. Therefore, Salomon will get a benefit from here. On 26 June 2002, SEC was blaming WorldCom to pretend document for deceiving invertors because WorldCom always adjust the debt to profit for company and influence to mobilize of fund after that WorldCom was bankruptcy. In the past, WorldCom was a big company in United Stated thus the big company was bankruptcy about the financial transparency and disclosure so that many investors were not confidence in standard (New York Daily News, 25 March 2002).

It was some real situation in a past of using GAAP, it show that GAAP has not complete standard to handle, it will present that GAAP has a issue about to make companies present a true and fair value of accounting statement and financial report for investors. Moreover, there are much news that it present about the fail of the big companies in the world such as TYCO, IMCLONE, GLOBAL CROSSING and other because of the big companies were not present a true and fair information about accounting statement and financial report. They were adjust the number of account and put an imitate transaction in statement to show that their companies have a good liquidity and add value of stock price to make investors confidence in their companies and purchase their stock or investment within their companies. In the fact, the companies were not having a good liquidity at all. It was affect very directly to the economics cross the world and many investors were not believed in financial report by corporate governance and company. It shows that there are several problems of using GAAP but I would like to present about the benefits of IFRS can provide more efficiency than GAAP in measurement transparency and disclosure of financial report standard.

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Therefore, International Accounting Standards Board would like to create an International Financial Report Standard to make investors and publics to confidence in the new standard, more efficiency than GAAP, and suitable format with the factory in present and force every company that would like to trade within European Union to use this standard for present in true and fair information of accounting and financial report to investors. I think that if new standards (IFRS) are suitable format for accounting statement so that financial report will have a good quality because financial report needs to bring number from accounting statement to calculate with their formula and interpretation to make investors or reader understand the mean of that. Based on, Business Week Online (2008) about "How to Fix Financial Report" Finance minister from the 20 wealthiest countries have discuss about the effect from the toxic of credit crisis. Thence, investors are not trust in the financial report information that is show in market because they think that the information is not complete and accurate.

Thus, IFRS must to concern more about the transparency and disclosure within a main point to make financial report look more efficient and confidence from investors and publics. So I would like to compare between the GAAP and IFRS about that point transparency and disclosure. After that I would like to present advantages of IFRS to solve many problems about transparency and disclosure. Moreover, I would like to present about the advantages of IFRS for investors and fair value.

The good financial statement figures data would be completeness and explain information to delicate within high quality data of financial report. There was affect to transparency and reliability of financial report of business. Although nowadays many companies find to gain the benefit to them by using gap of standard to cheat and present fake information to publics that they can do in many way.

First, I would like to select about off balance sheet, before they have a standard in the past the company will set up their own regulation to do the accounting and financial statement after that United States was set up standard and announced to global to used GAAP. However, this standard has more gaps to cheat at balance sheet, before to explain about off balance sheet, as this report will explain the mean of balance sheet is a statement show among total asset enough liabilities plus capital and provide full disclosure in the context of financial. According to, Elliott and Elliott (2008) they said that off balance sheet is the descriptive phase for all finance arrangement: where strict recognition of legal aspect of the individual contract results in the exclusion of liabilities and associate asset from balance sheet. The company has used off balance sheet for make income statement of company look better than reality, do not record liabilities that may expect and arise, create transaction to subtract the debt from the account, conceal obligation in current such as leasing, take or pay contract, provident funds, pension fund and other.

There are many cases in past to gain opportunities to cheat on balance sheet by using GAAP to present fake information. One case of off balance sheet is an accounting scandal of Enron's company was use of fraud in the financial statement fraudulent financial report. Therefore, this company was bankruptcy in past because this company used off balance sheet to hide losses and debt caused auditors, investors and analysts to demand more information on off balance sheet (Kahn 2002; Henry 2002). It made income statement of company highly than reality by adjust number and decorate their statement to show that their company has a good profit and good management, increasing financial flexibility, decreasing the cost of borrowing, reducing taxes, increasing profitability, and improving financial statement ration (Angbazo 1997; James 1989; Shevlin 1987).