International Financial Reporting Standards

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International Financial Reporting Standards

Postby Anup V » Tue Aug 07, 2012 11:11 pm

The aim of this thesis is to examine the legal situation with regard to the IFRS-transition in Sweden. Sweden has a close linkage between accounting and taxation, which means that accounting rules have a material impact on taxation. IFRS currently applies only on group level, and the group is not subject to tax. However, there are already indirect tax effects to be seen since accounting practice in Sweden has changed due to IFRS. The most significant potential effect on taxation in a Swedish context is fair valuation of certain assets. If IFRS is applied on legal-entity level under current tax rules, unrealized gains would set the realization principle and the principle of economic double taxation out of play. Therefore, the linkage is threatened by IFRS’s accounting philosophy and is currently subject to scrutiny by an investigating committee that will issue a solution in 2007.

This thesis examines effects on taxation due to the IFRS-transition in Sweden. The purpose is to investigate the legal situation with regard to this transition. The linkage between accounting and taxation convey that the legal situation of accounting is examined as the field has a material impact on taxation. Furthermore, the thesis investigates both current effects of the transition and effects that would arise assuming that IFRS is applied on legal entity level. The presentation of these hypothetic effects are justified by the current discussion in Sweden on whether or not to permit IFRS-compliance on legal-entity level and furthermore, by the efforts to converge to IFRS within the boundaries of national law. Based on these discussions, the thesis concludes by discussing the suitability of admitting IFRS affect the Swedish tax system, i.e. if IFRS calls for disengagement between accounting and taxation.

The outline and approach of the thesis has been designed for an international audience since it is written within the Wintercourse project under the Stockholm School of Economics Department of Business Law. A draft of the thesis was presented at the EUCOTAX Wintercourse which took place at the University of Tilburg in April 2006. Finally, the thesis does not claim to be exhaustive with regard to the effects on the covered fields, but rather to highlight the key developments and effects brought on by the Swedish IFRS-transition.

IASB Framework

The purpose of the IASB Framework for the Preparation and Presentation of Financial Statements is to describe the basic concepts underlying financial statements prepared in accordance with IFRS. The Framework defines the objective of financial statements, identifies the qualitative characteristics that make information in financial statements useful and defines the basic elements and concepts of recognition and measurement in financial statements.

The Framework is not a part of IFRS, and hence does not override potential contraventions with existing IFRSs. However, it makes the principles-based approach of the IASB possible by providing guidance for resolving questions without need for increasingly specific standards, extensive interpretations and other detailed implementation guidance. The Framework is concerned with general purpose financial statements.21 Such financial statements are directed towards the common information needs of a wide range of users, e.g. shareholders, creditors, employees and the public at large. According to the Framework, the objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to these users in making economic decisions, i.e. to provide decision usefulness

IFRSs are accounting standards developed for world-wide applicability and the primary purpose is to satisfy the information needs of owners and other investors. As such, they lack linkages to any specific economic or legal environment. The set of rules is investor oriented in the sense that it aims to generate financial statements with focus on decision usefulness. This implies that compliance with IFRS provides forward-looking reporting. The Framework provides a foundation of common definitions and qualitative characteristics that serves as a tool of reference to several parties and secures the principles-based approach. Principles-based accounting systems leave room for judgment but the Framework ensures that this judgment does not amount to a free choice in the hands of the preparers.

Thesis Done By Karolina Levin, Stockholm School of Economics
Anup V
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