Sunday, January 20, 2008

IFRS accounting will make analysis tricky

Canada is moving quickly towards adopting International Financial Reporting Standards (IFRS). The first two parts of this series focused on the costly drawbacks and purported benefits of the move. This time, we examine some specific impacts IFRS will have on the way in which Canadians value their investments.

IFRS is based on so-called broad principles that form a basic accounting framework. However, to get most countries to agree to the structure, IFRS was built using a low-est-common-denominator approach. In other words, the least-strenuous accounting requirement in each particular area was often selected to ensure acceptance. Consequently, much is left open to interpretation and executives must make considerable assumptions to fill in the holes.

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