IFRS (International Financial Reporting Standards) List, Requirements, Compliance & Benefits

IFRS, International Financial Reporting Standards
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IFRS is a globally recognized collection of accounting rules that delivers transparency, accountability, and efficiency. But, what does this mean for your business? This post will help you understand all you need to know about the international financial reporting standards.

What are the International Financial Reporting Standards?

IFRS is an acronym for International Financial Reporting Standards. It’s a set of accounting rules and standards that govern how accounting activities should reflect in a company’s financial statements. The International Accounting Standards Board (IASB) was responsible for creating IFRS. in order to make financial statements globally consistent, comparable, and transparent.

However, the United States is one famous country that does not adopt IFRS and instead uses a system known as GAAP.

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International Financial Reporting Standards: An Overview

The International Financial Reporting Standards (IFRS) are intended to bring consistency to accounting language, processes, and statements. It also aims to assist businesses and investors in making informed financial assessments and decisions.

In other words, the International Financial Reporting Standards Foundation (IFRS Foundation) establishes standards to;

“bring transparency, accountability, and efficiency to financial markets around the world… encouraging trust, growth, and long-term financial stability in the global economy.”

Investors are, therefore, more willing to invest in a firm if its business operations are transparent, therefore companies profit from the IFRS.

However, the Securities and Exchange Commission (SEC) of the United States has stated that it will not migrate to the IFRS. Rather, it will continue to consider a proposal that would allow IFRS data to augment US financial disclosures. The US abides by the “gold standard” of accounting, GAAP. Some claim, however, that the global adoption of IFRS will save money by reducing duplicative accounting work and the costs of assessing and comparing organizations across borders.

People often mistake the International Accounting Standards (IAS), the preceding standards before IFRS, with IFRS. The International Accounting Standards Board (IASB) took over the International Accounting Standards Committee (IASC) in 2001. In other words, the IAS was in charge of implementing accounting standards from 1973 to 2000.

Read Also: FINANCIAL REPORTING: All you need to know with Examples (+ quick easy tools)

What is the Benefit of Using the IFRS?

Cross-border transactions are becoming normal, with a large number of companies looking for investment opportunities all over the world. Before now, there were limitations to this type of internationalism as a result of different countries’ accounting standards. This added extra expenses, complexities, and risks to company transactions.

The International Financial Reporting Standards (IFRS) solves this problem. They achieve this by requiring that all countries adopt the same, internationally applicable set of accounting standards.

Requirements of the International Financial Reporting Standards (IFRS)

The International Financial Reporting Standards (IFRS) define how firms must keep and disclose their financial records. The purpose of international financial reporting standards is to make financial statements coherent and uniform across industries and countries.

The International Financial Reporting Standards (IFRS) cover a wide range of areas. These include; revenue recognition, income taxes, inventories, fixed assets, business combinations, foreign exchange rates, and financial statement presentation.

In other words, there are quite a ton of IFRS standards you should pay attention to. Here are a few areas where the International Financial Reporting Standards (IFRS) provide thorough guidance:

  • Statement Financial Poitsion — Also known as a balance sheet. The IFRS specifies its various components and how they should be reported.
  • Income statement — This might be a single statement or two separate statements, one for profit and loss and the other for other income, such as property and equipment.
  • Statement of Equity Changes — This statement, often known as a statement of retained earnings, details the company’s change in earnings or profit throughout a specific financial period..
  • Statement of Cash Flow – This document should summarize your company’s financial activities over a certain time period, dividing your cash flow into three categories: financing, operations, and investing.

Meanwhile, a corporation must additionally provide an overview of its accounting policies in addition to these fundamental reports. The purpose is to compare the present report with the preceding report to indicate how profit and loss have changed.

Furthermore, for each of its subsidiary companies, a parent corporation must prepare individual account reports.

Read Also: FCRA: Fair Credit Reporting Act Beginner’s Guide

What is the significance of the International Financial Reporting Standards (IFRS)?

The International Reporting Standards are important because they help to maintain transparency and trust in global financial markets and the companies that trade on them. Investors would be less likely to believe financial statements and other information offered to them by corporations if the International Financial Reporting Standards (IFRS) were not in place because they would have less faith in their integrity.

