The Sarbanes-Oxley

INTRODUCTION

In the wake of high-profile corporate accounting debacles, authorities have started to take action, and new international accounting standards (IAS) defined rules on boardsÐŽ¦ responsibilities and imposed penalties (the Sarbanes-Oxley Act) have come into effect. IAS rules will cause a greater need for comparability across various accounting and reporting principles.

The European Union has decided that listed companies, a company which has any of its shares listed on a recognized stock market, should use international accounting standards (IAS) for accounting periods beginning since January 2005. Therefore, all EU listed companies that are required to publish consolidated accounts will be required to prepare their accounts in accordance with adopted International Financial Reporting Standards (IFRS). That will cause a greater need for comparability across various accounting and reporting principles.

1. Change in Financial Reporting

Following recent decisions by various jurisdictions to adopt International Financial Reporting Standards (IFRSs), more than 90 countries will either require or permit the use of IFRSs during the next five years. Thousands of companies throughout the world will be making a transaction in financial reporting by breaking away from national practices and changing to accounting standards set by the International Accounting Standards Board (IASB).

IASB issued IRS 1 First-time Adoption of International Financial Reporting Standards, which requires an entity to comply with every IASB standard in force in the first year when the entity first adopts IFRSs, with some targeted and specific exceptions after consideration of the cost of full compliance. Under IFRS 1, entities must explain how the transition to ISAB standards affects their reported financial position, financial performance and cash flows.

The IASB published 13 revised International Accounting Standard (IASs) on Dec 2003 as below. The revised standards mark the near-completion of the IASBs Improvements project which is a central element of the IASBs strategy to raise the quality and consistence of financial reporting generally.

IAS1 Presentation of financial statements:-

Disclosure is required of critical judgments made by management in applying accounting policies. (IAS 1 see paragraph IN12). Disclosure is required of those assumptions made by management that are important in determining accounting estimates and could cause material adjustment to the carrying amounts of assets and liabilities.

IAS2 Inventories

IAS 2 requires reversal of write-downs of inventories when the circumstances that previously caused inventories to be written down below cost no longer exist (paragraph 30). IAS 2 also requires the amount of any reversal of any write-down of inventories to be recognized in profit or loss (paragraph 31).

IAS8 Accounting policies:

IAS 8 now requires retrospective application of voluntary changes in accounting policies and retrospective restatement to correct all material prior period errors. Previously IAS 8 contained an alternative, for both situations, of including the effects in the profit or loss for the current period. When this alternative was applied, comparative information was not amended. Under the improved standard comparatives are restated. (IAS 8 see paragraphs IN8-IN9)

IAS10 Events after the balance sheet date

IAS 10 needs to be improved to make the principle clearer, that is that dividends not yet paid should not be recognized as a liability unless there is an unavoidable obligation to pay them existing at the balance sheet date (in line with IAS37). The process of the approval and determination of dividends tends to be a matter which varies from one jurisdiction to another. The meanings of "proposed" and "declared" dividends will not be clear in all countries. (IAS 10 see paragraph 32)

IAS16 Property plant and equipment

An entity is required to measure an item of property, plant and equipment acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, at fair value unless the exchange transaction lacks commercial substance. (IAS 16 see paragraph IN 5)

IAS17 Leases

Initial direct costs of finance lessors can no longer be charged as expense as incurred. Instead, they are included in the carrying amount of the leased asset and recognized as an expense over the lease term. Manufacturer-dealer lessors recognize costs of this type as an expense when the selling profit is recognized. (IAS 17 see paragraph IN 12)

It has been clarified that land and buildings elements of a lease of land and buildings need to be considered separately. The land element is normally an operating lease unless title passes to the lessee at the end of the lease term. The buildings element is classified as an operating or financial lease by applying the classification criteria.

IAS21 Effects of Changes in foreign exchange rates

Exchange differences resulting from severe devaluation or depreciation of a currency against which there is no means of hedging can no longer be capitalized. (IAS 21 see paragraph IN 10)

IAS24 Related party disclosures

The definition of related parties and the disclosure requirement for related parties have both been expanded by adding parties (e.g. joint ventures and post-employment benefit plans) and by requiring disclosure of transactions, balance, terms and conditions, details of guarantees. (IAS 24 see paragraphs IN 8 and IN11-IN13) Entities are also required to disclose the compensation of key management personnel.

IAS27 Consolidated and Separate Financial Statements

Entities are required to present minority interests in the consolidated balance sheet within equity, separately from the parent shareholder equity. Consolidation, if required, is regardless of the nature of the parent entity. Thus the requirement to consolidate controlled subsidiaries applies to parent entities that are venture capital organizations, mutual fund and unit trusts. (IAS 27 see paragraph IN8)

IAS28 Investments in Associates

Investors must consider the carrying amount of its investment in the equity of the associate and its other long-term interests in the associate when