How are accounting standards useful?
"IFRS" - what is it?
IFRS is an abbreviation for “International Financial Reporting Standards”. These standards contain a whole system of principles and rules for the presentation of various transactions and positions in financial statements.
Just as the USA, Canada or Great Britain have their respective GAAP (Generally Accepted Accounting Principles), there will soon also be globally recognized accounting standards - one could also say World GAAP. Only these are not referred to as World GAAP, but as IFRS. These IFRS are mainly used today by listed companies.
But be careful! Some time ago IFRS were still called IAS (International Accounting Standards). In fact, the first standards also have a designation beginning with IAS, such as IAS 1 - Presentation of Financial Statements. Exactly 41 standards came out under the designation IAS, some of which are no longer relevant.
Then it was renamed to IFRS. Since the name change, new standards are now called IFRS. If you would like to learn more about the content of the IFRS, you can register for our IFRS course free of charge at any time.
The world is getting closer and closer. Much is being standardized and people are learning to think and act globally.
In fact, we are experiencing this development every step of the way: We get the same products in stores all over the world, can eat the same things at McDonalds, for example, and can reach any place on the planet by plane in less than 24 hours.
Accounting and financial reporting are no exception. This is where IFRS come in - they serve as a unified system of financial reporting principles that apply globally.
Our globalized world sees COMPARABILITY as one of the most important concepts of all.
Imagine that you are the owner of a multinational corporation and want to review the financial performance of your company in different countries. But every country uses different accounting rules.
In country 1, for example, sales are recorded in the appropriate period, whereas in country 2 they are shown with the actual cash flows. How can you assess the sales of your companies in this situation, if the figures are not comparable with each other?
Or let's say you're a retail investor in the stock market and you're (hopefully) looking into the close of a company whose shares you want to buy. How should you be able to read financial statements if they are not drawn up consistently?
You probably already understand what we're getting at. The IFRS are a globally applicable system of accounting and reporting regulations that are intended to enable us to understand company financial statements, regardless of where they come from. And not only that - if your company is looking for access to international capital or a stock exchange, it must generally report according to IFRS.
Currently, IFRS are used in over 120 countries around the world, in some countries completely, in others only partially. The aim is the general introduction of IFRS by 2015.
However, one of the most important global players, the USA, still works with US GAAP. A convergence between US-GAAP and IFRS including the gradual elimination of all differences would therefore make sense - the corresponding keyword is convergence. The IFRS convergence process should have been completed by 2012.
But the FASB (as the publisher of US GAAP) and the IASB (as the publisher of the IFRS) were not as fast as expected and are now targeting 2015 as the new convergence date. However, there are currently further delays, if not a partial withdrawal of the FASB from the convergence process.
In addition, the SEC (the Securities and Exchange Commission) should have made its decision on the introduction of IFRS for US issuers by the end of 2011. This has also shifted.
If you want to know the best way to approach IFRS in terms of content, please read our article “IFRS can be learned”. If you are interested in the respective developments relating to IFRS or in the individual standards themselves, subscribe to our *** FREE *** IFRS course with numerous interesting examples and IFRS videos!
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