International Financial Reporting Standards (IFRS) are a set of accounting rules that companies use for accounting. These rules dictate how companies prepare and present their financial statements. Usually, they apply from a low level and cover the overall process.
The IFRS also guides companies on the treatment for various financial transactions. Currently, the IFRS applies in over 160 jurisdictions.
Objective of the International Financial Reporting Standards
The primary objective of the IFRS is to help companies present their financial position and performance. In this regard, the balance sheet and income statement are highly critical.
The IFRS provides the rules and procedures to describe those aspects in an understandable and consistent way.
Without these standards, companies cannot prepare their financial statements in a standardized manner. Consequently, the IFRS enhances the quality of the information provided to users.
What is IASB or International Accounting Standards Board
The IFRS comes from the International Accounting Standards Board (IASB). This board has been responsible for maintaining and developing IFRS since 2001. Before that, the International Accounting Standards Committee (IASC) overlooked these operations since 1973.
Apart from these, the foundation also operates other bodies that can contribute to this process. These primarily include the IASB Interpretations Committee and IASB Advisory Council.
The IFRS took over various national standards that applied to specific countries. Consequently, the IASB also works with the national standard-setting bodies to promote the IFRS.
Apart from IFRS, GAAP also is an accounting standard. However, it only applies in the US and some other jurisdictions selectively. Since they apply to many jurisdictions, the IFRS promotes consistency and comparability between companies.
One of the most significant importance of the IFRS includes its global presence. As mentioned above, these standards apply in many jurisdictions.
Unlike GAAP, IFRS is more prominently used and prevalent in the global economy. For companies, it creates an opportunity to attract more investors. Companies can prepare their financial statements in a way that all investors can use. This way, they can get more finance.
IFRS also allows companies to expand their operations without worrying about the financial impacts. On top of that, acquisitions and mergers between companies from various jurisdictions become more straightforward.
It is also one of the advantages that IFRS has over GAAP. GAAP only applies in the US. Therefore, it can only help investors within a limited scope. However, IFRS is more global and helps many companies and investors.
Attracting investors from various areas is not straightforward. Usually, investors come from different backgrounds. Therefore, having a uniform system that they can understand is highly crucial.
IFRS allows companies to present their financial statements inconsistent with others. It helps companies prepare financial statements for investors to understand easily. On top of that, it can also promote better practices internally.
Overall, the IFRS includes a set of accounting policies and rules that apply to companies. These standards cover the accounting process for various financial transactions.
They provide crucial guidance on specific areas. Similarly, the IFRS promotes consistency, transparency, and understandability for financial statements. The IFRS are the most prevalent accounting standards worldwide. Apart from it, GAAP is also common in the US.