What are International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a set of widely used international standards for financial reporting. These standards are developed and maintained by the International Accounting Standards Board (IASB).

What is IASB?

• The IASB is an independent, not-for-profit, privately funded accounting organization,
• The IASB began operations in 2001 when it succeeded the International Accounting Standards Committee.

International Financial Reporting Standards (IFRS) are currently used in over 120 countries around the world, including the European Union.

The United States currently uses a different reporting system known as Generally Accepted Accounting Principles (U.S. GAAP).

Why IFRS?

There are several advantages to be realized in the worldwide adaptation of IFRS.

• IFRS frees a business from the restrictive scope of national-level accounting standards.
• IFRS aims to provide a common global language for business affairs and accounting treatments.
• A business can present its financial statements on the same basis as its foreign competitors thus making comparisons easier.
• IFRS is a principles-based system whereas U.S. GAAP is a rules-based system.
• As more and more countries begin to use the same set of standards, the financial reporting process should become more transparent.
• Readily understandable financial and accounting information benefits investors, companies and capital markets worldwide.
• The standardization of accounting methodology provides creditors and investors with the ability to analyze businesses around the world using the same financial methods.
• Companies may also benefit by using IFRS if they wish to raise capital abroad.

Key differences between IFRS and IAS

We can differentiate IAS and IFRS as below:

• IAS’s was published by the International Accounting Standards Committee (IASC) whereas the IFRS was published by the International Accounting Standards Board (IASB).
• Last IAS was issued in 2001, whereas, the standards for the IFRS were issued from 2001 onwards.
• The principles of the IFRS take precedence if there is a contradiction with IAS.
• When IASB was installed in 2001, it adopted the existing IAS and decided to name any future standards as International Financial Reporting Standards.
• The old Standing Interpretations Committee (SIC) is currently known as IFRS Interpretations Committee (IFRIC).

The components of IFRS are

1. the International Financial Reporting Standards,
2. the International Accounting Standards (IAS),
3. the Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC), and
4. the Standing Interpretations Committee (SIC).

ABOUT THE AUTHOR

Humayun Atif | CMA, CPA, CA (FIN), MS-IT, Oracle & MS Certified, CA Articles from Big4

Atif is passionate about Business, Tech, and the written word. He is the author of the book ‘IFRS Made Easy’. He is a Tax and IFRS coach and the founder of accountingblogger.com