Legislation urgently needed to enforce IFRS

Speaking with Khaleej Times, he said: "I am hoping that the Companies Law, which is in its draft stage, will make it mandatory for all companies to follow IFRS. At the moment, companies are applying IFRS to follow best practice or because banks require them to do so as a financial covenant."

In an earlier statement he also said: "Around 200 Fortune 500 companies now prepare their financial statements under IFRS. IFRS is fast becoming the global financial reporting benchmark, and it is therefore imperative that the much awaited Company Law of the UAE prescribes these standards," said Mirza.

Currently, banks in the UAE are required to follow IFRS under a directive of the Central Bank. Other companies apply IFRS as a legal requirement of their corporate legislation, namely listed companies, and those operating in the free zones.

Mirza, who will also chair the World Accounting Summit taking place in Dubai from May 27-31 and is the author of several books on the subject, also said: "Before the stock markets fell, GCC market capitalisation touched the $1 trillion mark, three per cent of the world's market capitalisation. This places a big responsibility on regulators to implement and enforce world-class accounting and financial reporting rules for financial entities operating in the region. Proper implementation of IFRS will help avoid the mistakes in the West brought about by creative accounting and the lack of corporate governance."

He also called on regulators to set up a body to interpret accounting standards, "in the case of any grey areas that are open to interpretation so that there is commonality in the region". He said: "Implementation of IFRS is not easy because the standards are complex, and their interpretation can be subjective. Users of the standards may experience practical problems when complying with IFRS. Cultural differences need to be brought to the attention of international standards setters so that they consider the viewpoints of those preparing financial statements in emerging economies."

In the Middle East, it was relatively easy to encounter problems of interpretation because there are "many cultural differences that were not envisaged when the standards were set", he said. He uses the example of IAS 24, or Related Party Disclosures, and how it relates to family businesses. "If these standards are strictly followed there could be a huge amount of disclosures," he said. "Interpretation will cause a problem. This is the greatest impediment to applying standards."

He also insists that the Middle East should be represented on either the International Accounting Standards Board (IASB) or the Standards Advisory Council (SAC) so that the representatives from the region can have some influence on standard setting. He also advocates representation on the International Financial Reporting Interpretation Committee (IFRIC).

Finally, Mirza warns that companies must also be ready to bear the cost of compliance. "Companies need to be ready. They will have to employ people who have expertise and knowledge of standards," he said. "In order to apply highly complex standards such as IAS39 (the standard that prescribes principles for recognising and measuring financial instruments) people will have to be trained and properly qualified. The cost of implementation must be factored into companies' budgets. A huge amount of training costs will be incurred," he said.