IFRS Adoption – Its Impact, Opportunities, and Challenges
The IFRS affects the balance sheet structure, and the resulting outcomes have a straight effect on credit ratings, experts\’ evaluations, borrowing costs, and dividend payment procedures, all of which eventually create an impact on the performance of shares on the stock exchange. The experts believe that IFRS\’s application has a considerable effect rather than just affecting the accounting entries that need stakeholders\’ vigilant supervision.
Moreover, IFRS can impact financial outcomes while modifying the balance sheet. It can strongly affect the KPI\’s upon which usually the management is assessed, e.g., alteration of liquidity ratios, effects on the cost of debt. Forecasting the modifications before the adoption enables the organizations to manage the impact of IFRS so that the changes are made in advance, saving the organization from any adverse effect.
IFRS application in the Kingdom of Saudi Arabia
Many believe that IFRS presents a considerable challenge to organizations, but it is also true that the conversion to IFRS also offers substantial opportunities. It is believed that IFRS application in the Kingdom of Saudi Arabia allows listed companies with a chance to measure the Property, Plant & Equipment and Investment Properties at Fair Value from the date of IFRS adoption, which was previously recognized at their carrying amounts (Cost – Accumulated Depreciation – Accumulated Impairment Losses). With the transition to IFRS, the companies can validate a more current financial position and possibly generate distributable reserves that previously were not the case.
As a result of this transition, the companies are seen interacting with their financial valuation experts. Companies are taking benefits of the implication rules, which result in the generation of extra value in the balance sheet. It adds to the valuation opportunities, but one can also adopt efficient procedures and reporting mechanisms, which will save costs and improve the speed of financial reporting procedures, giving management a better chance to make quick decisions.
Well, it is not as easy as it seems. Adopting IFRS is creating a substantial burden on companies regarding the needed changes to systems and procedures. Companies are also finding it challenging to re-invent their reporting systems to report IFRS data for disclosure purposes. IFRS also contains different guidelines on which costs need to be capitalized and which need to be expensed out.
Zakat tax in Saudi Arabia
Companies are finding out that the allocation process needs an amendment, which is expensive and time-consuming. Still, IFRS also requires revenue expenditures to be recognized in the income statement creating a descending pressure in some scenarios, which has become a key focus in the finance community of Saudi Arabia. The resultant changes might also affect the Zakat tax in Saudi Arabia. It is yet to be seen the actual impact of the conversion to IFRS, but it is believed that it will be surprising for many companies.
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