A draft proposal, concerning disclosure requirements related to the adoption of the IFRS by public companies, had been recently published by the ISA for public comments. The required disclosure will provide important explanation to both investors and the public, that make use of financial statements; it will also provide useful, relevant and reliable information, ahead of time, which will assist investors in understanding the principals of transfer and the results of adopting new standards of financial reporting.
In November 2005 the IASB had decided that financial statements of companies traded on the stock exchange, or are in the process of being registered for trade on the stock exchange, or had offered securities to the public according to a prospectus must be presented in accordance with International Financial Reporting Standards – starting January 1, 2008. This ground-breaking decision is further strengthening Israel’s position within the global financial community. The practical implication of the aforesaid decision is that – every person reading financial statements of the companies traded in Israel and presented in accordance with the IFRS standards will be able to understand them. That in contrast to present day situation, which requires studying Israeli accounting rules in order to understand said financial statements, requirement that hampers the activities of companies looking to invest in the local capital market.
The Accounting Standard no. 29 had been published following the aforesaid decision; it stipulates that all entities subject to the Securities Law, and reporting according to the aforesaid law, must present their financial statements in accordance with the IFRS standards – starting January 1, 2008. Furthermore, Accounting Standard no. 29 encourages voluntary presentation of financial reports according to the IFRS even prior to the aforesaid date. In light of the aforesaid the ISA had initiated amendments to the Securities Law Regulations, which will facilitate the application of the Accounting Standard no. 29. According to the guide lines the reporting corporation is required to adopt a two-stage discloser, whereby the report issued by the board of directors will include the following details:
The board of directors report for 2006:
A. Information pertaining to transition to IFRS – transition that requires preliminary and fundamental preparations by the reporting corporation. Educated valuation is one of the keys for the smooth transition to international standards. In this context disclosure and explanations, pertaining to the adoption process of the IFRS, have to be provided by the corporation, as well as detailed sequence of steps for the aforesaid adoption along with the indication of where the corporation finds itself at present relative to the proposed plan.
B. Verbal description of material changes that might occur in the accounting policy of the corporation, as a result of the IFRS adoption. The purpose of this disclosure is to identify the changes which are expected to affect corporation’s financial statements, but not to make disclosures pertaining to GAAP or other data – not relevant to the corporation itself. The disclosure should also address future developments, that are known to take place or are planned by the corporation, whose accounting treatment will be affected by the adoption of the IFRS (for example, a definite and proclaimed intention of a company to enter a certain field for which present accounting presentation is significantly different from the one under IFRS). The ISA emphasizes that a corporation should not supply partial information, as part of the aforesaid disclosure, but should comprehensively review all international standards, identify changes relevant to its activities and only then provide the required disclosure.
The board of directors report for 2007:
A. Existing information or valuations pertaining to the quantitative influence of the transfer to the IFRS. The ISA emphasizes that corporations should approach the required disclosure with all due carefulness, in order to avoid biasness or the inclusion of partial quantitative information which will create a misleading situation(positive, negative or neutral) regarding the expected quantitative influence. In case the existing quantitative information, which exists on the aforesaid date, is not complete or reliable the corporation is obligated to state the fact including the reasons for its occurrence, as well as to define the gaps existing in the identification of the aforesaid quantitative influences. This information must be updated in the board of directors’ report for the following quarter. Also, if the information is not complete due to the fact that a corporation is yet to decide on the accounting alternative appropriate to it, the disclosure pertaining to the aforesaid quantitative influence shall be provided in regard to each alternative – separately. The ISA expects that on the date this disclosure is required the reporting corporations will be able to quantify the influence of the transition to the IFRS in a credible and complete manner.
B. Detailed list of contracts, agreements or material agreements that might be affected by the adoption of the IFRS, whether due to the change of regulations or due to the reference to data that will be affected as the result of the transfer.