In today’s globalized environment, business does not operate in just one country rather they operate around the world. However, it must be emphasized that around the globe different countries follow different accounting standards. This leads to a need for a global set of standards commonly referred to as ‘International Financial Reporting Standards (IFRS)’.
What are IFRS?
IFRS are designed to serve as a common global language of business affairs so that accounts of various companies are understandable and comparable across international boundaries. National accounting standards prevailing in different countries are being replaced by these International Financial Reporting Standards.
International Financial Reporting Standards (IFRS) are a set of standards developed by the International Accounting Standard Board (IASB) stating how a particular transaction shall be treated or an event shall be reported in financial statements.
Need of IFRS
Check on manipulation in financial statements: IFRS helps to keep a check on the manipulation associated with the figures related to financial statements. This encourages consistency in the recognition and measurement of financial statements.
Global harmony, uniformity, and comparability: IFRS helps the economies of the world to establish global harmony, uniformity, and comparability in the process of preparation of their financial statements.
The flow of foreign investment: The Financial Reporting Standards and Accounting Standards together create a sense of security in the minds of foreign investors which facilitates a free flow of direct as well as the indirect flow of foreign investments across the countries.
Aim of IFRS
The basic aim of IFRS is to enable the comparison of financial statements not just in our country but around the globe. This is quite difficult as every country today has its own standards, for example, in the US, US GAAPs are followed, and similarly, in India, Indian GAAPs are followed. So, it becomes very difficult to comprehend all such standards which are being followed around the world in one set of rules.
Accounting Standards are the statements of code of practice from the regulatory accounting bodies that are to be observed within the preparation and presentation of monetary statements.