ITALY IFRS IMPLEMENTATION

  Alberto Giussani
Organismo Italiano di Contabilità – OIC
How Italy implemented IFRS?
Italy has made full use of the options provided in the 2022 EU
Regulation. All banks and financial institutions (including
non quoted ones) must use IFRS. All insurance (including non quoted
ones) must use IFRS. Subsidiaries of quoted
companies have the option to use IFRS. Any entity producing
consolidated accounts has the option to use IFRS. All
quoted companies, banks, financial institutions must use IFRS in their
individual (separate) accounts. All entities with
the option to use IFRS can do so also in their individual (separate) accounts.
Why such decision?

For regulatory purposes (Banks and financial institutions) – ensuring
consistency in capital ratio calculation. For
comparative purposes (Quoted companies) – group or individual listed
companies use same accounting principles. For
practical reasons – subsidiaries of quoted companies need not produce
two set of accounts. To allow move to high
quality accounting – option to entities producing consolidated accounts.
Was it a wise decision?
Some believe it was a move in the right direction – pioneer to high
quality standard Some emphasize consistency as a
value. Others believe that it is a premature decision. Generally, use
of IFRS in individual (separate) accounts has
created problems.
How is the perceived effect on the general company law structure?
Existence of a two-tier system is considered detrimental. Especially
because of the option (accounting principles
shopping). One could also raise constitutional issues (different
accounting models leading to different results). Big
problems for the so called institutional role of accounts (versus a
pure informative role).
Where are the problems?
Accounting profit and equity are used to set legal limits: dividend
distribution and minimum capital requirements. Is
fair value profit (or equity increase) realized and distributable? Can
fair value profit (or equity increase) absorb losses
or used to increase capital? How to reconcile IAS compliant figures
with non IAS compliant figures? (the constitutional
issue).
How Italian government tackled the problem?
Attempt to reconcile led to confused treatment of reserves (book vs
regulatory). Unable to cope with frequent
changes in accounting standards. Increased use of OCI by the IASB
exacerbates the problem. Generally, treatment of
reserves is not clear.
What about taxation?
Different profit configurations lead to different taxable income (the
constitutional problem again). Attempt to put
taxpayers on equal foot failed (double accounting for tax purposes too
complicated). Finally accepted IFRS profit as
the starting point for taxation (in the long term no difference –
true?). Tax rules however cannot be at the same pace
of the modifications in the standards.
Any other issue?
IFRS are not complete and do not take into account problems in the
separate accounts. A wide spread and acute issue
is the accounting treatment of business combination under common
control. Another issue is the impairment test in
the separate account vis-à-vis the same test in the consolidated
accounts. More and more issue are emerging in the
separate accounts.
Conclusions
Are IFRSs to become the norm also for individual (separate) accounts?
If so, Italy is paving the way to identify and
possibly resolve main issues, but at what cost? Is IFRS for SMEs a
solution? Probably not as it is based broadly on the
same principles. Should we revert back to 4th Directive for individual
accounts? Possible? Recognition of a failure.

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CA Ramachandran Mahadevan,M.Com.,F.C.A.,