International financial reporting standards as a main tool of accounting system reforming in Kazakhstan
Table of contents: The Kazakh-American Free University Academic Journal №5 - 2013
Author: Urazova Natalya, Kazakh-American Free University, Kazakhstan
Application of the principles and techniques of international
accounting standards (IAS) in the national accounting system indicates that the
IAS - it is not only the methods and approaches for accounting and reporting,
but also, to a certain extent, it is a sign of democratic civilized society.
The need for a common business "language", as
traditionally called accounting, was due to the development of international
trade, transnational corporations, the globalization of financial markets. The
financial statements of companies in different countries have differences which
depend on social, economic and political factors. Differences in approaches to
the content of the financial statements significantly complicated the analysis
of information and decision-making. Therefore, Committee on International
Accounting Standards Board (IASB) was created by the agreement of professional
accountancy bodies in Australia, the UK, Ireland, Canada, the Netherlands, Germany, Mexico, USA, France, and Japan to ensure the harmonization of financial
reporting in June 29, 1973. Initially, the aims of IASB were formulating,
publication and improvement accounting standards for the public interest, as
well as facilitate their acceptance and compliance in all countries.
International Financial Reporting Standards do not require legislative consolidation
and voluntarily applied worldwide. All companies in our country are required to
keep their accounts in accordance with IFRS. At the same time a number of laws
were adopted, which related to the preparation of consolidated financial
statements in accordance with IFRS. IFRS allows domestic enterprises to improve
their investment attractiveness and transparency, provides access to the global
capital markets. There are some positive aspects. But why the transition to
IFRS has become a headache for the Kazakh companies?
Let's try to sort out this issue. The organization of accounting in
some countries is affected by the following factors:
• major users of accounting information (government, banks, and
• enterprises which involved in the investment process;
• the degree of the market and securities exchanges development;
• the degree of investors participation in international business.
Accounting is not only the business language, but also it is a tool
of international communication. Most of the major corporations today – it is
multinationals which owned by national capital, but international in its
activities carried out abroad.
There were several alternative accounting systems of financial
reporting, claiming the role of global standards on the historical stage of
• U.S. generally accepted accounting principles (U.S. GAAP);
• EU directives;
Financial Reporting Standards (IFRS).
Methods of evaluating of the accounting objects and the amount of disclosed
information in the financial statements depend on the requirements of users of
The main external users of information, which provided on the basis
of the financial statements, are current and potential investors. Financial
statements must be based on principles which common to all economic subjects to
make effective decisions for external users. Creating of such principles and
monitoring their performance - is the main task of regulatory accounting.
Conducted comparative analysis of financial reporting principles allowed to
identify the main differences in the models of financial reporting of American
and Kazakh companies.
The main specific features of financial accounting regulation in the
• independent of organizations that govern the financial and tax
accounting. It establishes a complete separation of financial and tax
• clear orientation of regulatory organizations to the information
needs of users - present and future investors and creditors.
Both influence to stable development of stock market.
Securities and Exchange Commission is a main key in the regulatory
system of financial accounting and reporting in the United States. The Commission was established in 1934
after the global economic crisis. It is a public service, whose main objective
is to monitor compliance with the laws, which governing the issuance and
trading of securities, to protect investors.
Inclusion of the issuer's securities in any U.S. exchange quotation sheets only possible with the approval of the financial statements of the
company (in the form of a registration report when of the securities emission
and quarterly reports) by the Securities and Exchange Commission. Commission
checks compliance with the requirements in terms of financial information to be
disclosed and publishes financial statements of companies. Despite the status
of public service, the Commission is an agency independent of the executive
branch. Importantly, almost since its inception, the Commission has transferred
its authority to develop and adopt standards of financial accounting to professional
organizations. It is principally engaged in the development of formal financial
reporting requirements, overseeing their implementation, and only in exceptional
cases it is included in the regulatory process of accounting of certain assets
and liabilities, income and expenses.
Audit is a mechanism of validation of financial statements, its
effectiveness is ensured by professionalism, independence and property
liability of the auditor. In
this regard, the Association of Professional Accountants of the United States plays an important role in the regulation of financial accounting in the United States. Certificate of the Public Accountant, which is issued by the Association on
the basis of the results of its examination, gives the exclusive right to sign
an audit opinion on the financial statements of compliance with U.S. GAAP.
Association of Professional Accountants of the United States develops auditing standards, defines the requirements for auditors and audit
organizations, carries out training sets and qualifications of auditors. Although Association has lacks of authority
to develop and adopt standards of financial accounting, it forms professional
staffs, which is involved in the preparation of standards and monitor their
The Council of Financial Accounting Standards Organization is an
organization, which develops and adopts standards of financial accounting. It
is independent non-governmental organization, funded through publications and
sponsors. The standard is
adopted with the consent of five of the seven voting members, which to ensure
their independence must not conduct any other professional and commercial
activities. The process of formulation and adoption of standards is clearly
formalized, ensures their quality and the views of all stakeholders. It
includes steps such as the formation of a group of experts in the given
accounting issue, the publication of the draft standard and open discussion.
The Committee of development problems of financial accounting is at the Council
of Standards. The main task of this Committee is timely detection of problems
in the financial accounting and the development of options for possible solutions
Analysis of the regulatory system of financial accounting in the United States shows how the public and government bodies highly evaluate the significance
of financial accounting for the country's economy. Also they evaluate
availability of system which combined public and professional regulation of
financial accounting, in which independent professional organizations are
developing standards that governed financial accounting and audit of financial
statements, and The Securities Commission - development of formal reporting
requirements and their enforcement, and monitoring of compliance legislation. Thus, the regulatory system of financial
accounting in the United States is able to provide professional and objective
approach to the development of standards and two-level control system. Perhaps
the US do not confront with the IFRS, as in Kazakhstan.
