The Importance of IFRS in Accounting in El Salvador

The Importance of IFRS in Accounting in El Salvador

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Importance of IFRS

In El Salvador, as in the rest of the countries in the world, globalization has energized the opening of capitals, economic borders have been opened and extended to other markets, investments have gained strength and this with other countries have allied in blocks to take advantage of the commercial opening; this situation, made feel that the generation of accounting information, should satisfy the global expectations even when it is located in a local context, these conditions exerted undeniable pressures in the accounting environment.

That is why in 1996, El Salvador began to turn towards the implementation of IFRS, through the development of the IV National Convention of Accountants, sponsored by the Association of Public Accountants of El Salvador, the College of Academic Public Accountants of El Salvador, and the Corporation of Accountants of El Salvador; under the slogan “Accounting harmonization and union unity: An imperative challenge in the face of globalization”, since then they underwent revisions of their accounting legal framework, which although they did not have legal backing, they did have the “legitimacy” by the guild.

However, it was not until 1999 that the Supervisory Board made its first statements regarding the need to apply the International Accounting Standards as part of the reference framework for the preparation and presentation of financial statements.

As of 2000, the Accounting and Auditing Profession Oversight Board adopted the International Accounting Standards issued by the International Accounting Standards Committee (IASC) as the general basis for the preparation and presentation of the financial statements of the different entities.

In recent years, the International Financial Reporting Standards (IFRS) have been gradually adopted in El Salvador in accordance with Resolution No. 113/2009 issued by the Board.

Regulatory Entity

The body that in El Salvador by law has the power to establish the application of accounting principles is the Oversight Council of the Public Accounting and Auditing Profession.

The adoption of international standards as part of the standardization of financial reporting worldwide has forced the Oversight Board of the Public Accounting and Auditing Profession of El Salvador to seek efficient and effective mechanisms to ensure their implementation in the different sectors of the country’s business activity.

Structure of Salvadoran regulations

The complete International Financial Reporting Standards (IFRS) and the International Financial Reporting Standard for Small and Medium Enterprises (IFRS for SMEs) are issued by the International Accounting Standards Board (IASB), an organization created in London, and constitute the legal accounting framework adopted in El Salvador since 2009. According to resolution No. 113/2009 issued by the Oversight Board of the Profession of Public Accounting and Auditing, on October seventh, two thousand nine in which it was resolved:

  1. Approve the adoption of the International Financial Reporting Standard for Small and Medium-Sized Entities, official version in Spanish issued by the International Accounting Standards Board (IASB), as a requirement for the preparation of general purpose financial statements and other financial information, for all those entities that are not listed on the stock market or do not have public accountability, except for those that have voluntarily adopted the International Financial Reporting Standards in their complete version. They must present their first financial statements based on this framework for the year beginning January 1, 2011. Early adoption of these standards is permitted.
  2. Approve the adoption of the International Financial Reporting Standard full version, official version in Spanish issued by the International Accounting Standards Board (IASB), as a requirement in the preparation of general purpose financial statements and other financial information, for all those entities listed on the stock market and those entities with public accountability. They are required to present their first financial statements based on this framework for the year beginning January 1, 2011. Early adoption of these standards is permitted.
  3. Entities that are not listed on the stock market or that do not have public accountability obligations may voluntarily adopt the International Financial Reporting Standards and must disclose them in their notes to the financial statements.
  4. In the case of banks in the system and conglomerates of companies authorized by the Superintendency of the Financial System, as well as non-bank financial intermediaries and insurance companies, they will be governed by the accounting regulatory framework established by said Superintendency. Likewise, pension fund management institutions and pension funds will be governed by the accounting regulatory framework established by the Superintendency of Pensions. Brokerage firms, securities deposit and custody companies, general deposit warehouses and the stock exchange will apply the regulatory framework established by the Superintendency of Securities.

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