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Public Companies
The implementation of IFRS is required for the consolidated financial statements
of listed public companies, except for banking institutions (listed and unlisted,
including credit cards companies) who must prepare their own financial statements in
accordance with specific instructions issued by the Israeli Banking Inspector.
Listed companies are not required to issue IAS 27's separate financial statements,
but only certain financial data on a "standalone" basis in accordance with specific
statutory disclosure requirements.
Israeli banking institutions in Israel apply an accounting framework issued by the
Israeli Banking Inspector, which, with respect to their core banking business and other
several substantial issues, is based on U.S. GAAP applied by banking institutions in the
U.S. IFRS based accounting is applied in relation to several other issues.
Certain foreign companies listed on the local stock exchange can report under U.S.
GAAP or IFRS as adopted by the EU (but are then required to reconcile to IFRS in
a footnote). In addition, dual listed companies (those listed locally and in certain
stock exchanges abroad) that report under U.S. GAAP can report also locally under
U.S. GAAP. Reporting under IFRS is required by the Israeli Insurance Inspector for all
insurance companies and pension funds' management companies.
IFRS Conversion Plans
In accordance with a roadmap announced several years ago by the Israeli Accounting
Standards Board, IFRS for SMEs is anticipated to be obligatory for small and medium
entities, but a final decision is yet to be made.
Plans for IFRS converging as the basis of tax reporting
Taxable income is principally based on the legal entity's Israeli GAAP statutory
accounts, with a number of adjustments provided in the tax law. Israeli courts have
ruled that in the absence of a tax treatment determined under law, accounting
principles may serve as guidance to determine the tax treatment.
Following the mandatory adoption of IFRS by the Israeli public companies and
voluntary adoption by some private companies and as an interim measure, the Israeli
parliament has legislated that during tax years 2007 – 2013 IFRS based financial
statements will not be accepted for the preparation of corporate tax returns. It
should be mentioned that no legislation was published regarding the extension of
the temporary order with respect to tax year 2014 onwards. In addition, it is not yet
clear whether in 2016 an official order will be published regarding the acceptance
of IFRS based financial statements (with certain guidelines and limitations) for the
preparation of corporate tax returns with respect to the tax years 2016 and thereafter.
Also, should the aforementioned official order not be published, it is expected that,
the same legislation regarding the extension of the temporary order will be published
relating to the tax year 2016.
Consequently, these returns are generally to be based on Israeli GAAP It should be
noted that Israeli GAAP has adopted certain IFRS based standards, thus, indirectly, the
IFRS accounting treatment in certain areas may still influence the Israeli tax treatment.
Under certain conditions, subsidiaries of foreign entities may apply for an approval
from the tax authorities to use IFRS or US GAAP financial statements as the basis for
their tax reporting.