A Comparison of the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) for Small and Medium-Sized Entities (SMES) and Compliances of Some Asian Countries to IFRS

By Ibarra, Venus; Suez-Sales, Martha G. | Journal of International Business Research, December 2011 | Go to article overview

A Comparison of the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) for Small and Medium-Sized Entities (SMES) and Compliances of Some Asian Countries to IFRS


Ibarra, Venus, Suez-Sales, Martha G., Journal of International Business Research


This paper compares International Financial Accounting Standards (IFRS) with Generally Accepted Accounting Principles (GAAP) for small and medium-sized entities (SMEs). It touches in part convergence by the Financial Accounting Standard board (FASB) and International Accounting Standard Board (IASB) in bringing IFRS and GAAP to become one international set of standards. Countries will adopt IFRS in response to this global convergence. Asian countries have started compliance with these standards as early as June 2003 when first time adoption was issued by London International Accounting Standards Board (IASB). This paper will present the compliance of selected Asian countries such as China, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam with the IFRS as of 2009-2010.

INTRODUCTION

Extensive preparation and emphasis has been given to the worldwide adoption of International Financial Reporting Standards (IFRS), however IFRS for small and medium-sized entities (SME) should be equally emphasized. IFRS for SMEs are modified IFRS standards tailored to third party users of small and midsize companies that have no public accountability and still need to issue financials for lending, management, and other purposes. Public accountability is applicable when an entity's debt or equity instruments are publicly traded or the entity is a financial institution or other that, as part of its primary business, holds assets in a fiduciary capacity for a broad group of outsiders. If the assets are held in a fiduciary capacity, such as a public utility company, this will not be a cause for an entity to have public accountability. Moreover, the standards for SMEs are more user-friendly for preparers and users than full IFRS. Major key simplifications characteristic of IFRS for SMEs are: the omission of some topics that are not relevant to small and midsize companies; some accounting policies have been modified exclusively for SMEs but are not allowed under full IFRS; minimize disclosures; and simplified language and explanations.

IFRS for Small and Medium-Sized Companies

This table is not meant to be all inclusive. We have simply enumerated some differences between IFRS for SMEs and full IFRS, and IFRS for SMEs and U.S. GAAP to provide the reader with an idea of the changes that have or will take place in the near future.

China's Compliance with IFRS

China is a Communist party-led state that has executive, legislative, and a judicial branch, China has different political and legal system compared to other countries. Though the Chinese Communist Party was formed in 1921, it subsequently led to the formation of the People's Republic of China (PRC) in 1949. Since then China adopted socialism as its political system. With the founding of the PRC, resources that are essential to production in the country became state owned and thus creating state-owned enterprises, also called SOE.

In 1993, China had worked closely with Deloitte Touche Tohmatsu as a consultant to develop the Chinese Accounting Standards that would generally be in line with international accounting and financial reporting practices. About 30 exposure drafts of the standards had been published between 1994 and 1996. By the year 2000, Deloitte Touche Tohmatsu was reappointed as a consultant for the second half of the project. The remaining work was to incorporate in the CAS additional 17 standards that dealt with issues that the International Accounting Standards Committee had addressed.

While in 2001, the Ministry of Finance (MOF) issued a new comprehensive "Accounting System for Business Enterprises" known as the "System". The new system replaced both the Accounting System for Joint-Stock Limited Enterprises and Accounting Regulations for Foreign Investment Enterprises, requiring all enterprises to follow the new unified system. When the system was fully implemented, many of the regulations of the past were replaced giving way to comparability among enterprises.

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