IFRS stands for International Financial Reporting Standards. IFRS is a collection of globally recognized accounting guidelines used by companies all over the world to guide their financial statements and operations.
International Financial Reporting Standards aim to make companies consistent, transparent, and easily compared in financial reports across various industries and countries.
The International Accounting Standards Board (IASB), a nonprofit independent organization situated in London, UK developed and oversees the affairs of IFRS. This IASB establishes accounting guidelines that businesses use to organize their financial statements, as well as their balance sheet, income statement including cash flow statements.
There are several advantages of IFRS, one of them is that it gives financial reporting a universal language that creditors, investors, and other stakeholders can all understand.
Also, businesses make sure that their financial statements are precise and comparable to those of other companies in the same industry or sector by adhering to a uniform set of accounting standards.
The promotion of openness and disclosure in financial reporting is another advantage of IFRS. Why is it so? Because companies are required under IFRS to report comprehensive details about their financial performance.
Including any risks and uncertainties that could negatively impact their prospects for the future. So Investors and creditors can then use this information to conclude their decision on whether to invest in or lend money to a certain business.
It's important to note that The International Financial Reporting Standards (IFRS) system is not the same as International Accounting Standards (IAS) as many assume. IAS were the earlier standards that IFRS replaced in 2001.
Standard IFRS Requirements:
Some compulsory aspects of business practices required by IFRS from all businesses include:
- Statements of financial position: This contains the balance sheet.
- Statements of overall income: This is usually separated into profit and loss.
- Statement of cash flow: States the overall cash flow in the company within a specific period.
- Statements of retained earnings.