IFRS Publishes Standards Profile for Iran

The International Financial Reporting Standards Foundation has published a new profile on the use of IFRS standards in Iran.

“By requiring banks, insurance companies, other financial institutions and listed companies to apply IFRS standards, the Audit Organization of Iran has demonstrated that Iran has made a public commitment to global accounting standards, and to IFRS standards as those standards,” reads Iran’s IFRS profile.

International Financial Reporting Standards is a single set of accounting standards, developed and maintained by the International Accounting Standards Board. These standards are capable of being applied on a globally consistent basis by developed, emerging and developing economies, and provide investors and other users of financial statements with the ability of comparing the financial performance of publicly listed companies on a like-for-like basis with their international peers.

IFRS standards are now mandated for use by more than 100 countries, including the European Union and by more than two-thirds of G20.

According to the profile, the Audit Organization of Iran requires large listed companies to apply IFRS standards (with two optional modifications) starting with the current Iranian year, which fiscal year started on March 20.

Other listed companies are permitted, but not required, to adopt IFRS standards from this year. Such companies will be required to apply IFRS standards from the next Iranian year (beginning March 2017).

The Securities and Exchange Organization of Iran, the securities regulator, will announce the criteria for identifying large listed companies.

The Central Bank of Iran’s plan to overhaul its financial oversight regime will increase the effectiveness of supervision over banks and provides the infrastructure for the complete implementation of IFRS standards, said an advisor to the governor of the Central Bank of Iran earlier this month.

In a seminar on the implementation of international accounting standards held in the Management Department of the University of Tehran, Ahmad Badri also delved into different aspects of the overhaul of CBI’s oversight regime for banks.

“The findings were informed by a methodology that combined quantitative data of financial statements and data outside of financial statements with expert opinion and comparative studies,” he said.

Badri referred to the release of a set of balance sheet templates earlier this year in line with the execution of IFRS techniques, saying they entail 16 “fundamental changes”. He said the most important change is the addition of a category for term deposit in banks’ financial statements.

The balance sheet templates were first released by CBI in February to improve the financial transparency and international operations of Iranian banks.

“The AOI requires all banks, insurance companies and other financial institutions (whether listed or not) to use IFRS standards from the beginning of the current Iranian year. Unlisted companies are required to follow Iranian national standards for the present, but the AOI has indicated a longer-term plan to require IFRS standards as well,” the profile further reads.

Badri noted that 91 changes were made to improve the transparency of financial statements, the most significant of which requires banks to reveal their non-operational assets and their real profits.

“Furthermore, 54 changes were made regarding conformity with IFRS and the most notable of those was the disclosure of the four banking risks (credit, operational, market and liquidity risk),” he said.

The new financial statements for long-term deposits, he added, have three functions and the first one is the matching of debits/credit/accounts with prevalent standards. The second one is their conformity with the banking laws of the country.

The official also pointed to the matching of long-term deposits with the “theoretical framework of financial reporting” as the third function of the newly-added tool.

Badri said Iranian banks are undoubtedly in great need of adopting IFRS standards but noted that under the current circumstances, they are ready to undergo a speedy transformation.

“The central bank decided last year to move the banking system toward complete compliance with IFRS standards in two stages,” he said. “The first phase was made operational in many banks last year, but was done incompletely because many of the risk, reports were not compiled accurately.”

Pointing to the crisis of transparency in Iranian banks’ financial statements, Badri called it the biggest weakness in bank statements.

“Among the main features in the banks’ balance sheets, the figure for deposits is the only transparent and reliable data at present,” he said.

On the two optional modifications, the profile says the AOI has made two modifications of IFRS standards that are optional–that is, companies may use IFRS standards without the modifications.

First, goodwill is amortized over its useful life but not for more than 20 years and also subject to write-down if impairment is indicated.

Under IFRS 3 Business Combinations, the recoverable amount of goodwill must be measured each year and if it is below the carrying amount, an impairment loss must be recognized.

Second, investments in unquoted equity instruments are measured at cost, subject to write-down, if impairment is indicated. Under IFRS 9 Financial Instruments, such investments are measured at fair value.

The profile adds that IFRS standards known as “Blue Book” has been translated into Farsi and that the translation follows the official IFRS Foundation translation process.