Ph.D in Economics, Associate Professor Fatenok- Tkachuk A. A.

Lecturer, department of Accounting and Auditing,

Lesya Ukrainka Eastern European National University, Ukraine

Hrab O. B.

4 course Student in accounting and auditing

Lesya Ukrainka Eastern European National University, Ukraine

Reconciliation of financial statements of domestic entities for the purposes of foreign contractors

Ukraine has widely developed industries such as: agriculture, power engineering, information technology, engineering, coal and chemical industry, its quality in engaging the cooperation many companies and in turn contribute to the development of foreign economic relations, not only from the Middle East such as Japan China, Egypt, Israel, Tunisia, etc .., but also from Europe. Such cooperation makes the Ukrainian export-oriented enterprises have accessible and transparent financial reporting. Since Ukraine is guided by NP(S)1, which has significant differences from IFRS, have had difficulty in understanding the financial statements for exporters.

Benefits of financial reporting according to international standards is undisputed for most users of financial statements since IFRS can be regarded as a tool of economic globalization and the world economy. The principles laid down in the procedure of reporting according to IFRS, make it adequate and able to reflect the true financial status and performance of the organization. In this regard the value of IFRSs is important not only for international but also for domestic investors. This has confirmed the need and usefulness of IFRS implementation process for all sectors of the economy of Ukraine [1].

It should be noted that today there are certain contradictions that it would be appropriate to remove. Specifically, questions arise as to reflect other operating and other income and expense classifications of activities aiming components of other comprehensive income, the presentation elements operating expenses. The positive change of NP(S)1 is mandatory reporting of other comprehensive income. Value of comprehensive income as an indicator of changes in the assets of the company are very informative because the underlying decision making investors and creditors.

Since January 1 st 2012, according to the Law of Ukraine «About accounting and financial reporting in Ukraine » ( ch. 2, Art. 121) public joint stock companies, banks, insurers and companies that conduct business activities for species listed determined by Ukrainian government, regardless of affiliation to the classification group entities (small, medium or large business) have prepared financial statements in accordance with IFRS.

The use of IFRS is accompanied by some difficulties, because they involve the use of judgment for the recognition, measurement and disclosures in the financial statements. Law of Ukraine «About Accounting and Financial Reporting in Ukraine» № 996 for entities provided the opportunity to establish the feasibility of international standards for financial reporting. In addition, the need for IFRS reporting may be due to investor entities with foreign investment. In these cases, Ukrainian financial statements should be transformed [1].

In the years 2013-2014 has undergone significant changes form number 2 «Income Statement», which received the second name «Statement of comprehensive income». The main changes can determine input indicator «Total Income» and excluding extraordinary items of income and expense that this report has brought to IFRS.

After analyzing the legal documents on the formation of financial reporting potential partner countries, namely IAS 1, US GAAP, GAAP Estonia and NP (S) 1, we can conclude that our report recalls a similar Statement of profit or loss and other comprehensive income.

Despite the fact that IAS 1 permits an alternative to providing information on other comprehensive income, the developers of the national reports suggested no alternative hybrid presentation of financial results - only report two separate sections (one - to reflect the financial performance, the other - for the formation of other comprehensive income) [1].

After analyzing the highly specialized work and guidelines for the formation of the financial statements can be identified stages of transformation of financial statements (Figure 1).

After the transformations indicators Income statement becomes un

Fig. 1 Stages of transformation of financial statements

Source: [2]

As the Balance Sheet and Income Statement are reflecting income of the company, consider the transformation of data reporting in accordance with IFRS (Figure 2).

				Show separate item Income (loss) from discontinued operations
	Information about other operating income and costs items should be included in "Other Income" and "Other Expenses" respectively
	Income and costs from Equity should be displayed in separate article	Remove from the administrative expenses amortization of goodwill and include the amount of the value of goodwill in the balance		In the article "Income Taxes" should indicate the amount of income tax payable under the law, adjusted for changes in the deferred tax assets and deferred tax liabilities as defined in IAS 12
Within the articles "Other income" and "Other financial expenses" should be deleted and displayed separate article: Cost of financial investments, income or expenses from revaluation of financial investments; exclude borrowing costs relating to qualifying assets and to include the cost of qualifying assets
			Include the cost of doubtful and bad debts in the cost of sales of their previous exclusion from the "Other operating expenses"

Fig. 2 Areas of reform indexes in the preparation of the income statement according to IFRS

Source: [1]

After the transformations indicators, Income statement becomes understandable to foreign users, but the biggest concern of foreign investors following the clash between generally accepted (Ukrainian GAAP) accounting principles with the International Financial Reporting Standards (IFRS)2 which require the most urgent attention [3]:

1. Ukrainian GAAP has no explicit requirement that parent companies must present consolidated financial statements (compared to IFRS 27). The absence of an explicit requirement to consolidate financial statements allows companies to hide their debts from potential investors.

2. Ukrainian GAAP contains no specific regulation on whether part of the cost of an acquisition may be attributed to acquired research and development (compared to IFRS 22.27). The absence of requirement makes the financial statements of Ukrainian companies incompatible even with the statements of other companies in the country.

3. Ukrainian GAAP has inadequate standards regarding the translation of the financial statements of subsidiaries in hyperinflationary economies (compared to IFRS 21.36). Inadequacy of the standards on this matter leads to incompatibility of the financial statements with those of foreign companies and, more importantly, to inaccurate or misleading financial reporting.

4. Ukrainian GAAP imprecise requirements for impairment reviews (compared to IFRS 36.6-14). Absence of precision in these requirements allows companies to reflect outdated assets at higher values.

5. Ukrainian GAAP includes no rules for the fair values of financial assets and liabilities (compared to IFRS 32.77). Absence of such reporting rules allows companies to report their assets at higher values and their liabilities at lower amounts.

6. Under Ukrainian GAAP, trading, available-for-sale, and derivative financial assets and liabilities are not recognized at fair value (compared to IFRS 39.69, 39.93). Under these conditions, if the values of such assets change during the year the financial statements of the company will be misleading to the financial statement users.

After analyzing the domestic legal documents, it is worth noting that to this day remain a mismatch of accounting for international and national standards, leading to statements incompatibility. A reconciliation statement of comprehensive income will attract additional investment resources from both domestic and foreign investors.

References :

1. Vojnarenko M. P., Lopatovs'kyj V. H. and Tarashevs'ka O. V. (2015), «Sutnist' ta znachennia zvitu pro finansovi rezul'taty v umovakh transformatsii finansovoi zvitnosti », Visnyk Khmel'nyts'koho natsional'noho universytetu. Ekonomichni nauky, vol. 4(2), pp. 30-35, available at: http://nbuv.gov.ua/UJRN/Vchnu_ekon_2015_4(2)__8

2. Hrybovs'ka Yu. M. (2015), «Transformatsiia finansovoi zvitnosti ta perekhid na MSFZ», Poltavs'kyj Visnyk, pp. 113-122, available at: http://Vkhdtusg_2015_162_16.pdf

3. Eldar Maksymov and Dr. Earl K Stice (2014) «Ukrainian Financial Reporting: The Need for Change», The Journal of Undergraduate Research Brigham young university. - Available at: http://jur.byu.edu/?p=9624