2018-01-26 00:00:00 Tax Professional English Check out three myths about the International Financial Reporting Standards. Learn the truth behind myths claiming that the IFRS only apply... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/03/Accounting-professionals-discuss-pricing-and-freelance-services.jpg https://quickbooks.intuit.com/ca/resources/pro-taxes/ifrs-myths-effect-canadian-businesses/ 3 Myths About the IFRS and Their Effect on Canadian Businesses

3 Myths About the IFRS and Their Effect on Canadian Businesses

2 min read

As of 2018 and 2019, the International Financial Reporting Standards are changing. IFRS 9 (which addresses financial instruments) and IFRS 15 (which deals with revenue reporting from contracts) are both effective January 1, 2018, and IFRS 16 (concerning leases) is effective the following year. As you prepare to incorporate the new standards in your accounting firm or business, you may run into several myths or misconceptions.

Myth #1: IFRS 9 Only Affects Banks

IFRS 9 (Financial Instruments) is going to replace the current International Accounting Standards 39. The new standards do affect banks. Financial institutions have to embrace new credit loss models, classify financial instruments differently, and potentially use different strategies for hedge accounting. For example, under the new standards, there is no longer a held-to-maturity category or an available-for-sale category when classifying financial instruments.

These new standards also affect other businesses. The standards that apply to loans can also apply to receivables. If a business relies on cash flows based on contractual agreements with clients, they also have to adopt the new rules. Additionally, investments in equity instruments, purchased options, and preferred shares are also affected by the new standards.

Myth #2: IFRS 16 Only Affects Companies With Multiple Leases

Even entities with just one lease are affected by IFRS 16. Under the new standards, the lessee’s balance sheet has to include nearly every lease as a right-of-use asset. This just refers to the lessee’s right to use that asset during the duration of the lease. Income statements also change under the new standards.

Instead of just accounting for rent as an expense, the lessee must also take interest and depreciation into account. To embrace the new changes, companies need to make adjustments to their processes, but the exact steps vary. For example, some companies may need to redraft their lease agreements. Others may need to adopt new systems to manage and account for leases.

Myth #3: IFRS Only Affects Accounting Departments

As an accountant, you need to understand the new changes. In many cases, you’ll probably end up guiding everyone else through the changes. That applies both to people in your organization and in your clients’ organizations.

The changes don’t just affect the company’s finance department; they affect almost all departments in a business. For example, the information technology team may need to develop and install new software. The legal department needs to ensure that contracts for leases and business deals meet the new standards while also protecting the company from a legal standpoint. The marketing department may need to adjust the company’s messages. For instance, if the marketing plan outlines contractual offerings, it may need changes to reflect the new standards.

If you’re an accountant for a business that uses these types of financial instruments, or if you’re an accountant who advises clients who use these instruments, you have to understand the changes and help your clients or your company implement them. As companies struggle to adapt to the new rules, you may want to offer extra help and consultancy services.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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