In this article, you will learn:
Global economies today depend heavily on international financial transactions and unrestrained movement of international capital. As per the statistics, more than one third of the financial transactions take place internationally which is bound to grow in the times to come.
Investors on the one hand want to expand and invest in various avenues across the globe. On the other hand companies, seeking to raise capital, enter into financial transactions and carry business operations across many countries.
Earlier, such international transactions led to complications such as different national accounting standards adopted by different countries. Each country following its own accounting standards meant increased cost, difficulty and risk on the part of companies producing financial statements.
Further, it will also impact the stakeholders using such financial statements to undertake key economic decisions. Additionally, it required the accounting professionals to understand and study national accounting standards thus adding to the complexity.
This is because business organizations presented financial information in the accounting statements following their national accounting standards. Hence, different parameters were used to calculate various amounts.
Thus, a smallest variation impacted the business entity’s financial position in a big way. Therefore, governments, accounting professionals, international organizations and business associations desired to have a uniform set of global accounting standards that gave way to IFRS.
What is IFRS?
International Financial Reporting Standards (IFRS) are a uniform collection of high quality globally accepted Accounting Standards. These Standards are set by the International Accounting Standards Board (IASB).
Such standards are set with the motive to bring transparency, accountability and efficiency in the international financial markets.
Companies must adopt these Accounting Standards while preparing and issuing their financial statements thus bringing uniformity in the financial information. Further, IFRS Standards are mainly used by companies listed on the stock exchange and financial institutions such as banks.
Benefits of IFRS
National Accounting Standards created increased complexity in respect of financial reporting by business entities. Thus, adoption of IFRS has helped business overcome these difficulties and offered benefits which are as follows:
With a single set of accounting standards being adopted by business entities across the world, IFRS has led to increased transparency. This is because IFRS now allows business entities to compare financial statements easily.
In addition to this, such a common set of rules help in improving the quality of financial information, thus allowing stakeholders to take key decisions effectively.
IFRS further helps in reinforcing accountability by bridging the information disparity between persons providing capital and the business entities to whom such capital has been given. These Standards give information which is necessary to hold the management accountable.
Further, as these standards allow for increased comparability of financial information, they are important for Regulators across the globe.
IFRS Standards lead to economic efficiency. This is because such Standards help investors to spot opportunities as well as risks that further improve capital allocation.
Further, using a common set of rules across the globe means reduced cost of capital as well as other reporting costs for business entities.
Financial Statements in IFRS
A complete collection of Financial Statements depicting fair representation of the financial position of a business entity and complying to IFRS are given below:
- Statement of Financial Position – Balance Sheet at the end of the accounting period
- The Statement of Profit & Loss and Other Comprehensive Income for the given accounting period. This can be prepared as a single statement. Or it can also be presented by showing Profit or Loss section in a different statement for Profit or Loss with Statement showcasing comprehensive income subsequent to P&L.
- Statement of Changes in Equity for the accounting period
- The Statement of Cash Flows for the accounting period
- Notes that contain a gist of important accounting policies and other explanatory notes
Business entities at times are also required to showcase statements of financial position of earlier periods in cases when:
- Business entity applies an accounting policy retrospectively
- Reclassifies items in its financial statements retrospectively
List of IFRS Standards
Following are the list of IFRS standards set by IASB:
|Accounting Standard||Description of Accounting Standard|
|IFRS 1||First Time Adoption of International Financial Reporting Standards|
|IFRS 2||Share Based Payment|
|IFRS 3||Business Combinations|
|IFRS 4||Insurance Contracts|
|IFRS 5||Non-Current Assets Held for Sale and Discontinued Operations|
|IFRS 6||Exploration For and Evaluation of Mineral Resources|
|IFRS 7||Financial Instruments: Disclosures|
|IFRS 8||Operating Segments|
|IFRS 9||Financial Instruments|
|IFRS 10||Consolidated Financial Statements|
|IFRS 11||Joint Arrangements|
|IFRS 12||Disclosure of Interests in Other Entities|
|IFRS 13||Fair Value Measurement|
|IFRS 14||Regulatory Deferral Accounts|
|IFRS 15||Revenue From Contracts With Customers|
|IFRS 17||Insurance Contracts|
|IAS 1||Presentation of Financial Statements|
|IAS 7||Statement of Cash Flows|
|IAS 8||Accounting Policies, Changes in Accounting Estimates and Errors|
|IAS 10||Events After The Reporting Period|
|IAS 11||Construction Contracts|
|IAS 12||Income Taxes|
|IAS 16||Property, Plant and Equipment|
|IAS 19||Employee Benefits|
|IAS 20||Accounting for Government Grants and Disclosure of Government Assistance|
|IAS 21||The Effects of Changes in Foreign Exchange Rates|
|IAS 23||Borrowing Costs|
|IAS 24||Related Party Disclosures|
|IAS 26||Accounting and Reporting By Retirement Benefit Plans|
|IAS 27||Separate Financial Statements|
|IAS 28||Investments in Associates and Joint Ventures|
|IAS 29||Financial Reporting in Hyper Inflationary Economies|
|IAS 32||Financial Instruments: Presentation|
|IAS 33||Earnings Per Share|
|IAS 34||Interim Financial Reporting|
|IAS 36||Impairment of Assets|
|IAS 37||Provisions, Contingent Liabilities and Contingent Assets|
|IAS 38||Intangible Assets|
|IAS 39||Financial Instruments: Recognition and Measurement|
|IAS 40||Investment Property|