The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from Norway

Abstract

Although not a EU member, Norway is required to implement the EU Accounting Directive through its obligations under the EEA agreement. An expert group has prepared a draft law that will be decided upon by the legislator, most likely during 2017. The draft law has a strong orientation towards IFRS, which is evidenced in particular by the choice of IFRS for SMEs as the basis for Norwegian accounting standards.

Keywords:

• IFRS
• Norway
• EU Accounting Directive 2013/34/EU
• SMEs

Notes

1 It follows from this system that EU’s ‘IAS Regulation’ applies for Norwegian listed firms, which are therefore required to set up their financial statements in accordance with IFRS, and their financial reporting is subject to enforcement by the Financial Supervisory Authority.

2 The directive was approved by the EEA Joint Committee 30 October 2015.

3 The author chaired the Expert Group.

4 The overall objective of the current accounting legislation is phrased as obtaining ‘financial reporting that in a reliable and informative way mirrors companies’ real results and financial position in accordance with principles of business economics’ (NOU 1995: 30, 1995, p. 9; author’s translation).

5 Author’s translation.

6 Comment letters (in Norwegian language) are available from the website of the Norwegian Ministry of Finance.

7 The liberal regulation in this context is connected with the low level of conformity between financial reporting and tax in Norway. For this issue, see Nobes and Schwencke (2006).

8 A version of ‘simplified IFRS’ was introduced in Norwegian accounting regulation first time in 2006. The Expert Group notes that a challenge of the system is the need to update it continuously with changes in IFRS.

9 What is presented in this paragraph is the view of the Expert Group, which might be challenged on several grounds. Article 26 does not use the term ‘joint venture’, but rather the term ‘undertaking managed jointly’, which is deemed equivalent. The Expert Group emphasises that Article 26 does not refer to ‘participating interests’, in contrast to the Directive’s definition of ‘associated undertaking’, which may be accounted for by the equity method in the consolidated statement. However, the Expert Group also states that the classification of an investment as an associate or a joint venture allows for discretion by the reporting entity. Finally, the Expert Group has assumed that the term ‘proportional consolidation’ of Article 26 is compatible with the prescribed accounting for jointly controlled operations and jointly controlled assets of IFRS for SMEs.

10 The ones not explicitly included in the current law are the principles on accrual accounting, separate recognition and set-offs (Article 6(1) points d, f and g).

11 There is also a reference to prudence, with a different content, in the exposure draft for a new conceptual framework (International Accounting Standards Board [IASB], 2015).