What is International Financial Reporting Standards (IFRS)? 

Businesses are no longer limited by borders in today’s international market. Investors, regulators, and stakeholders request transparent, consistent, and comparable financial information – no matter the location of the company. This is the case for International Financial Reporting Standards (IFRS) to step in. 

IFRS has become the common language for business accounting worldwide, providing standardization in financial reporting and enabling companies to disclose their financial position in a clear way to international investors. 

This blog briefly covers the topics of IFRS, its objectives, components, importance, benefits, challenges, and differences with Indian Generally Accepted Accounting Principles (GAAP), thus helping to understand why it is necessary for a finance or accounting professional to be proficient in IFRS. 

What is IFRS? 

International Financial Reporting Standards (IFRS) are a collection of accounting regulations that the International Accounting Standards Board (IASB) develops and publishes to serve as a common global framework for the preparation and presentation of financial statements. 

Put simply, IFRS is a set of rules that financial statements must be understandable, consistent, transparent, and comparable even when they come from different countries. 

Before implementing IFRS, countries had their own national accounting systems like Generally Accepted Accounting Principles (GAAP), which resulted in differences in financial reporting. The IFRS addresses the problem by unifying accounting practices globally. 

Who Issues IFRS? 

IFRS standards are issued by the International Accounting Standards Board (IASB), an independent, non-profit organization located in London, United Kingdom. The IASB was set up in 2001 and took over from the International Accounting Standards Committee (IASC). 

The IFRS Foundation oversees the IASB’s work, and it is committed to the creation and use of the standards which are accepted worldwide. 

Objectives of IFRS 

IFRS’ main goal is to define a single set of high-quality, consistent, and understandable accounting standards that are accepted globally and that help the financial markets become transparent, accountable, and efficient. 

These are the main objectives of IFRS –  

• Transparency: Used as a means to improve the comparability and trustworthiness of financial statements in different countries. 

• Accountability: To support investors and other stakeholders in the correct assessment of company performance and financial position. 

• Efficiency: To simplify and make the process of financial reporting less expensive for multinational companies. 

• Global Consistency: Being the basis of the different theoretical concepts and practices worldwide, making the cross-border investments easier and more reliable 

Evolution and History of IFRS 

IFRS evolution was marked by the foundation of the International Accounting Standards Committee (IASC) in 1973 that devised the International Accounting Standards (IAS). In 2001, the International Accounting Standards Board (IASB) came into existence and took over from IASC. IASB maintained the standards of the existing IAS and started releasing new standards under the name IFRS. 

Timeline Highlights: 

• 1973: IASC is created. 

• 1975-2000: 41 IAS standards are introduced. 

• 2001: IASC was replaced by IASB and established IFRS. 

• 2005: The European Union mandated IFRS obligatory for all listed companies. 

• 2011: More than 100 countries adopted or converged with IFRS. 

• Now: More than 140 countries use IFRS either fully or partially. 

India has not fully adopted IFRS but has converged with it through Ind AS (Indian Accounting Standards). 

Structure and Components of IFRS 

IFRS comprises a Conceptual Framework along with the set of standards that regulate the preparation and presentation of financial statements. 

Conceptual Framework of IFRS 

The Conceptual Framework specifies the core principles that form the basis of IFRS. Besides, it helps accountants and policymakers. 

Essential features are – 

• Objective of Financial Statements: To provide the most valuable financial information for making decisions. 

• Qualitative Characteristics: Relevance, faithful representation, comparability, verifiability, timeliness, and understandability. 

• Elements of Financial Statements: Assets, liabilities, equity, income, and expenses. 

• Recognition and Measurement: Features for recognizing and measuring these elements. 

Major IFRS Standards 

Some of the most widely used IFRS standards include: 

Standard	Title / Focus Area
IFRS 1	First-time Adoption of IFRS
IFRS 2	Share-Based Payment
IFRS 3	Business Combinations
IFRS 5	Non-current Assets Held for Sale and Discontinued Operations
IFRS 7	Financial Instruments: Disclosures
IFRS 9	Financial Instruments
IFRS 10	Consolidated Financial Statements
IFRS 15	Revenue from Contracts with Customers
IFRS 16	Leases
IFRS 17	Insurance Contracts

Additionally, older IAS standards like IAS 1 (Presentation of Financial Statements) and IAS 2 (Inventories) remain valid and form part of the IFRS framework. 

