What are International Financial Reporting Standards (IFRS)?

1. Information about International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a set of widely used international standards for financial reporting. These standards are developed and maintained by the International Accounting Standards Board (IASB). The IASB is an independent, non-for-profit, privately funded accounting organization that is based in London. To maintain the international continuity of IFRS, during 2009 the IASB was comprised of 15 members from 9 different countries.

International Financial Reporting Standards (IFRS) are currently used in over 120 countries around the world, including the European Union. The United States currently uses a different reporting system known as Generally Accepted Accounting Principles (U.S. GAAP). The major source of U.S. GAAP is the Financial Accounting Standards Board (FASB). Many US and foreign multinational firms have conformed to both U.S. GAAP and IFRS for the disclosure of internationally based financial information. However, the world is leaning towards adopting IFRS as “the” international accounting standards. The U.S. Securities and Exchange Commission (SEC) recognizes the benefit of adapting one worldwide accounting platform and has begun an initiative to adapt to some IFRS standards.

There are several advantages to be realized in the worldwide adaptation of IFRS. For example, there is an increased ability to compare financial information between companies with business operations in different countries. As more and more countries begin to use the same set of financial reporting standards, the financial reporting process should become more transparent. This transparency translates into benefits to all parties involved, giving them greater financial credibility and an increased access to the world capital markets. Concise and readily understandable financial and accounting information benefits investors, companies and capital markets worldwide. The standardization of accounting methodology provides creditors and investors with the ability to analyze businesses around the world using the same financial methods. This symmetry allows for the benchmarking of sales, marketing and other key financial indicators internationally, across different industry segments.

The United States standards setting bodies and IASB are in the process of converging U.S. GAAP with IFRS. At the same time, U.S. GAAP principles are seen by many in the US to be the more detailed “gold standard” of accounting. Moving to a new financial reporting system is a costly endeavor. Proponents of the change see that an initial transition to IFRS may be a time consuming and costly investment, but over the long run companies are able to realize internal reporting efficiencies from streamlining accounting and financial processes into one unified worldwide format.