IFRS: The Fraud Gateway

Some experts suspect that the new standards will disregard previous rules preventing fraud and that fraud will be harder to detect.The IFRS is a new set of accounting standards developed by the International Accounting Standards Boart that will eventually become the global standard for preparing financial statements in public companies. The purpose for this new system makes sense, especially for businesses. "A business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide...Companies may also benefit by using IFRS if they wish to raise capital abroad" (AICPA). Upper management will have to adopt a new judgment-based approach to certain problems. For example, they will decide the "timing and proportion of revenue recognition, timing and value of expense recognition of share-based payments...[and] timing, value, and reporting of expense recognition of employee benefits" (Cancino). The value judgment element will be a major problem for companies and the consumers of the financial statements. This element will the heart of any fraud schemes that occur after the adoption of the IFRS. Companies will most likely take advantage of this judgment and mislead all readers of financial statements. Some of the potential problems and schemes include "altering the valuation of accounts receivable by failing to establish appropriate reserves and allowances and recognize related expenses, manipulating the methods to value inventory, creating an overstatement of inventory quantities and unit costs, writing off inventory when future value exists, overstating the value of assets, and inappropriately recognizing revenue and expenses" (Cancino). Businesses and firms will take the new system and abuse it, causing them to commit tax fraud and other fraud schemes that would inevitable hurt their reputations.Prevention is the key thing on many upper management individuals' minds. How will firms, with the new power to control their financial statements, want to manage the risk involved? "Not only will the basis for reporting numbers change, internal controls over financial reporting need to change as well. The old accounting policies and procedures may not be effective in light of the new basis of accounting, and companies must be prepared to make wholesale changes to internal controls if they want their numbers to be credible and reliable" (Coenen). Preventing risk will be the hardest problem that will arise from the adoption of the IFRS.

The world is in the midst of an accounting hurricane as companies and organizations attempt to combine the world's accounting systems into one uniform process, the Interational Financial Reporting Standards. Many auditors believe, even with the benefits of the switch, that fraud will become rampant among companies. There will be less focus on procedures allowing companies to create their own statements. Risk assessment and prevention will be more essential than it is now to inhibit fraud. The IFRS is cpa2biz similar to a glass house. It's a beautiful and great idea, but it can quickly be shattered.BibliographyAICPA. IFRS FAQs. 2011. 2011 - http://www.ifrs.com/ifrs_faqs.html#q1. Cancino, Fernando. "The Fraud Beneath the Surface." Internal Auditor (2010): 33-36. Coenen, Tracy. AICPA Store. 2011. 2011 - http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2011/CorpFin/IFRSandFraudMoreChallengesMoreRisks.jsp.