IFRS Chart of Accounts

Strategic CFO (link: strategiccfo.com) publishes one of the better better examples.

This site, while it correctly points out: The wrong chart of accounts will destroy a business before it even starts publishes one that is so poor, it may just do exactly what they warn against.

In my opinion (who am I), this COA is so bad that charging money for it is an insult.

Not only is it so rudimentary as to be practically useless and structured in a way to make it practically unscalable, it was created by someone who does not actually know what an account is.

How else can one explain that "599 Total Income, 698 Total Cost of Goods Sold, or 699 Total Gross Margin" are listed as accounts when, in fact, they are financial report sub-totals.

While this piece of work cannot be republished here in its entirety, I can shown an edited sample so hopefully the visitors to our site will not waste $49.90 downloading it from Techrepublic.

This site (link: toptal.com) discusses the importance of a good COA at great length.

It does not, however, get around to publishing one.

In general, two approaches are possible:

A. base the COA on financial accounting.

B. base the COA on managerial accounting.

Approach A requires that an accounting standard first be selected.

In general, the possibilities include: US GAAP, IFRS, tax accounting rules or a national GAAP.

Once that standard has been selected, the COA is designed around that standard's recognition guidance. The more closely it adheres to that guidance, the less likely mistakes in applying that guidance will be made.

Approach B does not require an accounting standard be selected at all. Instead, management designs the COA around its own needs using managerial accounting principles.

The advantage of approach A is that it makes creating the financial report relatively straight forward. This is especially important for a company that must submit that report to a regulator like the US SEC.

A common account structure is also important for a company with operating in multiple jurisdictions. Without a common COA, consolidating these divisions is daunting (if possible at all).

The advantage of approach B is that it makes the job of managing a company easier.

For example, there is no requirement in any accounting standard that companies break sales down, for example, by product type, store location, in-store location, shelf-space height, proximity to other merchandise or any of a myriad of data points useful to management in evaluating how a particular merchandise item contributes to the company's bottom line.

In the United States, the question of which approach is better rarely comes up.

One reason, most companies in the US have no divisions in other countries. Some Americans even have trouble finding a country like the Czech Republic on a map.

Another reason, unless they cross the IRS's threshold for accrual accounting, preparing a tax return is pretty much: receipts - disbursements = taxable income (even if some tax CPAs make it out to be some kind of dark art).

Obviously, an accountant working at such a company can stop reading (assuming he or she has gotten this far) and visit some other site.

This site is not meant to address the needs of these companies.

Instead, it is designed to address the needs of companies that must, for whatever reason, apply US GAAP or IFRS guidance in full.

In the United States, Sarbanes–Oxley establishes management’s reporting obligations.

While few countries have legislation quite as strict, violating securities law is a serious offence practically everywhere.

Small, private companies do not need much of a COA. Something like this (Link: quickbooks.intuit.com) will do.

But if a company wants to grow, it will need something more robust, especially if it intends to eventually list on an stock exchange or sell itself to a listed corporation.

For this reason, the COAs published on this site are designed to be scaled in a way that would suit even a multinational company with hundreds of divisions.

Obviously, as a company grows, we would be glad if it subscribed to this site or used some of our services.

But even if it never does, we are still happy to help anyone brave enough to start a business by providing a workable COA free of charge.

Why not a universal IFRS and US GAAP compatible chart?

While IFRS and US GAAP have converged, they are far from identical, especially the details.

For example, a quick comparison of their respective XBRL taxonomies ( link: bigfoot.corefiling.com / link: xbrlview.fasb.org) reveals significant differences in both scope and emphasis.

While it is theoretically possible to create a universal chart, it would either be cumbersome or so simplified as to be misleading.

From a practical perspective, most companies use either IFRS or US GAAP or a national GAAP as their primary system.

If they need to produce a financial report consistent another standard, it is far easier to reconcile at the statement than account level.

While neither IFRS nor US GAAP provide any guidance as to the chart of accounts that must be used, to be usable for IFRS and/or US GAAP purposes, the COA must be consistent with the guidance IFRS and/or US GAAP do provide.

Fortunately, in most cases, IFRS and US GAAP provide similar guidance.

Unfortunately, their guidance is rarely identical so some adjustments must inevitably be made.

I established GAAP.cz, Ltd. in 1994 to serve subsidiaries of US corporations based in the Czech Republic.

In 2002, after the EU adopted IFRS, we began to serve a wider range of companies.

