The international trade relations of Polish companies and the presence of entrepreneurs on the global stage is not a phenomenon of just the past few years. However, this expansion has been gaining momentum recently, with Polish businesses conquering new countries and markets. Our companies adapt their products and services to foreign needs and align their operational procedures with international law. One such adaptation is maintaining accounting records according to IAS / IFRS.
International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) aim to harmonize accounting and financial information as much as possible. This harmonization ensures transparency, allows for comparability, supports the development of capital markets, and facilitates economic cooperation on a larger scale than just local. The primary motive is the desire to present the financial situation of a company transparently and clearly for foreign representatives. Using such standards speeds up obtaining the data needed to prepare and supplement a prospectus. A company seeking to attract capital and planning to sell a package of shares aimed at foreign funds or entities should prepare its financial reports according to IAS / IFRS guidelines. This has a concrete, measurable effect – it makes it easier for investors to invest.
Who is Required to Apply IAS / IFRS Standards?
However, IAS / IFRS is not just a matter of choice. The Accounting Act imposes the requirement to use these standards in two cases. Banks and issuers of securities admitted to public trading must keep their accounting records according to international requirements. Additionally, the Polish Act lists other entities that may, but are not required to, prepare consolidated financial statements in accordance with IFRS. These entities include issuers of securities on one of the regulated markets in the European Union, Iceland, Liechtenstein, and Norway. This applies to joint-stock companies listed on stock exchanges or planning to introduce shares to the stock market. It concerns entities that have applied for the approval of a prospectus or its part, indicating the intention to seek admission of securities to public trading. Another group mentioned among those who may voluntarily apply international standards are lower-level parent entities within a capital group where the higher-level parent prepares consolidated financial statements according to IFRS. Another group includes local branches of foreign companies that already use international financial reporting standards.
Requirements and Procedures
Both mandatory and voluntary application of IAS / IFRS involves a number of requirements and restrictions. When a company is obliged or decides to apply these standards, it must undergo the procedure associated with the first-time adoption of standards, described in IFRS 1. This procedure consists of several stages with long-term preparations and requires many accounting documents.
Among the obligations and tasks imposed by the transition from the Accounting Act to IFRS are the need to develop new accounting policies, determine the extent of using exemptions from retrospective application of standards, establish the date of such transition and comparative periods, prepare a statement of the initial financial position at the transition date to IFRS, and prepare financial statements according to the new standards.
New Standards, New Challenges
Financial statements prepared according to International Financial Reporting Standards include the balance sheet, income statement, statement of changes in equity, cash flow statement, and additional information. The standards themselves provide principles for preparing financial statements, valuation of assets and liabilities, presentation of financial data, cash flows, and fixed assets.
The transition to international standards is not easy and can encounter various problems and dilemmas. One of the first important decisions is choosing the appropriate transition method. Subsequent challenges include avoiding simplifications when using IFRS and the inability to use the Minister of Finance’s regulation on financial instruments. Unfortunately, this is not the end of the list of difficulties and issues to be resolved.
Companies transitioning from the Accounting Act to IAS / IFRS must face small and large problems – determining the correct value of fixed assets, insufficient knowledge of accountants in applying new international standards, and solving specifically Polish issues not addressed in IAS / IFRS, such as perpetual usufruct rights to land, social facilities, low-value assets, revaluation from 1995, or the issue of hyperinflation. Additionally, entities preparing reports according to IFRS, according to the Accounting Act, are subject to mandatory audit by an auditor.
Mandatory Items
Dealing with these difficulties is the first stage during which entities preparing financial statements, their users, and auditors should familiarize themselves with the new standards and compare them with the national standards that set the previous requirements. The preparation of financial statements must also meet certain technical and substantive conditions. The accounting records according to IAS should be prepared in the native language, and all information must be based on the concept of a true and fair view.
As a source of such information for preparing financial statements according to IAS, management reporting should be used. This reporting involves collecting, processing, and analyzing (business simulation) to generate final reports by controlling specialists to support decision-making processes at various management levels. This type of reporting is the best, because it is the most synthetic, source of information about the asset, financial situation, and activities of the entity.
What Else is Worth Knowing?
There are also regulations regarding the currency in which accounting records are kept. A company has the right to present its financial statements in any currency defined as the presentation currency. However, in terms of recording transactions, IAS uses the concept of functional currency. This refers to the currency of the primary economic environment in which the entity operates and in which it generates and spends cash. International standards allow the presentation currency to be different from the functional currency. However, even here, one must follow the guidelines. The obligation in such a situation is to indicate the functional currency in the financial statements and provide the reason for using a different presentation currency.
According to IAS / IFRS, even small companies are required to conduct an audit. In such cases, it is worth relying on an outsourcing company with extensive international experience. At BPiON, as experts in business outsourcing services throughout Central and Eastern Europe, we can attest that knowledge of local laws in individual countries, as well as expert knowledge of international standards, is the key to successfully navigating the maze of regulations, requirements, and procedures. Key tools for providing accounting services include ERP systems, ECMS containing electronic document circulation, and management reporting systems.
