IFRS definition
/What is IFRS?
IFRS is short for International Financial Reporting Standards. IFRS is the international accounting framework within which to properly organize and report financial information. It is derived from the pronouncements of the London-based International Accounting Standards Board (IASB). It is currently the required accounting framework in more than 140 countries.
IFRS is used primarily by businesses reporting their financial results anywhere in the world except the United States. Generally Accepted Accounting Principles, or GAAP, is the accounting framework used in the United States. GAAP is much more rules-based than IFRS.
Advantages of IFRS
IFRS requires businesses to report their financial results and financial position using the same rules; this means that, barring any fraudulent manipulation, there is considerable uniformity in the financial reporting of all businesses using IFRS, which makes it easier to compare and contrast their financial results, even for businesses operating from different countries. In addition, IFRS focuses more on general principles than GAAP, which makes the IFRS body of work much smaller, cleaner, and easier to understand than GAAP.
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Topics Covered by IFRS
IFRS covers a broad array of topics, including:
Presentation of financial statements
Revenue recognition
Employee benefits
Borrowing costs
Income taxes
Investment in associates
Inventories
Fixed assets
Intangible assets
Leases
Retirement benefit plans
Business combinations
Foreign exchange rates
Operating segments
Subsequent events
Industry-specific accounting, such as mineral resources and agriculture
The Differences Between GAAP and IFRS
There are several working groups that are gradually reducing the differences between the GAAP and IFRS accounting frameworks, so eventually there should be minor differences in the reported results of a business if it switches between the two frameworks. There is a stated intent to eventually merge GAAP into IFRS, but this has not yet occurred.
There will be a reduced cost for companies once the two accounting frameworks are more closely aligned, since they will not have to pay to have their financial statements restated to show results under the other framework in cases where they need to report their results in locations where the other framework is required.
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