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Making sense of reporting standards

Reporting standards

By Ian Lavis, on behalf of Praxity

As business becomes more global, more and more accountancy firms are having to get to grips with the complex world of international financial reporting.

There is widespread agreement among G20 members, business organisations, governments and the accountancy profession that global financial reporting standards are necessary and can be hugely beneficial to existing and potential investors and creditors, as well as decision makers and other stakeholders.

The problem is the standards that exist are not truly international. Furthermore, the development, implementation and monitoring of financial reporting standards around the world has been patchy to say the least and inconsistencies are the norm.

On the positive side, progress has been made in recent years to harmonise reporting standards with the introduction of International Financial Reporting Standards (IFRS) and Common Reporting Standards (CRS) and converging these CRS with FATCA (the US equivalent). 

Large variations

However, large variations continue to exist between countries and regions, making cross-border reporting hugely complex. Moreover, there are numerous bodies issuing standards, principles and updates around the world, each influenced by different cultural, economic and political factors.

The challenge facing accountancy firms seeking to develop business with international clients is getting to grips with the standards that currently exist and the updates to these standards to help clients produce compliant and consistent financial statements in the countries they operate in.

Nowhere is this more apparent than along the New Silk Road (otherwise known as the Belt and Road initiative), a massive project launched by China to improve the infrastructure for trade throughout more than 60 countries in Asia, Africa, the Middle East and Europe.

In an article published in the October 2017 China edition of Accounting and Business, Zhao Mingji, assistant minister at the Chinese Ministry of Finance, is quoted saying the many different languages and different local accounting standards that exist is “a major issue we must deal with”. He calls for closer intergovernmental cooperation on the harmonisation of the accounting system to facilitate trade and financial integration. 


International Financial Reporting Standards (IFRS) are the closest thing to a common language for the preparation of financial statements. These standards prescribe:

  • the items that should be recognised as assets, liabilities, income and expenses;
  • how to measure those items;
  • how to present them in a set of financial statements, and 
  • related disclosures about those items.

More than 100 jurisdictions require the use of IFRS Standards by all or most domestic public companies. Just over half of the 49,000 companies listed on the 88 largest securities exchanges in the world use IFRS Standards and most of these are in the EU. 

However, a significant number of global businesses don’t use IFRS Standards, including companies in China, India, Japan and the United States. 

Companies that do report under IFRS Standards need to be aware of the latest new standards and interpretations affecting anything from recognition and measurement to presentation and disclosure. These changes can have a significant impact on business decisions such as the structuring of transactions.

Accounting Principles

IFRS aside, the rules and guidelines that companies must follow when reporting financial data can differ markedly from country to country. Unfortunately, this means there is leeway for the distortion of numbers under the different accounting principles.

In the US, for example, the rules and guidelines to follow are the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB). GAAP are the US equivalent of IFRS and represent a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information.

The IASB and the FASB have been working on the convergence of IFRS and GAAP since 2002. A major step forward in this convergence was achieved in 2007 with the removal of the requirement for non-US companies registered in America to reconcile their financial reports with GAAP if their accounts already complied with IFRS. 

Common Reporting Standards

Accountants should also take heed of the Common Reporting Standard (CRS) introduced by the Organisation for Economic Co-operation and Development (OECD). CRS is an agreement involving around 100 countries to automatically exchange financial information to combat tax evasion. There are several stages of compliance requirements, from classification and due diligence to reporting and self-certification. 

The OECD says the automatic exchange of financial information (AEOI) “will enable governments to recover tax revenue lost to non-compliant taxpayers, and will further strengthen international efforts to increase transparency, cooperation, and accountability among financial institutions and tax administrations” as well as “increase voluntary disclosures of concealed assets”. A Global Forum has been set up to monitor AEOI implementation and help developing countries to benefit from it. 


The CRS was modelled on, and closely follows, the US’ tax reporting regime known as FATCA (Foreign Account Tax Compliance Act) but there are important differences. International news agency Reuters says the three main differences are that:

1.CRS has a much broader scope due to its international coverage.

2.CRS and FATCA use different definitions of “reporting financial institution”, so even if your organisation is not required to report on financial accounts under FATCA, it may be under CRS.

3.FATCA only applies to individual accounts with balances exceeding $50,000 whereas companies have different limits and there is no such minimum limit under CRS.

Both CRS and FATCA are important in that they provide greater visibility of an individual or organisation’s wealth no matter where in the world that wealth is invested. 

Keeping abreast of the multitude of international and country-specific reporting standards, and updates to these standards, is no easy task. But accountancy firms that take the initiative and share knowledge and expertise with their counterparts within the Praxity Global Alliance will be in a good position to provide financial reporting services to companies that work across international borders.  

In the meantime, we can but hope that the bodies involved in issuing and monitoring financial reporting standards around the world work more closely together with the aim of introducing more uniformity, simplicity and transparency.

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