International financial accounting standards

(Accounting assignment)

Given to: sir Muhammad Arif

Prepared by : Iqbal Ahmad "Jamili"

Program : BBA ( group E)

IFRS Meaning
IFRS or International Financial Reporting Standards refers to a
globally- accepted set of accounting and financial reporting
guidelines for preparing and presenting financial statements. It
ensures uniformity in accounting practice that makes financial records
comparable across different reporting entities worldwide. Over the
years, it has emerged as the new world standard in accounting.
It was first published in the year 2003. It was designed by the
International Accounting Standards Board (IASB) and is adopted by
more than 144 jurisdictions and countries worldwide, including the
European Union. The
U.S. government, however, uses the U.S. Generally Accepted
Accounting Principles (GAAP) system of accounting rules. Before
IFRS, the International Accounting Standards (IAS) were in
regulation.

Key Takeaways
 The full form of IFRS is the International Financial Reporting
Standards. It is a unique set of rules and regulations
followed worldwide for recording financial transactions of a
business entity. At present, it is adopted by 144 jurisdictions.
 In June 2003, its first copy was published by IASB. IASB is a
board of finance and accounting experts with responsibility for
designing and issuance of the standards.
 IFRS is often confused with IAS (International Accounting
Standards), which were in practice before. IFRS superseded
IAS.
  Understanding IFRS
The purpose of financial statements is to provide information on a
company’s financial performance and position to help current or
prospective stakeholders make reliable financing decisions. It is a
company’s primary means of communication with them.
So, the information presented in the records should be relevant,
reliable, accurate, and comparable. To ensure it, companies started
observing regionally accepted accounting standards. However,
comparing different companies across countries became difficult due
to a lack of uniformity in their accounting guidelines. As a result,
companies had to prepare several sets of financial statements for
different jurisdictions.
With the emergence of multinationals having a presence in
multiple countries, the need for a global accounting framework
gained momentum. It gave rise to the formation of IASB. The
IASB is an independent group with hybrid experts in finances,
auditing, accounting standards, and education. The task of board
members is to issue and publish financial accounting standards.
The IASB was created with the sole purpose of designing an
international financial reporting system that will ensure smooth
processing, interpretation, and comprehension of financial
statements, business transactions, and foreign investments. IASB
introduced IAS and later IFRS that laid down a framework of
universally recognized principles for accounting.
The IFRS establishes accounting standards and practices that every
company adhering to it must observe. It is a rule book that must
be followed while recording business transactions in the books of
accounts. Also, as it yields transparency and consistency in
financial reporting, governments use it to regulate direct and indirect
foreign investments.
It is accepted worldwide as it facilitates the free flow of capital. In
other words, any U.S. investor will be more confident to invest in,
suppose, an Indian company after scrutinizing its financial records
prepared in conformity with this accounting standard. This is
because following the internationally-approved standards eliminate
accounting risks associated with such investments.
However, note that the U.S. government enforces GAAP on their
companies. Therefore, there is often a widespread debate on IFRS vs.
US GAAP when it comes to compliance. IFRS is lengthy and flexible
compared to GAAP. As it is principle-based, its rules are open to
multiple interpretations. However, both IFRS and GAAP serve a
common objective of uniformity and openness in maintaining
financial statements.

Objectives of IFRS
International Financial Reporting Standards represents an
international financial reporting system and serves multiple
purposes. Some of its significant goals in the financial world are
as follows:

1. Create a Common Law

One of its key objectives is to ensure that common law is
introduced and adopted by as many jurisdictions and countries as
possible to bring everyone on the same page. It ensures that
everyone follows the same guidelines and adopts a universal way of
reporting business activities.
  2 – Aid analysis
It helps stakeholders in analyzing a company’s performance and
interpreting its financial position. For example, corporations and
governments use these standards to make credible financial
statements. It aids in categorizing and reporting financial data with
accuracy and consistency. Such financial records promote better
comprehension and help decision-making.

