IFRS (International Financial Reporting Standards)
What is IFRS and it's objective?
IFRS refers to the International Financial Reporting Standards which are issued and maintained by the London-based organization- International Accounting Standards Board (IASB).
It is currently the required framework in more than 120 countries. The main objective of IFRS is to ensure consistency, transparency, and comparability of financial statements all around the world.
It basically comprises accounting rules which determine how various transactions and other accounting events are to be reported in the financial statements of the companies. Along with that, it aims at promoting the use of detailed standards.
What are advantages in getting converted to IFRS?
The main advantages of getting converted into IFRS are as follows:
Using the IFRS, companies can report their financial statements on the same basis as their foreign competitors hence, making comparisons easier.
It is useful for companies having subsidiaries in other countries that permit IFRS reporting and hence, help in maintaining a standard company-wide. Apart from this, Companies that are subsidiaries of foreign companies or may have foreign investors may also be required to report as per IFRS for ease of comparisons.
In order to draw foreign investment, the companies are again required to report in IFRS.
What are the disadvantages in getting converted to IFRS?
The main criticism that is faced by IFRS is its comparison with GAAP.
GAAP is the short form of Generally Accepted Accounting Principles which are used as accounting standards in the United States.
IFRS has fewer rules when compared to GAAP, it focuses on more of the general principles than GAAP; making IFRS easier to report and understand.
Thus, the concern that a certain level of quality might be lost in accepting IFRS completely is a major disadvantage. Apart from that, companies with workings based entirely in the US resist the adoption of IFRS as their market does not have any incentive for accepting IFRS financial statements.
Written by: Prekshi Singhal
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