Controversy is likely to continue as IFRS is both refined and extended in jurisdictions beyond Europe. The following is a summary of how a sample of retail groups on three continents regard IFRS and whether the conversion has succeeded in terms of the stated aims.
Nine retail groups which have extensive operations embracing both core and non-core retail activities were asked to discuss a wide range of issues raised by the transition to IFRS. In particular, they were asked to consider three main themes:
- How much remains to be done in IFRS implementation in the large retail company sector?
- How much further refinement of IFRS or implementation guidelines remains to be achieved?
- What are the remaining challenges in using IFRS implementation in communication with shareholders and wider financial markets?
A small number of implementation challenges are repeatedly cited as important, irrespective of the nature or location of the retail business. These include implementation of the component approach to accounting, revenue recognition and accounting for leases. A wider range of issues are identified by fewer companies ― these include foreign exchange issues, impairment of assets, pensions, inventory and accounting for goodwill. Several companies also identify lack of experience among professional advisers as something that increases the implementation challenge.
Companies consider that more guidance is required, and some companies consider that disclosure requirements are too voluminous (although this is an area of disagreement). In terms of specific revisions, companies suggest that IFRS requires improved precision in several areas: most commonly cited is impairment of assets.
Many companies express either no intention or very modest intentions to lobby for changes to IFRS. There is no consensus on the best method of lobbying. European retailers are evenly divided between preferences for individual approaches to the International Accounting Standards Board (IASB) and collective or third-party approaches. European companies appear to agree that the effectiveness of lobbying so far has been limited, yet many believe that it remains worthwhile.
Many companies say that the effect of IFRS on operational decisions will be marginal but only one out of nine companies say that there will be no effect at all. Seven out of nine companies say that IFRS will change the way they handle leases. Two companies consider that IFRS will affect decisions on store viability.
Companies express consensus that IFRS has improved the comparability of accounts; the only exception being one case of special national circumstances. Few companies express a strong view on the impact on transparency. There is consensus that IFRS has impaired the legibility of accounts.
The majority of companies agree that the level of financial community understanding of IFRS is poor but improving. Commenting on the ability of both banks and investment analysts to interpret IFRS, one company says that the transition to new standards will increase expectations that auditors would fully interpret accounts. Only one company considers that shareholder understanding of IFRS is good. The great majority of companies believe that companies and their auditors need to do more to improve understanding in the financial community and among shareholders.
Eight out of nine companies believe there will be long-term benefits from better harmonization of accounts across borders. Several companies comment that IFRS will improve communication and the mobility of staff within a network of subsidiaries. Companies also consider that IFRS will improve acquisition opportunities. Two companies add that there will be benefits from improved access to capital markets. However, two companies also caution that IFRS benefits may take longer than expected to materialize.