Although my original intent was to focus on training and advisory services for local companies, after we posted our first chart of accounts in 2010, I began seeing visitors from all over the world.

At first, most were happy to simply download the standard COA and make any necessary adjustment themselves.

Soon however, we began receiving requests for customized COAs, reflecting the particular needs of each individual company.

We are generally able to fulfill these requests for most companies withing a week or two.

More recently, we have also begun receiving requests not only for customized COAs, but also the adjustments necessary to take the result IFRS to US GAAP (or vice versa), including the aggregations needed to generate the financial report, footnote disclosures and, in some cases, XBRL tagging.

Fortunately, as people have become accustomed to working remotely, this task no longer demands a physical presence. It does, however, require that we familiarize ourselves with the company and its operations. As a result, we accept these assignments on a case by case basis.

Occasionally, we also receive requests for adjustments that would take a national GAAP to IFRS/US GAAP (or vice versa).

For reasons discussed elsewhere on this site, we only accept such assignments when the client can demonstrate this procedure would not violate any national law or regulation.

For more information about our services, please visit our services page or contact us.

The IASB defined XBRL taxonomy (link: bigfoot) is significantly different from the FASB defined taxonomy (link: TORCS), a difficulty exacerbated by the close working relationship between the FASB and SEC.

XBRL has also been the main reason why this web site has avoided publishing a universal COA.

Specifically, when a COA is designed to be easily mappable to a one taxonomy, its structure will not correspond to the other.

When XBRL was still new, our clients indicated that being able to map accounts to an XBRL taxonomy was a priority.

The feedback we received from the site's visitors also indicated that this was important to them.

However, based on what we have been hearing lately, it seems priorities have changed.

Currently, practitioners seem to prefer a COA organized in a rational and consistent manner over one reflecting a particular XBRL structure.

The main reason is that most practitioners have concluded that mapping a financial report's line items to a taxonomy more practical than attempting to map individual accounts.

Further, they have indicated that, since individual transactions and events must be accounted for day-in, day-out and often by relatively inexperienced staff, a logical and well organized COA is more important than a COA subordinated to a taxonomy that was never designed with accounting ease in mind.

Another, fairly large group of practitioners have indicated that they do not care about XBRL at all. They either do not need to report using XBRL, or they simply outsource this task to an outside advisor.

For this reason, these universal COAs do not include XBRL cross-references (except the last, most detailed COA, which also includes comments to, hopefully, aid in any mapping process).

BTW, this is the exact opposite feedback than what I received when XBRL was still fairly new.

Back then, our clients insisted that XBRL tagging at the account level was critically important.

Oh well, I guess the client is always right, even when they change their mind.

As I feared, the process turned out to be long, taking over a year, involved, hundreds of revisions, and way over budget.

Legal entities domiciled in some countries are not permitted to deviate from the COAs prescribed by national law and, in some these countries, doing so is a criminally punishable act.

Consequently, the COAs downloadable from this site cannot used in conjunction with national GAAP standards unless this procedure is permitted by those standards or national law.

The IASB does not publish an "IFRS chart of accounts".

Companies may use any chart of accounts provided it is consistent with published recognition guidance (link: eifrs.ifrs.org).

This chart has been designed to be consistent with this guidance.

While users may delete unnecessary / add additional sub-accounts, they are advised to keep its general structure intact.

For example, a company with petty cash and two bank accounts, would add:

A company with customers (i.e. customer # 123, customer # 234, customer number # 345), would add:

In addition to permanent accounts, temporary accounts for individual receivables (i.e invoice # 00321, invoice # 00332, invoice # 00358), may also be added:

As the current / non-current status of an item is a reporting rather than recognition issue, incorporating the current / non-current distinction into the account structure not only adds unnecessary complexity, but can lead to unnecessary item reclassification.

For example, a company can acquire an available-for-sale financial instrument with the intention of holding it for less than 12 months then, during the holding period, change its intention.

Nevertheless, as some companies prefer a chart of accounts that makes this distinction, a current / non-current chart of accounts is available to subscribers.

IFRS requires nature of expense disclosure, and permits both function and nature of expense reporting.

From an accounting perspective, a nature based account structure yields superior operational results.

For a more detailed example see: Nature of expense, function of expense.

For example, if accounts were organized by function, the result will resemble:

When accounts are initially organized by nature, the result can resemble:

Also note, while it would be possible to add a digit for country of domicile, subsidiary, segment, reporting unit etc., in practice it is more practical for each such entity to maintain separate accounts, which are then consolidated: