International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS)

Regardless of the size of the company, accounting is essential and there must be an accounting order, for the good of the business and for regulatory compliance

What is IFRS

As a concept, we will define the International Financial Reporting Standards (IFRS) as the set of rules to present the financial statements of companies, whose purpose is to unify an accounting language among all the countries that participate in the global market.

This regulatory compendium for the preparation of financial documents was created by the International Accounting Standards Board or IASB (a private and independent body that arose from the union of accounting experts from different countries) and is known as the International Financial Reporting Standard (IFRS).

At a practical level, countries do not directly apply IFRS but rather adapt their regulations to these principles. Therefore, the internal regulations of each state were modified in their basic aspects to comply with the guidelines established by the International Financial Reporting Standards.

Content

The content of the IFRS is to establish the method for the preparation of financial statements and the main objective of each of them. The financial statements proposed by IFRS are:

  • Balance sheet or balance sheet
  • Income statement or profit and loss account
  • Statement of the evolution of net worth and statement of comprehensive income
  • Cash flow statement
  • The explanatory notes of the previous states or memory

The elements that these statements must contain are divided into five large patrimonial masses:

  • Assets: Resource controlled by the company as a result of past events from which future economic benefits are expected.
  • Liabilities: Current obligation of the company, arising from past events, at the expiration of which the company expects to dispose of resources that incorporate economic benefits.
  • Net worth: It is the residual part of the assets of the company, after deducting all its liabilities.
  • Income: Increases in economic benefits through the receipt or increase in assets or decrease in liabilities.
  • Expenses: Decreases in economic assets for services and goods obtained or purchased.
See also  What Is The Federal Reserve And What Are Its Functions?

IFRS specialties

The IFRS establishes generic standards, applicable in all areas and for all companies. However, there are special IFRS:

  • IFRS for SMEs:

They are similar to general IFRS but more simplified. They are exempted, for example, from the obligation to present certain financial statements.

  • IFRS for the public sector:

IFRS has been established for public accounting, with all the particularities that this entails. International Public Sector Accounting Standards (IPSAS) establish the requirements for financial reporting by governments and other public sector entities.

IFRS functions

Its main functions are:

  1. Access international economic and business environments
  2. The report transparently and comparably on the financial statements
  3. Unify financial language
  4. Reduce costs
  5. Modernize financial processes
  6. Simplify the preparation of financial statements

big sections

  • IFRS 1. First-time Adoption of International Financial Reporting Standards
  • IFRS 2. Share-based payment
  • IFRS 3. Business combinations
  • IFRS 4. Insurance contracts (repealed in 2023)
  • IFRS 5. Non-current assets held for sale and discontinued operations
  • IFRS 6. Exploration for and evaluation of mineral resources
  • IFRS 7. Financial instruments: information to be disclosed
  • IFRS 8. Operating segments
  • IFRS 9. Financial instruments
  • IFRS 10. Consolidated financial statements
  • IFRS 11. Joint arrangements
  • IFRS 12. Information to be disclosed about interests in other entities
  • IFRS 13. Fair value measurement
  • IFRS 14. Deferral accounts for regulated activities
  • IFRS 15. Income from contracts with customers
  • IFRS 16. Leases
  • IFRS 17. Insurance contracts (has replaced IFRS 4)

Countries with IFRS

The process of international convergence towards a set of global standards began in 1973 when professional accountancy bodies from Australia, Canada, France, Germany, Japan, the Netherlands, Mexico, the United Kingdom, and the United States agreed to form the International Standards Commission. Accounting Standards Board (IASC) which, in 2001, became the International Accounting Standards Board (IASB).

See also  Total Shareholder Return (TSR)

As we have already discussed, the IASB develops IFRS, and the process was accelerated when, in May 2000, the International Organization of Securities Commissions (IOOSC) approved IASC standards for international securities markets. In the same way, the regulation approved by the European Commission in 2002 helped, which required that the financial statements of companies in the European Union that were listed on the stock market conform to IFRS.

The IFRS are standards carried out by a private institution and, therefore, there is no obligation of compliance on the part of the States. However, the reality is that most countries have implemented the basic principles established in IFRS. Specifically, currently, more than 150 countries on all continents have adopted the International Financial Reporting Standards (IFRS).

 

Knowing what IFRS is allowing prepares the company for new horizons that achieve its growth with a solid financial base, according to the regulatory framework that guarantees international standards and guidelines.

BUZZBONGO

BUZZBONGO  we are here to serve society through a virtual environment that enables people who wish to develop their personal and professional skills in fields related to finance ,administration, business and the economy to share and acquire knowledge.
Advantages of local domestic helper.