International Financial Reporting Standards (IFRS)

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International Financial Reporting Standards (IFRS)

IFRS are designed to bring consistency to accounting language, practices and statements, and to help businesses and investors make educated financial analyses and decisions. The IFRS Foundation sets the standards to “bring transparency, accountability and efficiency to financial markets around the world… fostering trust, growth and long-term financial stability in the global economy.” Companies benefit from the IFRS because investors are more likely to put money into a company if the company's business practices are transparent.

IFRS are used in at least 120 countries, as of March 2018, including those in the European Union (EU) and many in Asia and South America, but the U.S. uses Generally Accepted Accounting Principles(GAAP).

The U.S. Securities and Exchange Commission(SEC) has said it won't switch to International Financial Reporting Standards, but will continue reviewing a proposal to allow IFRS information to supplement U.S. financial filings. GAAP has been called "the gold standard" of accounting. However, some argue that global adoption of IFRS would save money on duplicative accounting work, and the costs of analyzing and comparing companies internationally.

IFRS are sometimes confused with International Accounting Standards(IAS), which are the older standards that IFRS replaced. IAS was issued from 1973 to 2000, and the International Accounting Standards Board (IASB) replaced the International Accounting Standards Committee (IASC) in 2001.

Standard IFRS Requirements

IFRS covers a wide range of accounting activities. There are certain aspects of business practice for which IFRS set mandatory rules.

  • Statement of Financial Position: This is also known as a balance sheet. IFRS influences the ways in which the components of a balance sheet are reported.
  • Statement of Comprehensive Income: This can take the form of one statement, or it can be separated into a Profit & Loss Statement and a statement of other income, including property and equipment.
  • Statement of Changes in Equity: Also known as a statement of retained earnings, this documents the company's change in earnings or profit for the given financial period.
  • Statement of Cash Flow: This report summarizes the company's financial transactions in the given period, separating cash flow into Operations, Investing, and Financing.

In addition to these basic reports, a company must also give a summary of its accounting policies. The full report is often seen side by side with the previous report, to show the changes in profit and loss. A parent company must create separate account reports for each of its subsidiary companies.

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