IFRS definition

What is IFRS?

IFRS is short for International Financial Reporting Standards. IFRS is the international accounting framework within which to properly organize and report financial information. It is derived from the pronouncements of the London-based International Accounting Standards Board (IASB). It is currently the required accounting framework in more than 140 countries.

IFRS is used primarily by businesses reporting their financial results anywhere in the world except the United States. Generally Accepted Accounting Principles, or GAAP, is the accounting framework used in the United States. GAAP is much more rules-based than IFRS.

Advantages of IFRS

There are several advantages associated with International Financial Reporting Standards, which are as follows:

  • Promotes consistent reporting. IFRS requires businesses to report their financial results and financial position using the same rules; this means that, barring any fraudulent manipulation, there is considerable uniformity in the financial reporting of all businesses using IFRS, which makes it easier to compare and contrast their financial results, even for businesses operating from different countries.

  • Principles based. IFRS focuses more on general principles than GAAP, which makes the IFRS body of work much smaller, cleaner, and easier to understand than GAAP.

Disadvantages of IFRS

A disadvantage of IFRS is that the International Accounting Standards Board fiercely protects the IFRS trademark. This means that there are no independent publications that expand upon how IFRS is to be used, other than those that pay a royalty to the IASB. This means that there are far fewer publications pertaining to IFRS than there are covering GAAP. This results in a much smaller discussion of IFRS in print.

Related AccountingTools Courses

GAAP Guidebook

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Topics Covered by IFRS

 IFRS covers a broad array of topics, including:

  • Presentation of financial statements

  • Revenue recognition

  • Employee benefits

  • Borrowing costs

  • Income taxes

  • Investment in associates

  • Inventories

  • Fixed assets

  • Intangible assets

  • Leases

  • Retirement benefit plans

  • Business combinations

  • Foreign exchange rates

  • Operating segments

  • Subsequent events

  • Industry-specific accounting, such as mineral resources and agriculture

The Differences Between GAAP and IFRS

There are several working groups that are gradually reducing the differences between the GAAP and IFRS accounting frameworks, so eventually there should be minor differences in the reported results of a business if it switches between the two frameworks. There is a stated intent to eventually merge GAAP into IFRS, but this has not yet occurred.

There will be a reduced cost for companies once the two accounting frameworks are more closely aligned, since they will not have to pay to have their financial statements restated to show results under the other framework in cases where they need to report their results in locations where the other framework is required.

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