The International Financial Reporting Standards (IFRS) are a collection of comprehensive guidelines regarding all aspects of the accounting profession. They were originally developed to provide a common set of rules and principles for financial reporting. These standards are developed by the International Accounting Standards Board (IASB), which is a body of the non-profit International Financial Reporting Standards Foundation. The international standards have achieved global recognition and are currently applied in over 100 jurisdictions around the world.
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The International Financial Reporting Standards Foundation maintains a current list of all of its active standards, which currently includes over 50 sections covering various activities, scenarios, and industry-specific issues. The standards include sections dedicated to insurance contracts, joint arrangements, general reporting practices, fair value measurements, and other business activities. The International Accounting Standards (IAS) define standards for statements, like inventory documentation, income tax preparation, and asset management issues.
The IASB and Standards Foundation
The IASB is directly responsible for developing and approving new material for inclusion in the international standards. The standards board boasts a diverse membership with at least 13 board members from different accounting disciplines across multiple countries. While the board does retain some degree of independence, it’s a body of the larger International Financial Reporting Standards Foundation. The primary and stated objective of the foundation is to develop a unified set of standards for global application through the IASB. The standards foundation has a multi-tier system of governance that includes industry experts and public authorities.
History and Modern Application
The international accounting standards can trace their origin back to 1973 with the founding of the International Accounting Standards Committee (IASC) in London. It was born out of a need for a common financial language for business transactions between various European nations as well as their distant trading partners. While the committee was renamed in 2001, its mission to develop a set of unified accounting standards for international implementation has remained the same. The standards are currently in use in countries across the world, including Russia, Australia, Canada, and the European Union, according to the International Financial Reporting Standards Foundation. It’s also the standard for domestic companies in many countries in South America and Africa.
Comparison to US Standards
Even though the United States allows some foreign companies to conduct financial reporting according to international standards, domestic companies must follow the US generally accepted accounting principles (GAAP) instead. While some government officials have indicated interest in a shift towards adoption of international standards, no date has been announced for this transition. There are many differences between the US and international standards, particularly in the areas of inventory and income reporting. Accounting professionals need to be aware of these distinctions when reporting income in foreign jurisdictions. In general, the US GAAP is considered to be more detailed and rules-oriented than its international counterpart.
Financial reporting has been a serious challenge for national governments and international businesses for many years. While it hasn’t reached total global adoption, the IFRS has become established as a unifying guideline on general accounting principles and practices.