European Accounting International Accounting in Europe and Accounting

European Accounting (International Accounting in Europe) and Accounting Harmonization; IFRS (International Financial Reporting Standards) for SMEs (Small and Medium Sized Enterprises); IAS (International Accounting Standards) Final Report Christina Elena Mueller, Germany Muhammet Firat Bulut, Turkey Mohammed Ishag Adam Ahmed, Sudan/Turkey Neisse University Technical University Liberec TUL Financial Accounting, Ing. Olga Malíková, Ph. D.

Table of Contents � Brief overviews 1 and 2 � European Accounting � International Financial Reporting Standards � IFRS Requirements � IFRS vs. US-GAAP � Some additional information about IFRS � IFRS and SMEs � Accounting Harmonization 1 and 2 � Summary/Conclusion � Sources

Brief overview 1 � Because companies which are settled in Europe and operate globally more and more procure both debt and equity capital on the international capital markets – especially in the United States of America – a harmonization of the accounting standards of these two economical branches became reasonable to grant the efficiency of the money acquisition market (or of the accounting principles? ) in the most comprehensive way.

Brief overview 2 � IFRS are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. The IFRS are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant for the internal and external users.

European Accounting (International Accounting in Europe) � � � It requires all EU-listed companies, including banks and insurance companies, from 2005 onwards, to prepare their consolidated accounts in accordance with the IAS. With regard to annual accounts, EU countries have the option to permit or require publicly-traded companies to prepare them in conformity with the IAS adopted in accordance with the procedure laid down in the regulation. They may also decide to extend this permission or requirement to other companies as regards the preparation of their consolidated accounts or their annual accounts. In order to ensure appropriate political oversight, the regulation establishes a new EU mechanism to assess the IAS adopted by the London-based International Accounting Standards Board (IASB) in order to give them legal endorsement (approval) for use within the EU.

IFRS International Financial Reporting Standards � The point of IFRS is to maintain stability and transparency throughout the financial world. This allows businesses and individual investors to make educated financial decisions, as they are able to see exactly what has been happening with a company in which they wish to invest. � Countries that benefit the most from the standards are those that do a lot of international business and investing. Advocates suggest that a global adoption of IFRS would save money on alternative comparison costs and individual investigations, while also allowing information to flow more freely.

IFRS Requirements � � � Statement of Financial Position: This is also known as a balance sheet. IFRS influence the ways in which the components of a balance sheet are reported. Statement of Comprehensive Income: This can take the form of one statement, or it can be separated into a profit and loss statement and a statement of other income, including property and equipment. Statement of Changes in Equity: Also known as a statement of retained earnings, this documents the company's change in earnings or profit for the given financial period. Statement of Cash Flow: This report summarizes the company's financial transactions in the given period, separating cash flow into Operations, Investing, and Financing. In addition to these basic reports, a company must also give a summary of its accounting policies.

IFRS vs. American Standards Differences exist between IFRS and other countries‘ Generally Accepted Accounting Principles (GAAP) that affect the way a financial ratio is calculated. For example, IFRS are not as strict on defining revenue and allow companies to report revenue sooner, so consequently, a balance sheet under this system might show a higher stream of revenue than GAAP's. IFRS also have different requirements for expenses; for example, if a company is spending money on development or an investment for the future, it doesn't necessarily have to be reported as an expense (it can be capitalized). � Another difference between IFRS and GAAP is the specification of the way inventory is accounted for. There are two ways to keep track of this, FIFO and LIFO. IFRS prohibit LIFO, while American standards and others allow participants to freely use either. �

Some additional information about IFRS � IFRS originated in the EU and in 2005 were adopted by the EU. The intention was to make business affairs and accounts accessible across the continent. The idea quickly spread globally, as a common language allowed greater communication worldwide. Although only a portion of the world uses IFRS (about 120 countries in some way; only for 90 countries it’s obligatory), participating countries are spread all over the world, rather than being confined to one geographic region. USA has not yet adopted IFRS, as the GAAP is viewed as the "gold standard".

IFRS for SMEs � In general, most of the small and medium sized enterprises all over the world fail to survive their first year. � So IFRS are perfect instruments to prevent them from bankruptcy by providing a completely transparent market and competition area. � As the IFRS are easier for SMEs they make bureaucracy less needed. By this SMEs can save a lot of time and also reduce their costs which is really important for them after the foundation process and during the first periods of operation.

Accounting harmonization 1 � As the European Union wanted to be a whole open market on its own people and companies wanted to buy some shares from companies of different countries of the European market. But they were unable to analyze and understand the situation of the company they were interested in and to compare with national companies because of the differences of the reporting systems.

Accounting harmonization 2 �Also because of the differences of keeping the accounts and the report types, taxation of companies in the same industry which are operating in the various European countries were calculated differently. �These two main reasons resulted in the urgent need of a new shared accounting system.

Summary/Conclusion For companies that are operating in more than one country the IFRS are big advantages in many ways and were needed by these companies a lot more than by others at the first place, e. g. because they in previous times had to follow and obey different types of rules even for the same business under the same administration. � The main reason of IFRS to make a whole and fair market in Europe but it also spread into the whole world and became global. � After 13 years of application reality turned out to be different from the plan: not every country agreed on using the IFRS obligatorily, some even forbid it (according to the table in our last source). �

Sources � multiedu. tul. cz/~olga. malikova/multiedu/FIU_N/Final _report_European_Accounting. pdf � https: //www. iasplus. com/en/news/2018/03/ifrs-9 eu � www. iasplus. com/en/standards � https: //d-nb. info/1058184431/34 � https: //en. wikipedia. org/wiki/International_Financial _Reporting_Standards � https: //www. investopedia. com/terms/i/ifrs. asp � https: //www. iasplus. com/de/resources/ifrstopics/de/resources/use-of-ifrs/#totals � https: //www. ifrs. org/about-us/who-we-are/ � http: //eur-lex. europa. eu/legalcontent/ENG/TXT/? uri=LEGISSUM: l 26040