Why International Financial Reporting Standards (IFRS) Matters

What is IFRS?

International Financial Reporting Standards, popularly known as IFRS, is a set of accounting guidelines for the financial statements made by public companies and accounting practices to make them consistent, transparent, and compatible with the rest of the world. IFRS is applicable in multiple jurisdictions, including the EU, but some countries do not follow it. For example, the USA follows the Generally Accepted Accounting Principles. The main goal of introducing IFRS is to bring transparency, accountability, and efficiency to the capital markets around the world.

IFRS is a collection of accounting standards set by the International Accounting Standards Board (IASB), an independent standard-setting body. Technical experts prepare the standards set by IASB, and due to its promotion of greater transparency, IFRS has gained global acceptance. It has also become compulsory in many countries, and companies and accounting practices based in these countries have to prepare their financial statements based on these standards.

Let’s Understand IFRS Deeper

IFRS has brought in a set of standards that have brought uniformity in maintaining records and reporting expenses and income. International Financial Reporting Standards have established a common and simple accounting language that investors, auditors, government regulators, accounting practices, and companies worldwide can understand. The main objective of IFRS is to bring consistency in the accounting language, practices, and statements which will help businesses and investors to make informed decisions.

Most businesses based in the UK prefer to hand over the task of preparing financial statements to accounting practices like yours so that they can concentrate on their core business activity. This guide is specifically targeted towards accounting practices like yours, who will have to handle the majority of the accounting responsibilities for your clients. For that, you will need to have the detailed knowledge about IFRS, GAAP, and the difference between them.

However, keeping tabs on the latest accounting standards is not any easy task plus you will have various important accounting responsibilities fulfil. Non-compliance with the latest standards will hurt your performance and result in penalties for your clients. To avoid such a situation, you can explore the IFRS-compatible outsourced year end services offered by professional accounting service providers.

Difference Between IFRS and GAAP

The main objectives of IFRS and GAAP relate to the structure of financial documents prepared by companies, accountants, and accounting practices. While their goals are the same, there is a significant difference between them; the most important differences are enforcement and scope. To understand GAAP in more detail, check out our blog, Understanding UK Generally Accepted Accounting Practice (GAAP) and gain decision-making knowledge.

Enforcement

GAAP is rule-based and is strictly enforced on US-based companies. IFRS is not enforced but is highly recommended due to the benefits of standardization it offers.

Scope

If GAAP is limited to the USA, IFRS has been adopted worldwide thanks to the global influence of IASB. The accounting standards set by IFRS are increasingly adopted around the world, with the exception of the USA, where GAAP is used as a standard while preparing financial statements.

Methods for Inventory Valuation

Figuring out the value of your inventory is called inventory valuation, and you can do this using three methods:

• First in First Out Method (FIFO)
• Last in First Out Method (LIFO)
• The weighted average method, which uses the amount earned from selling a portion of your inventory to determine the value of the remaining portion.

When it comes to adopting these methods, GAAP and IFRS take different approaches. GAAP allows the use of all the above-mentioned valuation methods, but IFRS prefers FIFO and the weighted average method.

To answer your question as to which one is the best will depend on the situation. Since IFRS is a globally accepted standard, you must focus on it if many of your clients operate internationally. Focusing on IFRS is more beneficial because it will automatically make you attractive to international clients who require the services of accounting practices with expertise in IFRS accounting standards.

What are the Standard IFRS Requirements?

While IFRS covers most of the accounting activities, there are certain aspects for which IFRS sets compulsory rules.

• Financial Position: IFRS positively influences how balance sheet components are reported.
• Statement of Comprehensive Income: This is related to the profit and loss statement and other statements, including property and equipment.
• Statement of Changes in Equity: It records your client’s profits and earnings for the given financial year.
• Statement of Cash Flows: It records your client’s financial transactions for a given period, separating cash flow into operations, investing, and financing activities.

Why is IFRS Important?

IFRS has increased trust and transparency in global financial markets and the businesses listed on them. Plus, it has standardised accounting standards, thus making life easier for many accounting practices like yours.

Investors will only trust financial statements prepared according to the IFRS standards. With that trust in the financial statements, there will be more transactions and a viable economy. Thanks to IFRS, the financial statements prepared by accounting practices have become standardised, making it easier for investors to compare the performance of multiple companies and make informed investment decisions.

Conclusion

How did you find our detailed blog on IFRS? This blog highlights the importance of IFRS and its positive impact on your accounting practice and financial statements. By getting a deeper understanding of IFRS standards, you will be able to prepare financial statements that are worthy and transparent for clients, thus enhancing the credibility of your clients and the trustworthiness of your accounting practice.

For IFRS assistance, contact Corient’s outsourced year-end services, a professional accounting provider in the UK. For more details or to discuss your accounting needs, contact us through our website contact form. Our executive will get in touch with you as soon as possible. We are eager to assist and are looking for a long-term partnership.