IFRS stands for International Financial Reporting Standards and it is a set of principles and rules for reporting various transactions and items in the financial statements.
Earlier every country used to have its own accounting standards…… United States has its US GAAP, Canada has its Canadian GAAP, United Kingdom has its UK GAAP etc. Now, the WORLD will have its “world GAAP”—which is known as International Financial Reporting Standards.
Before some time, IFRS was called IAS (International Accounting Standards). Indeed, the first standards carried the name starting with “IAS”, e.g. IAS 1—Presentation of Financial Statements. Exactly 41 standards started with IAS.
But then, some IASs were abandoned, some were modified and update and some new standards were issued under the caption of IFRS.So, IFRS is a sum total of all the rebranded, modified and updated IAS and the new standards being issued under the heading of IFRS itself.
NEED FOR IFRS?
Today, everything in the world comes closer than ever before. Things are harmonizing and people learn to think and act global.
And indeed, you can see that in every step you make—you can shop the same items anywhere in the world, you can get the same food in McDonalds anywhere in the world, you can even fly anywhere in the world in less than 24 hours.
Accounting and financial reporting are no exception. This is where IFRS has its own spot—it will serve as unified set of principles for financial reporting anywhere in the world.
BENEFIT OF IFRS
In today’s ever globalizing world, the key concept is COMPARABILITY.
Just imagine yourself as the owner of multinational holding who wants to review financial results of your companies in different countries. But—every country uses different accounting rules!
For example, revenues are reported on accrual basis in 1 country, and on cash basis in another country. How can you say which of your companies has better sales if those figures are incomparable?
Or even if you are small investor playing on the stock exchange and you (hopefully) look to financial statements of your prospect investment before buying. How can you read those statements if everybody reports differently?
So you get the picture. IFRS gives us united global set of accounting and reporting rules, so that you understand financial statements from whatever country. And not only this—if your company wants access to international capital or to stock exchange, it must present its financial statements in compliance with IFRS.