If you are studying accounting, you will learn in-depth details about the international accounting standards that must be followed by all professionals in the field. As the economy becomes more global, so do the activities of companies and lenders as well. This means that the need is greater than ever for a globally accepted framework where financial records and reports are consistent, comparable, reliable and transparent at international and domestic levels. If you would like to learn more about these international standards before you attend school, read on and find out the purpose of these standards and what they entail.
The Purpose of International Standards in Accounting
The purpose of these standards is to ensure that the financial centers of the world, which have become more interconnected than ever, can use a global financial reporting framework that ensures effective regulation of financial markets. The growing volume of cross-border capital flows makes having international standards, that are high in quality and testable across the board, a priority. By having these standards in place, capital markets that are located in different jurisdictions can create the most efficient capital flows that are beneficial to regulators, organizations, and the market as a whole.
Who is In Charge of These Standards?
Until recently, the International Accounting Standards (IAS) were created and issued by the Board of the International Accounting Standards Committee (IASC). These standards were put in place to advise companies how to report financial events in a financial statement. In 2001, a new set of standards was developed and these new standards are referred to as the International Financial Reporting Standards (IFRS). The IFRS were issued by the International Accounting Standards Board (IASB), which ultimately has no authority over whether or not a company adopts the standards. While this is true, many countries have financial laws requiring all publicly traded companies to prepare financial statements in compliance with the IAS to protect investors, stakeholders and creditors. The IFRS are currently not being adopted in the US, which has led to a lot of criticism.
The Red Book, the Blue Book and the Green Book
There are three different editions of the standards that are printed today. The first edition was the Red Book, which is the original set of standards that has not been superseded or replaced. While this version is still published, it does not contain some updated information. The Blue Book, printed in 2010, consolidates standards that were put in place before January 1 of that year. The Green Book, which is the latest version to be printed, consolidates all of the current standards. It is important to also have current interpretations of these standards.
In a global environment it is important to have a global set of standards that can be adopted and used by every country. This makes the framework much more reliable and consistent. While the US currently adopts the GAAP standards that were created by the Federal Accounting Standards Board, some companies that operate on a multi-national level have adopted international standards. The worldwide adoption of the IFRS will make the reading and analysis of financial statements much easier for all investors. While the international accounting standards are not used by all listed and unlisted companies, more and more countries are making adoption a priority.