Wednesday, October 29, 2008

Will auditors and accountants agree on how to apply IFRS principles?

Will IFRS Help?

This is the title of an article in the Financial Post yesterday by Karim Jamal and Hun-Tong Tan

Recent findings from a research study we conducted indicate that a principles based approach has the potential to significantly improve financial reporting, but only if auditors are also principles-oriented. If auditors are not principles-oriented, rules based accounting standards may be preferable.

The authors base their views on a case study experiment involving managers and auditors and a hypothetical proposed lease transaction. This is an interesting view.

Clearly though there is a point here. Auditors will have to come up with a framework for evaluating accounting conclusions of their clients. The clients themselves will need to demonstrate clearly why particular choices will be made under the principles based IFRS. Do the right documentation and do it right. Give us a framework please.

No comments: