Economics & Finance
The IFRS Foundation and the International Accounting Standards Board issue accounting standards known as International Financial Reporting Standards, or IFRS (IASB). They are a standardised method of describing a company’s financial performance and situation, allowing financial statements to be understood and compared across international borders. They’re especially important for companies that have stock or securities listed on a public market. Many distinct national accounting standards have been replaced by IFRS around the world, however they have not superseded the separate accounting standards used in the United States, where US GAAP is used.
The IASB uses the Conceptual Framework as a tool for developing standards. It does not take precedence over individual IFRS requirements. In the lack of precise IFRS regulations, some organisations may utilise the Framework as a guide when deciding on accounting standards.
IFRS financial statements consist of:
- a statement of comprehensive income
- a statement of financial status (balance sheet). This might be reported as a single statement or as separate profit and loss and other comprehensive income statements.
- a statement of equity changes and a cash flow statement
Fig.1. The Regulatory and Conceptual Framework (Kaplan Knowledge Bank.com)
Many researches have looked into the implications of adopting the International Financial Reporting Standards (IFRS), however the results are mixed. One study, for example, examines the economic impact of forced IFRS adoption using data from 26 nations. It demonstrates that, while market liquidity increases around the time of IFRS implementation, it is uncertain if IFRS mandate acceptance is the primary cause of observed market effects. The effects can also be explained by firm reporting incentives, law enforcement, and increased financial report comparability.