If you work in accounting, you must be familiar with the International Financial Reporting Standards (IFRS). The International Financial Reporting Standard is a uniform set of standards in accounting that was developed by the International Accounting Standards Board with the purpose of giving public companies that do business on a global platform the framework on how to prepare financial statements and how to report certain debits and credits. If you are planning on becoming an accountant or majoring in accounting, you will learn the ins and outs of the International Financial Reporting Standards. Read on, and learn more about the standards that were developed by the IASB.
Why Are the International Financial Reporting Standards So Important?
Before the internet was available and accessible, it was not common to have multi-national companies or lenders that lent to businesses in foreign countries because of the risks and the complexities. Now, it is extremely common for large corporations and even mid-sized companies to have subsidiaries or affiliates in different countries. These same companies might have foreign stockholders and stakeholders with an interest in revenues and profits.
Since the world is so interconnected, having a single set of standards that are used worldwide is necessary to simplify financial reporting procedures. These standards create a single accounting language that every company is able to speak through their financial reports. The organizations that comply are better able to present a cohesive view of their financial health, which is crucial when it comes to investors and credit rating agencies.
What is the Difference Between These Standards and the GAAP?
Some mistake the International Financial Reporting Standards for the International Accounting Standards (IAS). While there are similarities between the two sets of standards, the latter was replaced due to the fact that they were outdated. Now, there is confusion as to the difference between the new international standards and the GAAP, which stands for Generally Accepted Accounting Principles.
The GAAP is a set of authoritative standards that is used by public companies in the United States. Unlike international standards, the GAAP does not offer much consistency of public transparency. If companies in the U.S. were to convert to the IFRS, it would be much easier to compare companies and to use the same accounting language globally. While many experts believe a transition to IFRS is imminent, currently all US companies are required to follow the GAAP principles. Until the Securities and Exchange Commission allows US companies to use the new global standard, the requirement to follow GAAP will remain.
While domestic companies are still required to use the GAAP when they are drafting financial statements, accountants still need to familiarize themselves with these international standards as soon as possible. You may cover the standards briefly, but you should focus on these to prepare for the time when they become the uniform standard in all countries. Be sure that you know the real differences between GAAP and IFRS standards so your are prepared no matter where your accounting career takes you.