Overview of IFRS Standards

In this article we review the key IFRS standards and contrast them to US GAAP and other accounting standards.

What are IFRS standards?

International Financial Reporting Standards (IFRS) are a set of accounting standards that determine how transactions and other accounting events are required to be reported in financial statements. They are designed to maintain credibility and transparency in the financial world, which enables investors and business operators to make informed financial decisions.

IFRS standards are issued and maintained by the International Accounting Standards Board and were created to establish a common language, so financial statements can easily be interpreted from company to company and country to country.

IFRS are the standard in over 100 countries, including the EU and many parts of Asia and South America.  The United States, however, has not yet adopted them and the SEC is still deciding whether or not they should move towards them as the official standard of accounting.

IFRS vs. US GAAP

The largest difference between US GAAP and IFRS is that IFRS is principle-based while GAAP is rule-based. Rule-based frameworks are more rigid and allow less room for interpretation, while principle based framework allow for differences of interpretation.

There are pros and cons to both approaches depending on how they are used.  For example, using a standard that fits within a “rule” but clearly does not represent the principle behind the standard is a downside of GAAP.  While conversely, taking overly liberal interpretation of standards is a downside of IFRS.

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