Tuesday, July 24, 2012

What is IFRS?

What Is IFRS?



By Silvia Mahutova


So, what is IFRS? Why does everybody talk about it? Why do we need it? And who uses it?

IFRS is an acronym for International Financial Reporting Standards. It is a set of principles and regulations for reporting many different operations in the financial statements.

Very much like USA uses US GAAP, Canada uses its own Canadian GAAP, Great Britain applies UK GAAP etc., the whole world will use its global GAAP - IFRS.

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Why do we need IFRS?


Today, everything on the globe comes closer than ever before. All things are harmonizing and people study how to behave globally.

And really, it is clear in each move you make - it is possible to purchase the same products in any location, you can find similar meals in "Jack in the box" anywhere in the world and it is also possible to fly wherever on earth within one day.

Accounting together with financial reporting is not any exception. That is where IFRS has its own position - it will act as a harmonized group of regulations with respect to financial reporting around the globe.

Do you know the primary benefit of IFRS?


Here, in the globalizing planet, the crucial idea is the ability to compare.

Picture yourself as the owner of multinational company who wants to examine economic outcomes of your organizations from various areas. But - every single area applies its own bookkeeping guidelines!

Let's say that revenues are reported on accrual basis in some area, and on cash basis in a different location. How can you know which of your organizations reaches nicer revenues when these results are incomparable?

Or possibly, you are a tiny investor acting in the stock market. Investors usually review financial reports of their potential shares prior to buying. How can you read all the documents when everybody reports differently?

You get the understanding. IFRS gives us harmonized guidelines for bookkeeping and presenting the financial information, so that everybody understands financial reports from any place in the world. And not only this - if some corporation tries to get abroad funding or enter the stock exchange, it should prepare its financial reports in line with IFRS.

What countries present their financial statements according to IFRS?


Currently, more than 120 countries follow IFRS, some of them entirely, a few of them partially. In ideal case, IFRS should be implemented globally by 2015.

In fact, undoubtedly one of the key participants in the worldwide economy, the USA continues to use their own US GAAP. Under this circumstance, US GAAP and IFRS will converge and also gradually reduce dissimilarities. The IFRS convergence process should have been completed until 2012.

But, FASB (setter of US GAAP) and IASB (setter of IFRS) slowed up the convergence progress and latest due date is approximately 2015. Additionally, SEC (Securities and Exchange Commission) should have decided with regards to inclusion of IFRS for U.S. companies by the end of 2011, but the decision has been postponed by several months.

You can find helpful information, examples and free e-book about IFRS at http://www.ifrsbox.com - a site dedicated to online IFRS training: helping accountants, chief financial officers, finance students and anyone interested in understanding IFRS and its application in their daily job.

Silvia Mahutova, FCCA

Silvia is a founder of http://www.ifrsbox.com - the site helping accountants, financial analysts, chief financial officers and other interested people to understand IFRS and gain deeper knowledge about it.

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