What is IFRS?

International Financial Reporting Standards (IFRS) is a set of accounting standa

rds, developed by the International Accounting Standards Board (IASB) that is be
coming the global standard for the preparation of public company financial state
ments.

Worldwide Adoption of IFRS

From the past few years many changes have been seen by many in finance and accou
nting sectors. Today it is observed that many major economies in the world are u
nder way to adopt IFRS. Nearly 100 countries have adapted their local accounting
standards to conform to IFRS.
It is under practice that many nations developed their own local Generally Acce
pted Accounting Principles (GAAP). The advent of IFRS has brought with it the ch
oice of adopting a globally accepted set of standards instead of using local GAA
P.

But why is IFRS so important and why is convergence of accounting standards so

advantageous or even necessary?
International Financial Reporting Standards remove some of the subjectivity fro
m financial reporting and provide a consistent basis for recognition, measuremen
t, presentation and disclosure of transactions and events in financial statement
s. In recent Past, there have been cases where companies reporting under IFRS in
Europe record a loss but when these same companies re-state their accounts acco
rding to US GAAP they record a profit!
Financial statements are prepared based on a number of accounting principles an
d assumptions. Accountants use their judgment to apply these principles and prod
uce financial statements for use by management, shareholders, analysts, finance
providers, governmental agencies, the general public and other stakeholders.

Why is the World looking at IFRS?

Convergence of accounting standards will have the effect of attracting investme
nt through greater transparency and a lower cost of capital for potential invest
ors. In recent times Companies are finding it increasingly difficult to raise mo
ney and get them listed on stock exchanges as they were not following the standa
rd in accordance with IFRS. Differences in accounting practice make it difficult
for investors, whether individual or institutional, to compare the financial re
sults of different companies and make investment decisions.

To Whom It Benefits
Multinational companies will find it easier to comply with reporting requiremen
ts of overseas stock exchanges since they would no longer have to re-state their
accounts.
Governments will be in a better position to assess the tax liabilities of multin
ational companies receiving income from overseas as well as for foreign multinat
ionals setting up shop in their own country.