International Financial Reporting Standards
Financial reporting is a very important aspect of running your business. When done properly, the figures presented are useful in analyzing the financial performance of your business, thus becoming more successful.
International Financial Reporting Standards (IFRS) are a set of accounting rules and standards that guide the reporting of transactions and events in financial statements. IFRS were issued and are maintained by the International Accounting Standards Board (IASB) to make financial statements consistent, comparable, and transparent across the world so that investors and other stakeholders can compare the financial performance of companies on a like-for-like basis.
IFRS provides rules and standards that every company must observe to yield transparency and consistency in financial reporting. Therefore, governments use these standards to regulate direct and indirect foreign investments.
Objectives of IFRS
IFRS enhance the comparability and quality of information internationally such that investors and other market stakeholders are able to make informed decisions. Credible financial statements enable stakeholders to analyze your company’s financial performance and interpret its financial position with accuracy and consistency to identify risks and opportunities before investing.
IFRS reduce the information gap between lenders and borrowers and thus hold management to account. By following International Financial Reporting Standards, business owners and managers are bound to present data that is accurate, reliable, uniform, and appropriate.
IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. For businesses, the use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs.
A key objective of IFRS is to ensure that common rules and standards are introduced and adopted by as many jurisdictions and countries as possible in order to bring everyone on the same page. It ensures that everyone follows the same guidelines and adopts a universal way of reporting business activities.
Scope of IFRSs
IFRS covers a broad range of areas including revenue recognition, income taxes, inventories, fixed assets, business combinations, foreign exchange rates, presentation of financial statements, borrowing costs, employee benefits, intangible assets, subsequent events, leases, and industry-specific accounting.
IFRS has also set mandatory rules for some business components of various key financial statements.
- Statement of Financial Position – IFRS mandates the components of how to report and prepare the balance sheet.
- Statement of Comprehensive Income – Under IFRS, this could be prepared as single statement for all income sources or one can prepare it in several parts, such as a profit and loss statement, other income statements etc.
- Statement of Changes in Equity – This should show the increase or decrease in the retained earnings during the period.
- Statement of Cash Flow – All the cash transactions are categorized into Operations, Investing, and Financing.