The importance of IFRS in accounting in Honduras

The importance of IFRS in accounting in Honduras

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Globalization has shortened the distances for doing business, generating new standardization needs. Among them are the standard financial statements where the International Financial Reporting Standards (IFRS) are taking the responsibility of generating a global standard on this issue, which will facilitate the processes of global incorporation of many companies in the world.

Within the macroeconomic context; Honduras entered the free trade market with Central America, Dominican Republic and USA.

The country has required a high quality accounting framework that is understandable, comparable, reliable, transparent and compatible with international standards, to facilitate economic decision making by financial sector participants, investors, lenders, suppliers, clients, government and the general public, as well as the adoption of specific accounting standards for operations with a lower level of complexity. Accounting frameworks are important because they are the basis on which companies’ economic operations are recorded.

That is why the implementation of IFRS introduces Honduras in the international market, allowing Honduran companies to compare and make exchanges at all levels, and also allows the country to enter a context in which it can attract foreign direct investment.

The legal framework for the adoption and implementation of IFRS in Honduras was established by Legislative Decree 189-2004, which contains the Law on Accounting and Auditing Standards, published in the gazette on February 16, 2005. The same decree created the Technical Board of Accounting and Auditing Standards (JUNTEC), an independent technical body whose exclusive attribution is to adopt and implement the International Financial Reporting Standards in Honduras as of 2008 and in general to oversee the operation of the referred law.

Regulatory body

The technical board of accounting and auditing standards (JUNTEC) is the supreme body and the highest authority on accounting and auditing standards, therefore, it has the power to set accounting standards for small, medium and large businesses that are not subject to the application of IFRS. This board will be in charge of:

  • Adoption of International Financial Reporting Standards (IFRS), issued by the IASB (International Accounting Standard Board), International Standards on Auditing (ISA), International Public Sector Accounting Standards (IAS-PS) issued by IFAC (International Federation of Accountants) and any others issued by them.
  • Standards and resolutions in order to create the accounting frameworks of reference for use in Honduras.

Accounting framework in Honduras

There are two types of accounting frameworks: those for general use and those for specific use.

The accounting frameworks for general use are the full IFRS and the IFRS for SMEs, which are used by less than 5% of the companies in Honduras.

The accounting frameworks of specific use, regulated by those organizations that seek a special objective such as those pursued by the world bank or IDB in its development program, the national commission of banks and insurance in the accounting of supervised entities and the best known which are the policy of public administration which is 90% of the accounting used in Honduras.

Who will apply IFRS in Honduras

The purpose of the Law on Accounting and Auditing Standards is to establish the necessary regulatory framework for the adoption and implementation of the International Financial Reporting Standards (IFRS) and the International Standards on Auditing (ISA), in order to achieve an adequate preparation, presentation, review and certification of the accounting and financial information, guaranteeing transparency and comparability of the same, generating the required confidence both nationally and internationally.

It is mandatory for public or private companies, when issuing financial statements for general information purposes, the application of International Financial Reporting Standards (IFRS) as of January 1, 2008, for all economic activities, in accordance with the following:

  • Full IFRS – They will be used by the financial system, those listed on the stock exchange and those who wish to adopt them.
  • IFRS SMEs – To be used by approximately 95% of Honduran entities.

Agreement No. 3 issued by JUNTEC establishes that companies or institutions, which according to the scope of such agreement are not required to apply IFRS, must use for the preparation and presentation of their financial statements the Honduran Accounting Standards (NHOC) issued and published by the Technical Board of Accounting and Auditing Standards, which will be in force as from 2009.

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