IFRS - What are the IFRS?
Definition of the International Financial Reporting Standards
The International Financial Reporting Standards (IFRS) are the principles-based standards and interpretations that have been implemented by the International Accounting Standards Board (IASB) as a framework for global financial reporting.
The role of the IFRS
The IFRS are guidelines and definitions that should be followed by international companies in the preparation of financial statements.
IAS 8 Par. 11 explains that the role of the IFRS in management decisions is:
In making the judgment described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:
(a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
The IFRS was formerly known as International Accounting Standards (IAS), but in 2001 the International Accounting Standards Board (IASB) took over the responsibility for setting International Accounting Standards. Since then, the IASB has continued to develop standards called IFRS.
There are four underlying assumptions in IFRS: accrual basis, going concern, stable measuring unit assumption and units of cost purchasing power.
Each assumption is explained in further detail below:
1. Accrual basis: The assumption that the financial effect of transactions and events are recognized as they occur, not when cash is received or paid.
2. Going concern: The assumption that a business entity will be in operation for the foreseeable future.
3. Stable measuring unit assumption: The assumption that financial capital in nominal monetary units should be maintained (i.e. traditional historical cost accounting: assets and liabilities are recorded at their originally acquired values; not generally restated for changes in values).
4. Units of constant purchasing power: The rejection of the stable measuring unit assumption in certain situations: Only constant real value non-monetary items are inflation-adjusted during low inflation and deflation. However, all non-monetary items are inflation-adjusted during hyperinflation as required under Constant Purchasing Power Accounting.
The IFRS around the world
IFRS is a globally accepted financial reporting framework, but in both the US and the UK, the Generally Accepted Accounting Principles (GAAP) is the more widely used set of guidelines for accountants. You can see an overview of IFRS adoption by country on the PWC website.
Currently the Financial Accounting Standards Board (FASB) and the IASB are working on numerous joint projects designed to improve the GAAP and the IFRS with the goal to ultimately make the standards fully compatible. Learn more about the IFRS and GAAP convergence efforts on the PWC website.