The impact of IFRS on business varies depending on the particular industry. Credit institutions have been most affected by IAS 32 and IAS 39 as other businesses for example.
Impact of fair value
It challenges the core accounting principles to the extent that it amends certain accounting concepts. The traditional accounting records the acquisition of property (say, a asset for a value of one thousand euros) and returns recorded in the income statement.
The principle of fair value requires, if we know that this income is only worth 500 euros, to recognize a loss potential and to show potential investors and shareholders the economic reality of the business assets.
The application of this method has led to criticism of accounting standards during the subprime crisis, a specialized newspaper wrote : “The transition to IFRS now exposes companies to a very high volatility as well as their account balance in their income statement.”
Impact on banks: modification of IAS 32 and 39
In September 2003, the European Commission adopted the international accounting standards, with the exception of IAS 32 and IAS 39 on financial instruments. End of 2004 , it adopted a Regulation partial approval of the standard 39.
It came into force on 1 January 2005, except – temporarily – of the parts concerning hedge accounting and fair value option. This adoption is welcomed by credit institutions as it gives more time to reach a standard best suited to the economic reality.
As it stands, the standard 39 would have led to high volatility in the equity and results, particularly in the field of retail banking. In June 2005 , the IASB published an amendment to IAS 39 for the part about the fair value option.
IAS 39 then comes into force at the time, but was still incomplete, as the macro hedging part was still under discussion.
This standard will then be amended several times, including during the financial crisis in 2008 regarding the reclassification of financial instruments.
Following criticism by many stakeholders against IAS 39, the IASB decided to replace it with a new standard : IFRS 9. It was aimed at gradually replacing the many provisions of IAS 39.
The first part of this standard on the financial assets, was released on 12 November 2009 and became applicable in advance from 2009 ( and became mandatory as of 1 January 2013) .
The first part is based on a new single approach to determine whether a financial asset is measured at amortized cost or fair value cost.
One based on how an entity manages its financial instruments (its business model) and the characteristics approach the contractual cash flows of financial assets.
This first phase of IFRS 9 focuses exclusively on the classification and measurement of financial assets and will be followed later by the production of two other components of impairment of financial assets and hedge accounting .
The adaptations of the information system requires the implementation of software tools that allow the extraction of more data and often from disparate databases.
The acquisition of these tools should be done carefully to ensure compatibility with existing systems and scalability because of accounting standards that are still evolving .
The implementation of the security aspect would be incomplete without a precise definition or redefinition of access to applications procedures, contingency plans, archiving and protection of personal data.
In contractual terms, the definition of repository compliance, timeliness and consistency of adaptations from different sources will be among the recurring business concerns.
The requirements of a secure financial information will lead to a major reorganization of internal company procedures and the consequent strengthening of the security of their information systems.