Uses of IFRS: Global Accounting Standards Explained | Zell

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      What are the Uses of IFRS?

      Last Update On 4th July 2024
      Duration: 4 Mins Read

      International Financial Reporting Standards (IFRS) is a globally recognized accounting and financial reporting requirement for preparing and presenting financial statements. The application of IFRS guarantees consistency in accounting procedures, which facilitates the understanding and comparison of financial accounts across national boundaries.   

      IFRS has become the new worldwide standard for accounting over time. It was designed by the International Accounting Standards Board in 2003 and is adopted by over 168 countries and jurisdictions worldwide. In this article, we will learn more about IFRS.

      Uses of IFRS

      What is the Purpose of Using Global Accounting Standards?

      Today, the modern economy relies heavily on the free flow of international capital and cross-border transactions. Presently, 1/3rd of the transactions happen cross-border, which is expected to rise. While firms raise funds, engage in transactions, or have worldwide operations and subsidiaries in several countries, investors seek global diversification and investment possibilities.

      Managing this cross-border transaction was challenging, with different countries following their own accounting standards. This was a complicated scenario for companies to prepare invoices and financial statements based on receivers’ principles. Similarly, investors faced problems making decisions based on financial statements from different accounting standards.

      This meant studying and understanding the different accounting standards to ensure everything was correct when preparing financial statements. Hence, the need to introduce IFRS to eliminate all these complexities. The IFRS purpose is to ensure everyone follows the same accounting principles and remove any confusion or ambiguity.

      Who Can Use IFRS Accounting Standards?

      One hundred sixty-eight countries and jurisdictions are using IFRS accounting standards. Each country or jurisdiction will have different uses of IFRS accounting standards requirements. For example, some countries may only need large enterprises to follow these practices, while others may require banks and financial institutions to follow it.

      What is the Impact of IFRS Adoption

      The IFRS adoption has an impact both on financial reporting and investment decisions. Listed below are its impact on several parameters:

      Transparency

      Transparency is the key goal of IFRS as it requires companies to present the financial data in a clear and concise manner. This transparency helps in businesses, stakeholders, and investors making informed business decisions based on these financial statements. Thus, IFRS impact the trust and confidence in financial markets.

      Comparability

      With its adoption, it has become easier to compare the financial statements across different countries and companies. In the past, with varying standards of accounting being followed, companies used to report their performances differently, making it challenging to compare. However, with IFRS in place, companies are now required to apply the same principles, making it easy to compare.

      Quality

      Adopting IFRS has also improved the caliber of financial data that businesses disclose. The principles-based standards prioritize content over form, pushing firms to present their financials in a way that accurately depicts the economics of their deals rather than just following rules. This method enhances the relevance and dependability of financial data, which is essential for making decisions.

      The Use of IFRS Accounting Standards Around the World

      Listed below are some of the uses of IFRS accounting standards worldwide:

      Financial Tool

      The public’s interests in the expansion, sustainability, and trust of the global economy are served by the efficiency, accuracy, and data openness provided by the International Financial Reporting Standards.

      Guide and Principles

      Companies are required to prepare and report their financial statements as per the guidelines laid by IFRS. In case they fail, they can be penalized for the same, thus ensuring trust in the company.

      Decision Making

      Following the same standards makes it more accessible for investors to make decisions. Since companies are now following a universal method of creating financial statements, it has become easier to understand and comprehend.

      Economic Improvement

      Investors are more inclined to invest in companies following IFRS principles. It is because these reports are considered to be authentic, build trust, and are easy to compare. This credibility makes progress in the economy possible and attracts international investment.

      Why Do Countries Adopt International Financial Reporting Standards

      The IFRS objectives are consistency in accounting practices, languages, and standards. This is one of the main reasons countries adopt IFRS, as it helps investors and businesses make informed financial decisions and analyses. Besides, it also helps foster trust and transparency in the world and the companies following it.

      The Benefits of IFRS Adoption for Companies

      The IFRS benefits for companies that go beyond just following standardized principles are listed below.

      Reduced Cost of Capital

      This adoption can reduce costs for companies as investors are likely to invest in the ones that follow IFRS. Companies following are considered trustworthy and transparent, leading to higher equality valuations and lower borrowing costs.

      Improved Access to Capital

      It can also improve the company’s capital access, as most investors require companies to follow global accounting standards. Companies that follow IFRS increase their chances of acquiring significant investment opportunities.

      Enhanced Risk Management

      Companies must submit more thorough information about their financial instruments and other risks by IFRS. Companies may better manage their risks and achieve more steady financial performance by giving investors more information.

      Conclusion

      Thanks to IFRS, the world of finance is changing rapidly. These rules help companies report their finances clearly and consistently for global acceptance. Besides, it allows companies to be transparent, which is needed for easy comparison and attracting domestic and foreign investors. This adoption can result in companies benefiting on different fronts.

      Since this is a worldwide requirement and followed by companies across, more and more companies are looking for people who are expert in it. As a financial executive or a chartered accountant, you can enroll in IFRS certification courses and open your doors to more opportunities. By completing this certification, you can help your company grow and succeed on international fronts.

      FAQ’s on Uses of IFRS

      What are IFRS used for?

      It’s a collection of guidelines and standards for accounting that specify how accounting events have to be recorded in your company’s financial statements.

      What is the use of IFRS in India?

      Adopting IFRS will align India’s accounting procedures with worldwide best practices as it is a widely recognized accounting standard. As a result, Indian businesses can compete internationally and draw in foreign capital.

      What are the objectives of IFRS?

      The IFRS Foundation aims to create a single set of excellent, understandable, internationally recognized financial reporting standards that are enforceable and founded on well-defined principles, all for the public good.

      Who must use IFRS?

      Public interest businesses, such as banks, stock exchanges and their branches, asset management firms, and insurance companies (apart from health), must submit financial statements in compliance with IFRS.

      Partham Barot is an ACCA-certified professional. showcasing his expertise in finance and accountancy. he’s revolutionising education by focusing on practical, real-world skills. Partham’s achievements underscore his commitment to elevating educational standards and empowering the next generation of professionals.

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