What are International Financial Reporting Standards (IFRS)?

International Financial Reporting Standards (IFRS) are a set of globally recognized accounting rules. Put simply, IFRS ensures companies report their finances clearly and fairly. It’s a major framework used around the world to support business transparency and legal compliance.

In this article, we’ll explain what IFRS is, why it matters, and what it could mean for your small business.

A brief history of IFRS

So, what is IFRS? 

The International Accounting Standards Board (IASB) first introduced IFRS in 2001. These standards evolved from the earlier International Accounting Standards (IAS) which were developed in the 1970s. They were created to harmonize accounting practices globally and eliminate inconsistencies in financial reporting. Today, over 140 countries require or permit the use of IFRS Financial Reporting Standards for publicly listed companies.

What is the purpose of IFRS?

The main goal of IFRS is to make sure that financial statements are comparable across international boundaries. These standards create a common accounting language that businesses worldwide can understand.

The International Financial Reporting Standards:

• Make financial reporting more consistent and transparent
• Support clear comparisons across countries
• Give investors reliable information
• Simplify global accounting
• Improve the efficiency of capital markets around the world

Key IFR standards to know: IFR cheat sheet

Understanding key IFR standards can help your small business stay compliant. Our IFR cheat sheet breaks down some of the most important standards you should know, especially if you're planning to grow internationally:

IFRS vs GAAP: What’s the difference?

You might have come across other accounting standards like GAAP, especially if you've dealt with US-based clients or investors. While these frameworks serve the same overall purpose, they follow different rules.

So, what’s the difference between GAAP and IFRS?

IFRS is principles-based, focusing on general guidelines rather than specific rules. GAAP (Generally Accepted Accounting Principles) is rules-based, with detailed guidelines for specific situations. Most countries around the world use IFRS, while the United States primarily uses GAAP.

For international businesses, these differences can have a big impact. The same company could report different profits depending on which standards they follow. This creates challenges for businesses operating across regions and for investors comparing companies globally.

Who needs to use IFRS?

While IFRS is the global standard in over 140 countries, major economies like the United States, China, and India still use their own national frameworks.

Small businesses operating locally can stick to their country's accounting standards. However, if you’re looking to grow into international markets, it’s important to understand IFR standards.

How IFRS impacts your business

The IFRS Financial Reporting Standards can shape your business in a few key ways:

• Compliance requirements: Depending on your structure, you may be legally required to follow IFRS in the Philippines.
• Reporting processes: You might need to update your systems or software to align with IFR standards.
• Financial decision making: IFRS affects how you record revenue, value assets and report liabilities.
• Investment opportunities: Global investors often prefer businesses that follow recognized international standards.
• Business comparability: Standardized reporting makes it easier for stakeholders to compare your performance with others.

For growing businesses, sticking with IFRS from the start can help avoid costly changes later. It also puts you in a stronger position to expand internationally.

Common challenges with IFRS compliance

While IFRS offers clarity and consistency, adopting them isn’t always easy. Many small businesses face practical hurdles when trying to stay compliant. Here are some common challengers with IFRS compliance, and how you can tackle them:

• Complexity of implementation: Switching to IFRS could mean reworking your existing financial processes. You might need to change how you recognize revenue, measure assets or report performance. Start by reviewing your current accounting practices and mapping out where changes are needed.
• Differences in interpretation: Because IFRS is based on broad principles rather than strict rules, businesses often need to use their own judgment when applying the standards. This can lead to different interpretations of the same situation. Work closely with a qualified accountant to make sure your interpretations align with best practice.
• Cost and training needs: Getting it right may require staff training and updated documentation. These upfront costs can add up, especially for small teams. Budget for training early and prioritize staff education.
• Accounting software: Not all accounting software is set up for IFR standards out of the box. You might need to customize or switch systems. Make it easier by choosing IFRS-compliant software like QuickBooks Online Advanced that features automated reporting.

Final thoughts: Why IFRS matters in the global economy

In today’s connected world, IFRS helps drive global growth and stability. These standards build trust by making financial reporting more transparent and consistent across borders.

For businesses going global, IFRS isn’t just about ticking compliance boxes—it’s a smart move that appeals to international investors. If you’re a Filipino business eyeing international growth, getting comfortable with IFRS is a big step forward. It shows the world you’re ready to do business at a global level.