We might see fewer transactions if we don’t have that trust and consistent standards, which could lead to greater transaction costs and a weaker economy.

IFRS also aids investors in their examination of firms by making it easier to make “apples to apples” comparisons and do fundamental analysis.

Read Also: Credit Reporting Bureau: What is Credit Reporting Bureau?

Who makes use of it?

The IASB’s International Financial Reporting Standards (IFRS) are a collection of internationally recognized accounting principles used by corporations and accountants around the world, although not typically in the United States, which instead employs the use of GAAP.

IFRS Compliance

In a wide range of countries and jurisdictions, international financial reporting standards are employed. You can find out some of these countries by visiting the IFRS website. Basically, it may be more difficult to obtain investment or company loans if you do not comply with IFRS requirements. You may, however, put your company up for success by taking a proactive approach to obtaining compliance.

What is the Difference Between GAAP and International Reporting Standards?

The following indicates major contrasts between the two standards;

  • There are differences in the calculation of financial ratios between IFRS and other countries’ GAAP. For example, because IFRS is less stringent in defining revenue and permits corporations to record revenue sooner, a balance sheet prepared under this system may indicate a bigger stream of revenue than one prepared under GAAP. IFRS also has distinct standards for expenses; for example, if a firm spends money on development or a future investment, it does not have to be reported as an expense (it can be capitalized).
  • The specification of how inventory is accounted for is another variation between IFRS and GAAP. First in, first out (FIFO) and last in, first out (LIFO) are two methods for keeping track of this. The most current inventory is left unsold until older stuff is sold in a FIFO system; in a LIFO system, the most recent inventory is sold first. IFRS forbids LIFO, although American and other standards enable players to use either.

Overall, the distinction is due to methodology. The International Financial Reporting Standards (IFRS) are based on principles, whereas GAAP is based on regulations. In practice, this implies that IFRS has far less detail than the GAAP, allowing for wider interpretation.

Meanwhile, GAAP is still the norm to follow for organizations based in the United States. However, the Securities and Exchange Commission (SEC) of the United States may switch to IFRS at some point in the future. This is because the universal adoption of IFRS could lower the cost of comparing foreign businesses, as well as the time and cost of duplicating accounting labor.

Read Also: Financial Accounting Standards Board (FASB): Codification, History & Functions

List of IFRS Standards

Below is a list of standards from the International Financial Reporting Standards’ official website.  

No.Standards
1First-time Adoption of International Financial Reporting Standards
2Share-based Payment
3Business Combinations
4Insurance Contracts
5Non-current Assets Held for Sale and Discontinued Operations
6Exploration for and Evaluation of Mineral Resources
7Financial Instruments: Disclosures
8Operating Segments
9Financial Instruments
10Consolidated Financial Statements
11Joint Arrangements
12Disclosure of Interests in Other Entities
13Fair Value Measurement
14Regulatory Deferral Accounts
15Revenue from Contracts with Customers
16Leases
17Insurance Contracts

IFRS FAQs

What does IFRS stand for in accounting?

IFRS, in accounting, stands for International Financial Accounting Standards. It’s a set of accounting rules and standards that govern how accounting activities should reflect in a company’s financial statements.

How many standards are there in IFRS?

There are 17 standards in IFRS and 49 IASs (including those superseded by the IFRs and those that have been discarded)

What is difference between GAAP and IFRS?

There are differences in the calculation of financial ratios between IFRS and other countries’ GAAP. For example, because IFRS is less stringent in defining revenue and permits corporations to record revenue sooner, a balance sheet prepared under this system may indicate a bigger stream of revenue than one prepared under GAAP.

How do you use IFRS in accounting?

The IASB’s International Financial Reporting Standards (IFRS) are a collection of internationally recognized accounting principles used by corporations and accountants around the world, although not typically in the United States, which instead employs the use of GAAP. It serves as a guide for preparing in financial statements.

  1. Accounting Standards: Overview, Benefits & Codification
  2. GAAP: Overview, Importance, History, Limitations
  3. IASB (International Accounting Standards Board) Roles, Framework & Benefits
  4. Financial Accounting Standards Board (FASB): Codification, History & Functions
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