International Financial Reporting Standards (IFRS): A Comprehensive Guide
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. Standards set by IASB are prepared with the help of technical experts, and thanks to its propagation of greater transparency, IFRS has become acceptable globally. 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.
Understanding International Financial Reporting Standards
IFRS has brought in a set of standards that have brought uniformity in maintaining records and reporting expenses and income. Thanks to International Financial Reporting Standards, a common and simple accounting language has been established 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 most of the accounting responsibilities for your clients. To do so, you must have detailed knowledge about IFRS and GAAP and the differences between them.
However, keeping tabs on the latest accounting standards is a challenging task, plus you will have various important accounting responsibilities to 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. Consider analysing the case studies of accounting service providers in detail to understand their capabilities and to choose the best service provider.
Standard IFRS Requirements?
While IFRS covers most of the accounting activities, there are certain aspects for which IFRS sets compulsory rules.
- Financial Position: IFRS affects in a positive way how the balance sheet components are to be reported.
- Statement of Changes in Equity: Under it, your client’s profits and earnings for the given financial year are recorded.
- Statement of Cash Flows: Under it, your client’s financial transactions are recorded for a given period, separating cash flow into operations, investing, and financing.
GAAP vs IFRS: Key Differences
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, they differ significantly; the most important differences are enforcement and scope. Hence, it is important to have a deep understanding of GAAP and IFRS which will aid you in decision making.
Enforcement
GAAP is rule-based and is strictly enforced on US-based companies. On the other hand, IFRS is standard-based and not enforced, but it is highly recommended because of the benefits of standardisation 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, except the USA, where GAAP is used as a standard while preparing financial statements.
Methods for Inventory Valuation
The process of figuring out the value of your inventory is called inventory valuation, and there are three methods to do that:
- First in First Out Method (FIFO)
- Last in First Out Method (LIFO)
- The weighted average method 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 about which is the best will depend on the situation. IFRS is a globally accepted standard, and if most of your clients have a worldwide business, you will have to focus on IFRS. 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.
Why is IFRS Important?
IFRS has brought greater trust and transparency to the global financial markets and to the businesses that have listed their shares 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 on 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.
International Financial Reporting Standards UK
International Financial Reporting Standards UK (IFRS) are a set of globally accepted accounting standards developed and maintained by the International Accounting Standards Board (IASB). They are designed to ensure consistency, transparency, and comparability in preparing financial statements across different jurisdictions.
In the UK, IFRS is mandatory for the consolidated financial statements of publicly traded companies. Additionally, other entities can adopt IFRS voluntarily, depending on their reporting needs and stakeholder requirements.
List of International Accounting Standards
The International Accounting Standards Committee (IASC) issued the IAS before the International Accounting Standards Board (IASB) took over in 2001. While the IAS has been largely replaced by International Financial Reporting Standards (IFRS), many are still used today. The IAS consists of 41 standards, some of which are outdated, like the IAS 17 Leases.
Recommendation Regarding IFRS Adoption
Familiarise Your Team with IFRS
Ensure your accounting teams are familiar with the IFRS guidelines and updates. Train your teams regularly to increase accuracy and compliance while preparing accountants.
Invest in Compatible Software
Integrate and streamline your processes with IFRS-compatible accounting software. These tools will minimise human error.
Collaborate with IFRS Experts
The easy way to collaborate with IFRS experts is by outsourcing complex IFRS statement preparation work to a service provider. This way, you will reduce the workload on your accounting team and reduce costly penalties. Before selecting any service provider, check their case studies thoroughly. This will give an idea of their achievements and experience in handling complex tasks.
Stay Updated with IASB Updates
Subscribe to IASB updates or attend webinars to understand any amendments or new standards introduced under IFRS. Compliance with updated guidelines is critical to avoid errors.
Through webinars, stay well aware of IFRS updates or new standards. It is important to maintain compliance with the latest updates to avoid errors.
Highlight the Benefits to Your Clients
Make your clients aware of the benefits of IFRS-compliant financial statements, including how they will make them relevant in the international market, increase trust, and increase the scope for funding.
Take Advantage of Outsourcing Accounting Services
You can also make your financial statements IFRS compliant through outsourced accounting service providers like Corient UK. This will reduce your workload and make your statements compliant with global standards.
Conclusion
The main objective of writing this blog is to make you realise the importance of understanding IFRS and its positive impact on the workings of your accounting practice and the financial statements you prepare. By getting a deeper understanding of IFRS standards, you will be able to prepare financial statements that are worthy and transparent for your clients, thus enhancing their credibility and the trustworthiness of your accounting practice.
You can get any assistance with regard to IFRS standards through accounting outsourcing services offered by accounting service providers. In the United Kingdom, multiple service providers offer valuable accounting outsourcing services to accounting practices. However, no one shines more brightly among the hundreds than Corient UK. We are a professional accounting outsourcing service provider offering world-class services to accounting practices since 2011.
Our tech-savvy accounting services, such as bookkeeping, payroll, and year-end, have qualitatively transformed many practices, and we can perform the same for you. You can share your doubts and questions regarding our services on our website contact form. Our executive will contact you as soon as possible. We are eager to assist and look for a long-term partnership.