What Is IFRS
What Is IFRS
IFRS refers to International Financial Reporting Standards and is also a set of policies and measures for the purpose of disclosing a variety of operations in the financial statements.
Similar to the USA applying US GAAP, Canada using Canadian GAAP, UK applying UK GAAP etc., the whole world will apply its universal GAAP its name is IFRS.
In the past, international standards for financial reporting had a different name: International Accounting Standards, or IAS as an acronym. Indeed, the title of the first 41 standards started with IAS letters. However, as a result of Improvement Project, IFRS acronym started to be used.
Currently, IFRS comprises several components. The first one is The Conceptual Framework for the Financial Reporting which is a basic document outlining the objectives of the financial reporting, qualitative characteristics of useful financial information, and many other underlying guidelines for financial reporting.
Then, there are IFRS and IAS standards prescribing rules for financial reporting with respect to specific areas or transactions. Finally, there are IFRIC Interpretations dealing with the more specific issues not covered by the IAS or IFRS standard.
Why must we have IFRS?
Today, almost everything on the globe can come closer than ever. Everything is harmonizing and people study how to live global.
And really, you will discover that in every single action you make – it is easy to shop similar stuff in any location, you may get the identical dishes in Burger King anywhere in the world, you can also take flight around the globe in less than a day.
Accounting and preparing financial reports are not any exception to this rule. And here IFRS has its own place – it will eventually act as harmonized group of procedures for bookkeeping wherever.
What is the main advantage of IFRS?
Here in todays globalizing society, the important idea is definitely COMPARABILITY.
Just imagine that you are the founder of worldwide holding who desires to analyze financial results of your businesses in individual areas. But – every country utilizes its own accounting policies!
For instance, earnings are shown on accrual basis in 1 area, and on cash basis in another country. How may you say which of your businesses has nicer revenue if these amounts are incomparable?
Or possibly you’re tiny investor participating in stock exchange trading and you (perhaps) look to financial reports of your prospect investment before choosing. How will you understand those reports when every company reports differently?
By now, you should understand the issue quite well. IFRS gives us unified worldwide group of accounting and disclosing guidelines, to ensure that you understand accounting reports from any country. And not just this – when your corporation wishes international funding or perhaps to access stock market, it has got to show its accounting reports in compliance with IFRS.
Who makes reports according to IFRS?
Presently, there are actually more than 120 states who implemented IFRS, a lot of them completely, a few of them partly. The objective is to implement IFRS by 2015.
The reality is that one of main economies in the universal market, the USA continues to use their own US GAAP. In this case, US GAAP and IFRS shall rather get closer to each other and progressively eliminate dissimilarities. The IFRS harmonization progress should have been complete by 2012.
However, FASB (provider of US GAAP) and IASB (provider of IFRS) delayed the convergence process and newer deadline is maybe 2015.
Furthermore, SEC (Securities and Exchange Commission) should have decided regarding incorporation of IFRS for U.S. enterprises by the end of 2011, however the final decision was postponed by a few more weeks.
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