INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
International Financial Reporting Standards (IFRS) is a set of accounting standards that provides a comprehensive framework for companies to prepare and present their financial statements and report their financial performance. It is issued by the International Accounting Standards Board (IASB) and is designed to be used worldwide. The goal of IFRS is to improve the comparability and consistency of financial reporting across countries, making it easier for investors and other stakeholders to compare financial information of companies in different countries.
MEANING OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) :
IFRS is an acronym for International Financial Reporting Standards and covers full set of principles and rules on reporting of various items, transactions or situations in the financial statements. Often they are referred to as “principles based” standards because they describe principles rather than dictate rigid accounting rules for treatment of certain items.
In simple words, IFRS are a set of International accounting standards, stating how particular types of transactions and other events should be reported in the financial statements. They are the guidelines and rules set by IASB which the company and organisation can follow while preparing their financial statements.
IFRS are designed as a common global language for business affairs so the company accounts are understandable and comparable across international boundaries.
COMPONENTS OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) :
- STANDARDS : The core component of IFRS is the set of standards, which provide detailed guidelines on how to prepare financial statements. The standards cover a wide range of topics, including revenue recognition, property, plant, and equipment, financial instruments, and income taxes.
- INTERPRETATIONS : In addition to the standards, IFRS includes a set of interpretations, which provide guidance on the application of IFRS. The interpretations are issued by the International Financial Reporting Interpretations Committee (IFRIC) and are used to clarify the meaning and application of IFRS standards.
- FRAMEWORK : The framework provides the overall structure and concepts for financial reporting under IFRS. It defines the fundamental concepts that underlie financial reporting and provides a basis for selecting and applying accounting policies.
OBJECTIVES OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) :
- IMPROVING COMPARABILITY : IFRS provides a common language for financial reporting, making it easier for investors and other stakeholders to compare financial information of companies in different countries.
- ENHANCING QUALITY : IFRS places a strong emphasis on disclosure, requiring companies to provide comprehensive information about their financial performance and financial position. This helps to improve the quality of financial reporting and increases the transparency and accountability of companies.
- PROMOTING CONSISTENCY : IFRS provides a consistent set of accounting standards that companies can use to prepare their financial statements. This promotes consistency in financial reporting, reducing the risk of misinterpretation and increasing the reliability of financial information.
FEATURES OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS):
- COMPREHENSIVE : IFRS provides a comprehensive set of standards for financial reporting that covers a wide range of topics.
- EMPHASIS ON DISCLOSURE : IFRS places a strong emphasis on disclosure, requiring companies to provide comprehensive information about their financial performance and financial position.
- FLEXIBILITY : IFRS provides a flexible framework that allows companies to adopt accounting policies that are appropriate for their specific circumstances.
RELEVANCE OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS):
- FOR COMPANIES : IFRS is relevant for companies that prepare financial statements for external stakeholders, such as investors, creditors, and regulators. Adoption of IFRS helps companies to present their financial information in a way that is easily comparable with other companies, making it easier for investors to assess their financial performance.
- FOR AUDITORS : IFRS is also relevant for auditors, who are responsible for expressing an opinion on the conformity of a company's financial statements with IFRS. This helps to increase the reliability and transparency of financial information, and reduces the risk of misunderstandings or misrepresentations.
- FOR INVESTORS : IFRS provides a common language for financial reporting, making it easier for investors to compare financial information of companies in different countries. This helps investors to make informed investment decisions and reduces the risk of misinterpretation of financial information.
CONCLUSION
IFRS is an important tool for promoting transparency, consistency, and comparability in financial reporting, and is used by companies, auditors, and investors around the world. The continued development and implementation of IFRS is critical for ensuring the reliability and credibility of financial information and facilitating informed investment decisions.