A language for communicating financial information

Today’s globalization requires communication standards, so that anyone anywhere on the planet (and soon in the universe) can understand exactly what we want to say.

Consequently, some activities require clear rules applicable to all countries, and organizations have been established in this sense, such as the World Trade Organization (WTO) which is “a forum for governments to negotiate trade agreements”; this organization enforces and monitors these agreements, and also tries to resolve differences between governments.

One of the issues that quickly appeared as a key for further growth in the world trade was to standardize the business financial statements, since capital flows, which are one of the most cross-border economic production factors, require clear and homogeneous financial information.

In this regard, the International Accounting Standards Board (IASB) was established in 2001, in order to develop a single set of high-quality, understandable and enforceable global accounting standards that help capital markets participants worldwide.

One could think that it would be just about renaming some accounts in the financial statements but in fact the implementation of International Financial Reporting Standards (IFRS) in a real improvement to the process of generating and controlling financial reports. Later, the so-called IFRS for Small and Medium-sized Entities (SMEs) also appeared.

A study of 59 countries which began to adopt IFRS in 2002 established that the support base for adopting these Standards came mainly from the governments.

Some of the most important IFRS features about accounting procedures are:

Non-current assets held for sale; Changes in residual values, product life cycle and depreciation methods, introduction of the fair value of an asset inventory for service providers; the LIFO (last-in, first-out) method disappears for cost estimation, among others.

It would be convenient to try quantifying the economic impact of the IFRS implementation and determine to which degree it affects positively or negatively a country, both at Business and at Tax level, mainly in Latin America (LA).

The States normally have to invest to implement these new standards. This involves investing time to adapt the tax law, to train the taxpayers, etc.

Many of these countries have very little resource to cope with their realities of poverty, crime, and other impairments, and these requirements may appear as an extra burden to be carried, considering that they are part of the process to attract Foreign Direct Investment and potential investors in their stock markets.

At the rate the world is shrinking today as a result of globalization, of integration between countries, of new technological challenges, we believe that in a short time these Accounting Standards will be re-modified and adjusted to new circumstances and again the States will have to take on these challenges.

To address these present and future challenges, it would be advisable to create Technical Boards (with Government and Private sector representatives) that would take all the necessary steps, relying on cooperation with other countries better adapted to these issues and with the sponsoring of organizations that would help to cover these investments.

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