To ensure that financial statements are consistent, comparable around the world, and transparent, a set of common rules called International Financial Reporting Standards (IFRS) exists, issued by the International Accounting Standards Board (IASB). The IFRS foundation sets the standards.
These rules specify that companies maintain and report their accounts and define different types of transactions and other financially impactful events. They were established with the purpose of creating a common, international accounting language. Companies benefit because investors are more likely to invest in a company whose finances are transparent.
As of March 2018, IFRS was used in at least 120 countries worldwide, although the U.S. uses the Generally Accepted Accounting Principles (GAAP). The U.S. Securities and Exchange Commission (SED) has indicated that the GAAP will remain the “gold standard” of accounting, though many believe that by adopting the IFRS, money would be saved on duplicative accounting work and the costs of internationally comparing and analyzing companies.
IFRS originated in the European Union and then spread globally. Although the U.S. and some other countries do not use IFRS, most do, making it the most global set of standards. The goal is to make international comparisons as simple as possible, but this goal has yet to be achieved because the U.S. uses GAAP and other countries use other standards. And, the Canadian GAAP is different from the U.S. GAAP, which further complicates matters.
IFRS are occasionally confused with International Accounting Standards (IAS), but the IFRS actually replaced these standards. While IAS was issued from 1973 to 2000, the IASB replaced the IASC in 2001.
The standard IFRS requirements include:
- Statement of Financial Position: commonly known as a balance sheet
- Statement of Comprehensive Income
- Statement of Changes in Equity
- Statement of Cash Flow
In addition to these reports, a company also must provide a summary of its accounting policies.
IFRS vs. GAAP
There are differences between the IFRS and the GAAP. One of which is the way a financial ratio is calculated. Another is the specification of how inventory is accounted for.
FYIsoft for compliance
To ensure that your company is compliant with your country’s set of accounting standards, schedule a brief demo with FYIsoft today. FYIsoft can help you tailor your multi-entity financial reports to exactly what your company and country of residence require. Visit FYIsoft.com to learn more.