The International Financial Reporting Standards (IFRS), in English known as IFRS (International Financial Reporting Standards), are a series of accounting principles and technical standards established by the IASB (International Accounting Standards Board) whose objective is to harmonize accounting standards to international level.
They are a series of international standards or basic standards whose objective is that they be applied worldwide, so that in all countries accounting is similar. Its antecedent is the IAS (International Accounting Standards), which had the same objective.
The content of the IFRS is to establish what will be the method for preparing the financial statements and the main objective of each of them. The financial statements proposed by IFRS are as follows:
- Statement of financial position or balance
- Income statement or profit and loss account
- Statement of evolution of net equity and Statement of comprehensive income
- Cash flow statement
- The explanatory notes of the previous states or memory.
The elements that the previous statements must contain must be divided into five large patrimonial masses : assets , liabilities , net worth , expenses and income .
We have already commented that the main objective of IFRS is to harmonize and unify accounting standards at the international level. This objective is sought since it has a series of benefits:
- Lets you use the same accounting and financial language
- It allows for the presentation ofcomparable and transparent financial statements between different countries.
- This means greater ease of access to capital marketsby companies . There is a bigger market of potential investors , since they can come from all over the world.
- It also allows greater ease in international expansion, since the regulations of other countries, which traditionally have been a barrier, are similar to those of the country of origin.
Adoption and compliance with IFRS
IFRS are standards made by a private institution and, therefore, there is no obligation of compliance by States. However, the reality is that most countries have implemented the basic principles established in IFRS.
States do not directly apply IFRS, but adapt their regulations based on these principles. Therefore, the internal regulations of each State have been modified in their basic aspects, following the guidelines established by IFRS.
The IFRS establish generic standards, applicable in all areas and for all companies. However, it has also developed special IFRS:
- IFRS for Small and Medium-Sized Enterprises (SMEs): They are similar to the general IFRS, but more simplified. For example, they are exempt from the obligation to present certain financial statements.
- IFRS for the Public Sector:IFRS have been established for public accounting, with all the specialties that this entails.