Importance of IFRS in Global Accounting 

The use of IFRS has changed the way global financial reporting is done. Its significance is made clear by a few points: 

a. Global Comparability 

The use of IFRS enables investors and regulatory authorities to compare the financial statements of companies in different countries, thus transparency is enhanced and the confusion arising from different accounting standards is reduced. 

b. Attracting Global Investments 

Investors operating worldwide will go for a company that reports under IFRS as it provides them with stability and trustworthiness. Consequently, an investor will be more comfortable when the firm complies with IFRS, and such a scenario can lead to an influx of foreign investments. 

c. Simplifying Cross-border Mergers and Acquisitions 

Using a single framework for accounting makes it less complicated to do the necessary steps for the purchase or merger of the companies, such as due diligence, valuation, and merger processes. 

d. Improved Financial Reporting Quality 

By implementing IFRS, companies are required to use fair value measurement and provide full disclosure, which in turn improves the overall quality of the financial statements and limits areas for manipulation. 

e. Reducing Cost and Complexity 

One set of financial statements can be made for a multinational company that follows IFRS and operates in different countries rather than separate reports for each jurisdiction, thus it saves both time and money. 

IFRS vs Indian GAAP (and Ind AS) 

India is yet to fully adopt IFRS but has put in place Ind AS (Indian Accounting Standards) which are highly aligned with IFRS. 

Aspect	IFRS	Indian GAAP / Ind AS
Origin	Developed by IASB (Global Standard)	Developed by Institute of Chartered Accountants of India (ICAI) and Ministry of Corporate Affairs (MCA)
Approach	Principles-based	Rules-based (GAAP); Principles-based (Ind AS)
Fair Value Concept	Widely used	Partially adopted under Ind AS
Scope	Global use	Indian use with IFRS convergence
Reporting Entities	Listed companies in IFRS-adopted countries	Indian listed & large companies
Regulatory Body	IASB	Ministry of Corporate Affairs (MCA) & ICAI

IFRS is the worldwide benchmark whereas Ind AS is India’s aligned version of IFRS that facilitates comparability with international reporting standards. 

Benefits of Adopting IFRS 

The benefits of IFRS are not limited to mere adherence to standards but rather, they represent a source of value that creates a positive cycle for companies, investors, and economies. 

a. For Companies 

• Improves global image and trustworthiness 

• Decreases the costs related to the preparation of financial statements in multinational operations 

• Attracts and facilitates the use of the international capital markets 

• Enhances a company’s internal control system and decision-making process 

b. For Investors 

• Ensures that the information is clear to everyone and that it can be used for comparison between different countries 

• Making investment decisions becomes easier 

• Confidence keeps on growing which leads to less risk of losing money 

c. For Governments and Regulators 

• Helps to trace easily the financial transactions and activities of the company 

• Makes national financial systems compatible with global standards 

• It is relatively easy to monitor and enforce the corporate disclosure by the management 

IFRS Adoption Around the Globe 

More than 140 countries have adopted IFRS either fully or partially as of today. 

• Full adopters: European Union, Australia, Canada, South Africa, Singapore, and more. 

• Partial adopters / Converged frameworks: India (Ind AS), China (ASBE), Japan, and the United States (FASB convergence in progress). 

United States and IFRS 

The U.S. is still following US GAAP (Generally Accepted Accounting Principles), but the FASB and IASB are making efforts to harmonize their standards. 

India’s Case – Ind AS 

India rolled out Ind AS (Indian Accounting Standards) which is very close to IFRS, in 2016. Market-listed companies and big unlisted companies (with net worth above ₹250 crore) are mandated to present their accounts in compliance with Ind AS. 

The Future of IFRS 

IFRS is still changing as a result of the increasing worldwide interconnection. The changes will probably emphasize the following areas –  

• Environmental, Social, and Governance (ESG) Disclosures and Sustainability Reporting 

• Digitally Reporting through XBRL (eXtensible Business Reporting Language) 

• Further Developments of the Standards on Cryptocurrency and Digital Assets 

• Financial Systems Powered by AI Integration 

A major next move towards providing globally comparable sustainability disclosures aligned with financial reporting is the creation of the International Sustainability Standards Board (ISSB) under the IFRS Foundation. 

Conclusion 

The International Financial Reporting Standards (IFRS) have essentially changed the way companies communicate their economic results to the world market. By being transparent, consistent, and comparable, IFRS becomes a universal language of business that connects local financial systems with the global ones. 

First of all, implementing IFRS in companies increases their trust, investor confidence, and marketability in an international environment. Secondly, for professionals, grasping IFRS is like having a ticket for worldwide career moves in areas such as finance, auditing, and consulting. 

The Online B.Com aligned with ACCA by Manipal Academy of Higher Education (MAHE) via Online Manipal is a program that impresses its worldwide relevance. It prepares students with a combination of scholastic knowledge and professional skills. The students become not only proficient in accounts, finance, and business administration but also get familiarized with the International Financial Reporting Standards (IFRS), which is the common language of the global business sphere. 

India is progressively harmonizing its Ind AS structure with IFRS. Therefore, familiarity with these standards is not considered as a mere option, which is a must for anyone in the accounting and finance field who has the ambition to succeed in a tightly linked world.