Role
Currently, the importance of International Financial Reporting Standards has grown substantially worldwide. IFRS not only summarizes the experience of leading economically developed countries, but also actively influences the development of national accounting and reporting systems, both through direct implementation of IFRS in national practice and through the convergence of requirements of international and national standards. Recognizing the degree of interdependence of international markets and capital, the Financial Stability Forum identified the IFRS as one of 12 sets of global standards necessary for the sustainable functioning of the global economy (Oringel, 2012). Accordingly, the sustainable development of a particular company is also directly related to the application of IFRS.
IFRS represents an independent holistic system based on certain conceptual foundations and interconnected with corporate governance, audit, evaluation, and others. However, the implementation of IFRS leads to problems in understanding the possibilities of the practical application of these standards, including those related to objectively determined contradictions in the conceptual framework, which are caused by contradictions in the interests of different groups of users of financial statements (Ismail, 2017). In particular, the Sarbanes-Oxley Act has contributed a lot of controversy to financial reporting issues in the United States.
Standards
The law was passed in 2002 and is designed to prevent corporate and accounting fraud. The adoption of strict requirements for financial statements, the actions of managers, directors and auditors, the introduction of criminal penalties for misleading investors helped to survive the crisis and restore investor confidence in financial statements in the United States. At the same time, the Sarbanes-Oxley Act has become a brake on the convergence of American and international reporting standards. The biggest challenge was the requirement to create an effective internal control system that would ensure that investors receive correctly prepared financial statements. Moreover, the conclusion on the effectiveness of the internal control system has become a standard part of the audit report. Thus, the Law made auditors and financial directors worry more about following accounting rules at a time when there were no detailed instructions in this area. Nevertheless, the striving for comparability of reporting should in no case be an end in itself and an obstacle to improving the quality of the information provided and improving accounting methods. One of the examples of best practices in implementing IFRS while complying with SOX requirements is the experience of Trinity Industries.
Change
The company implemented changes to accounting procedures and correspondent processes, in fact, as a change project, although not declared as such. The company introduced documentation of processes and controls, thus contributing to the overall controllability due to the business processes management system. Gaps were identified and control redesign was implemented to close these gaps, and appropriate training was provided, starting from high-level guidance on SOX and ending with training for documentation teams and control owners (Schultze, 2011). Creating teams for the implementation of change process contributed to better organizational structure and functional roles distribution.
Improvement
The internal audit phase of the SOX compliance audit required implementation of self-assessment practices. “By the end of the year, 2440 controls had been tested and 327 testing gaps had been identified” (Schultze, 2011, p.98). However, evidently, no less important result was obtained regarding further prospects for integrated reporting. Moreover, IT controls were adjusted and reduced, which contributed to the improvement of the company’s infrastructure. In general, a “compliance journey” of Trinity Industries appeared to be successful, laying the way for further improvement.
References
Ismail, R. (2017). An overview of International Financial Reporting Standards (IFRS). International Journal of Engineering Science Invention, 6(5), 15-24.
Oringel, J. (2012). Effective auditing for corporates: Key developments in practice and procedures. London: Bloomsbury.
Schultze, U. (2011). The SOX compliance journey at Trinity Industries. Journal of Information Technology Teaching Cases, 1, 91-113.