The main objective of the U.S. financial reporting is providing
information for investors to monitor the effectiveness of investment. It is
reached by the complex action of the three areas of financial accounting
• Developing conceptual accounting principles, which characterize
the main methods of processing and presentation of financial information;
• Development of targets, which are complex qualitative and formal requirements to the result
of financial services - financial statements;
• Developing requirements for accounting technique of individual
The criteria were developed based on the conceptual accounting
principles in the United States according to which the assets, liabilities,
income and expenses are recognized in the financial statements of the company.
American accountant solves a number of key issues during the reporting. For example, when considering the nature of
the consumables operation, accountant determines whether this amount is
attributed to the expense of the reporting period or activated as deferred expenses. The operation, which results in an increase
in assets, either directly
relates to income for the period, or relates to deferred income. Since accounting data intended for external
users, the purpose of administration of the company is to provide information
of a positive nature. It helps to attract investment using the accounting
options that capture the most revenue in the financial statements and the
maximum amount of costs to activate that is transferred to future periods.
IFRS, on the contrary, seek to avoid the company's ability to
manipulate financial situation of company. Therefore it excludes income in
profit and loss statement, which is not related to this period, but the total
reflection of all costs incurred.
In accordance with these restrictions costs may be reflected on the
balance sheet as an asset, if the likelihood of the economic effect of its use
in the following periods is greater than 50%, transaction or event that is the cause of the right to economic
benefits in the future, have already taken place, the cost or value of the asset
can be measured reliably. If the probability criterion is not made, the expense
is recognized in the profit and loss statement. The expense is recognized in the profit and loss statement, if:
• economic effect of the transaction (cash or other consideration)
has been received, or with a high degree of probability will be received in the
• revenue can be reliably measured;
• transaction or event giving rise to the income, have already taken
If the income criterion is not satisfied, the amount relates either
to accounts payable or accounts for deferred income. If other criteria are not satisfied, then the operation is not
reflected in the reporting forms and balances, but if it can affect the
assessment of the financial situation of the company (significant), it must be
described in the notes to financial statements. Amounts are carried on the accounts
of financial accounting after determining the nature of the operation.
There are no standard charts of accounts in the U.S. Each company develops its own chart of accounts to meet the needs of financial, tax and
management accounting. Such a
plan can have several thousand accounts, therefore group of accounts are linked
to specific rows of financial reporting forms. Standard reporting forms are not
developed in the United States. The forms of financial statements are created
by the company based on the requirements of the standards, the Securities and Exchange
Commission, financial needs analysis, taking into account the need for
disclosure in the financial statements of all significant items .
In Kazakhstan more attention, compared to order of the subsequent evaluation of financial
investments, is given the rules of formation of their original cost, which are
regulated in detail for professional participants and other economic objects. U.S. GAAP requires the assessment of the initial
cost of investments in accordance with the general rules of asset's original
cost estimates that allow referring to the original cost of all costs directly
attributable to the acquisition. Regulation of the procedure of forming the initial cost in the United States and Kazakhstan has a different target orientation. U.S. GAAP has a goal to avoid unnecessary costs referring to the
original cost of the asset, and our domestic regulations - on the contrary, to
avoid unnecessary costs referring to the cost. Hence such differences are. There are actually very much differences.
In addition, there are several problems still to be resolved:
• lack of consistency of IAS with other legislation;
• significant time lag of publication of international standards
• shortage of qualified personnel;
• weak functioned national system of professional certification.
Internal audit system have been introduced mandatory only for joint
stock companies, LLP can optionally enter a unit staff.
Another issue that has not been resolved to this day is the current
tax legislation which is not always permit to shift the accounting data for
their application for tax purposes. The new Tax Code of the Republic of Kazakhstan is intended to settle this problem. Examples of "problematic" moments are revaluation and impairment
of assets, their classification as an asset, in the functional currency accounting
and useful life. Analysis of
the provisions of the Tax Code in relation to IFRS brings conflicts which
inevitably occur during tax audits.
First of all, such situations are based on the following
• in some cases, IFRS requires different or alternative approaches
to accounting objects and requires professional judgment;
• when registration the asset IFRS does not take into account the
right of ownership of the asset, and is based on the transfer of a substantial
portion of the risks and rewards associated with the asset;
• IFRS are subject of frequent changes made by IASB that can
neutralize all attempts to bring the tax laws in accordance with IFRS as of a
Thus, the differences in accounting for certain assets and
liabilities in the U.S. and Kazakh financial reporting systems caused
fundamentally different approaches to financial accounting in the United States and Kazakhstan. Despite the recognition
of all financial reporting principles accepted in the United States, the Kazakh financial accounting and reporting have tax character, which
characterized the priority of formal requirements on the presence and nature of
the primary documentation before the economic substance of transactions, which
in practice usually leads to an overstatement of financial results. In addition, the landmark of tax accounting
does not allow the devaluation of assets, while their real value, which is one
of the main means of monitoring the effectiveness of placements owners. I.e. Kazakh accounting methods do not allow
a shareholder to assess how effectively the leadership of money deposited, and
a comparison with other companies. Simple declaration of advanced financial accounting and reporting
principles, based on the unity of fixation and analysis of economic information
in accounting, is not enough for their implementation in domestic practice.
2. RK Law "On Accounting and Financial
Reporting" from 28.02.2007. Number 235.
3. RK Law "On taxes and other obligatory
payments to the budget" from 13.12.2008 № 2235 (with amendments 01. 01. 2014)
4. Teplova T.V., Grigorieva T.I. Situational financial analysis scheme, tasks, cases: Proc.
manual for schools. - Moscow: Publishing House. House HSE, 2006.
Table of contents: The Kazakh-American Free University Academic Journal №5 - 2013