You come to know the meaning of IFRS(International Financial Reporting Standards). In the further sections, we discuss the features of IFRS, the importance of IFRS, objectives of IFRS. For more detailed knowledge regarding IFRS, you have to follow the whole article till to the end.
International Financial Reporting Standards (IFRS)
International Financial Reporting Standards (IFRS) were introduced by the International Accounting Standards Board (IASB), which took over the job of harmonization of accounting standards throughout the world from the International Accounting Standards Committee (IASC) in the year 2001. The standardization of international accounting practices was necessitated in view of the growing phenomenon of globalization and with a view to fulfilling the day-to-day need; IASC was brought into existence in the year 1973. IFRS harmonizes accounting standards all over the world. Here, you will study IFRS meaning and objectives.
Features of International Financial Reporting Standards
Here, we discuss the features of IFRS.
1. Principle Based Approach
The rules framed under International Financial Reporting Standards are broad-based and not very elaborative, prescriptive or inflexible in nature. It is the main features of IFRS in accounting. They are basically founded upon various principles and some of the regulatory outcomes. This approach does not envisage micro-management at any level, and the business entities are free to use their commercial judgment/discretion within the overall framework of International Financial Standards.
2. Fair Value Accounting
Accounting based upon historical cost-based principles suffers from a number of shortcomings. IFRS encourages fair value accounting principles, which are considered forward-looking and superior one as compared to the historical cost-based principles (i.e. GAAP). It is included in the features of International Financial Reporting Standards. Financial reporting based upon the fair-value accounting principles is most suitable for the potential investors, who get preference over other stakeholders under the IFRS.
3. Comprehensive Income
The concept of comprehensive income is of recent origin in the evolution process of accounting standards and it occupies an important place in the agenda of IFRS. Comprehensive income provides transparency in showing all revenue expenses, gains, losses, etc.
Under the consolidation technique, which is a part of International Financial Reporting Standards, the assets and liabilities of a company’s subsidiaries are required to be valued at their fair value as on the date of the acquisition. This is a significant departure from the traditional GAAP standards, under which the minority interest is excluded from the fair value adjustments. As it shows the features of International Financial Report Standards.
Transparency is yet another striking features of IFRS. Transparency in accounting, and especially in the preparation of financial statements, comes from the underlying and strong faith in the market forces.
Major Objectives of IFRS (International Financial Reporting Standards)
1) To make available, in the public interest, a single set of financial reporting standards on the basis of principles, which are of high quality, easy to understand, enforceable and acceptable to the entire global community. It is the one of the objectives of IFRS. These standards require the financial statements and other reports prepared by a company to be of high quality and transparent, which provide comparable information for various stakeholders including the investors, the player in the world’s capital markets, and other users. It is the objectives of international financial reporting standards.
2) To encourage the application of the standards under the IFRS amongst various stakeholders to the maximum possible extent is the objective of International Financial Reporting Standards.
3)To take into account suitably, the requirements of an array of sizes and types of entities in different economic settings prevailing in the world.
4) As the standards and interpretation thereof were originated from IASB, one of the objectives of IFRS is to facilitate its adoption by various business entities spread over the globe.
Importance of International Financial Reporting Standards
In this section, you will come to know the importance of IFRS. Some of them are as follows:
1. Level of Confidence
The main advantage of adopting International Financial Reporting Standards, which is considered to be a stable, transparent, and fair accounting system across the world, would be that the confidence level of investors domestic as well as foreign – would be boosted. It is one of the significance of IFRS.
2. Risk Evaluation
If the financial data and other statements are not prepared in terms of international standards, the investors generally assign some premium. Introduction of IFRS would rule out such hurdle to cross-border listings and as such the investors would be the gainers.
3. Merger and Takeover Activity
As the introduction of IFRS would eliminate the need to redesign the financial statements, the way to cross-border mergers and acquisitions would be facilitated.
If the IFRS are introduced in a country, and various business entities become International Financial Reporting Standards compliant, the comfort level of foreign investors would be enhanced and they would find such destinations more lucrative. It is one of the main importance of IFRS.
IFRS is a globally identified set of accounting guidelines and guidelines that offers a commonplace language and framework for economic reporting. Its purpose is to ensure that economic statistics supplied through organizations are accurate and dependable, allowing traders and other stakeholders to make knowledgeable decisions about investments and other monetary transactions.
What is IFRS in Financial Accounting?
IFRS stands for International Financial Reporting Standards. It is a set of accounting policies and hints mounted by the International Accounting Standards Board (IASB) to standardize international monetary reporting. IFRS gives a not-unusual language and framework for financial reporting. It covers topics including the presentation of monetary statements, accounting for revenue, rentals, economic devices, and many others.