 3 – Assist in preparation of reliable financial records

By following International Financial Reporting Standards, the data
presented in the books of accounts are likely to be accurate,
reliable, uniform, and appropriate within the bounds of its rules. The
high quality of financial records assists investors in making
informed economic decisions.

 4 – Ensure comparability, transparency, and flexibility in

reporting
The consistency in reporting accounting practices enables easy
comparison of the financial records of compliant companies
across nations. Such comparisons allow investors to identify risks
and opportunities before investing. As a result, it promotes foreign
trade and investment.
Also, it requires full disclosure of all relevant information to its
stakeholders. However, being principle-based, the rules are not very
rigid and allow companies to adapt to them in their own way.
Uses of IFRS

This standard is a multi-layer set of rules and guidelines prepared

like a blueprint to follow in accounting. Its main uses are as
follows:
 1 – Financial Tool

The International Financial Reporting Standards bring efficiency,

accuracy, and data transparency to serve public interests for
growth, trust, and sustainability of the world economy. For
example, the International Organization of Securities Commissions
(IOSCO) is working with the IFRS to set up a new body by
November 2021 to postulate mandatory global standards on climate
change in company disclosures. The IOSCO will also eliminate any
errors or conflicts by going interoperable with the global baseline.
 2 – Principles and Guide:
The companies run their whole business and represent their financial
data and information as per the IFRS accounting principles. If they
fail to do so, they may be penalized for it. Hence, it assures the
trustworthiness of a company.
 3 – Promotes Decision Making
The standards help investors make wise decisions regarding their
investment by providing a clear picture of company reports and
financial statements. It is possible because of its singular and
universal language, making it easy to comprehend.
  4 – Improves Economy
Globally, investors are more open to investing in companies with
IFRS- compliant financial records. Again, it is because such
reports are presumed to be authentic, easily understandable, and
comparable. This credibility opens the economy to foreign investment
and thereby paves the way for economic progress.

Importance of IFRS
It is treated as an international accounting standard and holds
great importance for many countries and the world economy.
Here is its significance:

 1 – Transparency
It encourages transparency and accountability of financial statements
prepared by companies, small firms, and government agencies. As a
result, it minimizes the margin of error and manipulation of any
holdings and irregularities of funds, transactions, and balances.
Besides, it also motivates consistency and clarity of work.

 2 – Uniformity and Comprehensive

The International Financial Reporting Standards are developed to set
uniformity in the presentation and understandability of statements.
When everyone follows and recognizes the standards, it becomes easy
for companies and agencies to follow a common law that helps
world economies compare their growth comprehensively. Also, it is
easy to read for everyone.
  3 – Security and Flow
It helps track the flow of transactions, records funds information,
and works towards attaining a security level for direct and indirect
foreign investments across nations. This accounting standard is
essential when we are dealing with significant assets or getting into
heavy transactions.

 4 – Accountability
It strengthens accountability by bridging the gap of incompetent
financial reporting. If not complied with it, the companies may face
penalties. For example, last year, the Johannesburg Stock Exchange
fined a sugar firm Tonga at Hulett Ltd. Its financial statements,
account reports, and other information details did not comply with
IFRS and were incorrect.

Frequently Asked Questions

(FAQs) When was IFRS
introduced?
International Accounting Standards Board (IASB) is a body formed to
create IFRS in 2001. In June 2003, its first principles were developed
and issued by it.

The IFRS are based on what?

It is based on standard accounting principles and procedures
accepted and adopted by 144 jurisdictions. It is a guide on
reporting financial statements and data that is understandable
and comparable with one another.
What are IFRS and its purpose?
IFRS full form is International Financial Reporting Standards. As the
name suggests, its purpose is effective, efficient, and accurate
reporting of financial statements using standard accounting
principles to ensure transparency, consistency, growth, and
interest of public services.

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