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International Financial Reporting Standards (IFRS)

What are International Financial Reporting Standards (IRFS)?

IFRS are the set of accounting rules **which apply to **public companies’ financial statements. They govern how transactions and other accounting activities are required to be reported in financial statements. The aim of these reporting standards is to make financial reporting more reliable, transparent, and easily comparable around the world. Moreover, developing a universal standard helps to create a common accounting language that can be understood globally by investors, auditors, government regulators, etc. Consequently, businesses and investors can make educated financial analyses and decisions. They were issued by the London-based Accounting Standards Board in 2001 to tackle record keeping and account reporting, amongst other aspects of financial reporting. They have since been adopted in 120 countries including the European Union and excluding the USA, which uses the Generally Accepted Accounting Principles.

Why is IFRS important?

The goal of IFRS is to encourage transparency and trust in both the global financial markets as well as companies that list their shares on them. If IRFS did not exist, investors would be less inclined to trust a company’s financial statements and other listed information. A lack of such trust would lead to fewer transactions and a subsequently less robust economy. Moreover, IRFS helps investors to perform the fundamental analysis of a company as well as compare companies against each other fairly and reliably. Given that cross-border transactions are commonplace, it is essential that such internationalism is not impeded by different counties upholding different accounting standards. IRFS solves the problem by providing a globally recognized and approved framework.

What exactly are the contents of the IFRS?

The International Financial Reporting Standards detail exactly how public companies must maintain their financial records and report their expenses and income. The standard IFRS requirements cover a plethora of accounting activities and provide a set of mandatory rules for many aspects of business practices. For example:

1. Statement of Financial Position: IFRS impact the ways in which the constituents of a balance sheet are reported.

2. Statement of Comprehensive Income: IFRS require companies to give a statement of their income. This can either be in the format of one statement or be separated into a profile and los statement and a statement of other income, such as equipment and property.

3. Statement of Equity Changes: Companies must provide a Statement of Changes in Equity or Statement of Retained Earnings or Profit for the given financial period.

4. Statement of Cash Flows: Companies must provide a report summarizing their financial transactions over a given period, and must separate cash flow into operations, investing, and financing.

5. Statement of Accounting Policies: Companies must now summarize their accounting policies.

For more on IFRS:

The IFRS Official Website

An Overview of International Finance Reporting Standards

The Corporate Finance Institute on IFRS

To Download IFRS Requirements

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