International Financial Reporting Standards, IFRS, developed by International Accounting Standards Board (IASB) gives a financial framework to organizations that must be followed at all times. It gives a clear definition of the accounting cycle, and other problems associated with accounting.
As per Delioitte, the main role of the IFRS is:
“In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework.”
IFRS, formerly known as International Accounting Standards (IAS), were earlier issued by the Board of International Accounting Standards Committee (IASC). However, in 2001, IASB took the responsibility to set International Accounting Standards and continue the work of IAS.
In one of IASB’s meeting, it was decided to adopt Standard Interpretations Committee Standards (SICs) and IAS, and to continue work on developing a better framework.
New changes to the standards are made on a usual basis, based on changing times and requirements. It is very important to update the rules, as the economic and financial conditions of the world are changing regularly.
Authorities release new bounds of IFRS to meet these needs. It is required so that all the organizations and sectors that are related to financial accounting in anyway continue to work seamlessly.
All the organizations are required to follow the standards given in the IFRS. The standards were prepared so that all the organizations can work properly, and all their questions regarding financial issues can be answered. The IFRS contains almost all the answers to the problems that accountants or anyone working on any financial statement face.
Most of the standards are based on three assumptions. One of the most important assumptions is that the business is a ‘going concern’ and that it will continue to run for a good period of time.
As per the IFRS, some important elements of a financial statement are:
The book is a guideline to clear all doubts regarding financial statements. It has definitions of all the accounting terms so that there is no vagueness or confusion. Without a proper standard in place, accountants and companies will find it very difficult to streamline and comprehend accounting related work. IFRS in one sentences gives the ‘best financial practices that have to be followed at any cost’.
Assumption: It is assumed that all the companies are in countries that have fully absorbed IFRS standards.