Bridging GAAP in accounting
This is good news for smaller Irish companies and more good news for Ireland comes with the proposals for subsidiary companies. “The original proposals from the ASB did not contain any financial reporting concessions for subsidiaries,” says Hackett. “However, throughout the entire process of overhauling Irish and UK GAAP the ASB has consistently received feedback from listed groups that they would like an option of an accounting framework that allows their subsidiaries to use IFRS in their statutory accounts for recognition and measurement purposes but without being obliged to comply with the extensive disclosure requirements of IFRS.”
The ASB has responded positively to this feedback and developed a reduced disclosure framework. “The reduced disclosure framework means that many subsidiary companies will be able to avail of a number of exemptions from the detailed disclosure requirements of IFRS where equivalent disclosures are included in the consolidated financial statements of its parent. This will see subsidiaries of IFRS groups able to use a version of IFRS and thus align the numbers reported in their group reporting forms with their statutory accounts,” she adds.
O’Keeffe explains why this is important to Ireland. “The Irish-based subsidiary of a French or US company which already uses IFRS will not have to prepare accounts to the full IFRS standard as long as the information is already in the group accounts. This will eliminate a lot of cost and duplication and help make Ireland more attractive for inward investment.”
O’Keeffe also notes, however, that subsidiaries will need to watch developments in respect of IFRS adoption in the US. The timelines for adoption of IFRS chosen by a US parent may impact on the option chosen by the subsidiary.
Greater international standardisation will also assist Irish companies. “Where Irish companies are trading with firms in other countries or seeking to expand overseas the increased consistency will be very helpful,” says Hackett. “It means that they will have a much clearer understanding of the companies and systems they are dealing with.”
There are also wider benefits for lenders, investors and others. “There is a lot more disclosure particularly in the areas of risk and key judgements and estimates,” O’Keeffe notes. “The accounts have to describe what risks there are to the business in the future. They also have to show how judgements and estimates with regard to things like stock valuations have been arrived at. This is very important. At present, the commentary in accounts can be very similar from year to year and therefore not particularly informative. This won’t be the case anymore. In future they will have to look back on what actually happened during the course of the previous year. They will not be as much of a box filling exercise in future – a lot more information will have to go in.”