IFRS stands for International Financial Reporting Standards which are applied while setting up the Balance Sheet and other Profitability Statements of a Company and are created by the IASB. These have already been applied more than 100 Countries and would soon be utilized over the Globe.
Requirement for IFRS
Various Countries utilize different Accounting Standards while figuring the Profits of a Company. It might happen that if the Profits are processed according to US Accounting Laws the Profits are $ 100 Billion however when the similar Profits are registered utilizing the UK Accounting Laws, the Profits may end up being state $ 50 Billion and when processed according to the Indian Accounting Laws, it might end up being $200 Billion.
Profits registered according to various accounting laws of different nations always yield various figures. To expel this error in Accounting across the Globe, Countries world over choose to apply uniform principles of accounting to arrive at uniform profits over the Globe.
The adoption of the International Financial Reporting Standards will be helpful to investors and other clients of financial statements, by Reducing the Costs of Comparing alternative Investments and Increasing the Quality of Information. Companies are likewise expected to benefit, as investors will be more ready to provide financing.
Advantages of IFRS
There are numerous advantages of implementing the International Financial Reporting Standards which can be extensively divided into 3 main parts – Economy, Investors, and the Industry.
Advantages to the Economy
As the market expands globally, the requirement for a worldwide standard is also expanding. Usage of the International Financial Reporting Standards will benefit the economy by expanding the development of its International Business. It encourages the maintenance of systematic and efficient capital markets and also assists to expand the capital formation and thereby monetary development.
Advantages to the Investors
Investors who are eager to contribute abroad need information that is more relevant, reliable, solid, and equivalent across different jurisdictions. Financial statements arranged to utilize a common arrangement of accounting standards assist investors better understand the investment opportunities as opposed to financial statements arranged utilizing a various set of national accounting principles.
Benefits to the Industry
A significant push towards execution of the International Financial Reporting Standards has been originating from the Industry. The explanation behind the same is that the Industry would have an option to raise capital from foreign markets at a lower cost if it can make trust in the minds of the foreign investor that their financial statements comply with internationally accepted accounting guidelines.
Why did IFRS take a great amount of time to get implemented?
Changing the Accounting Laws is not as simple as understanding. It requires some investment, time, and efforts for framing new laws and applying equivalent as a result of which Countries were not in favour of IFRS earlier.
But with the appearance of Globalisation, the entire situation has changed. Numerous organizations are keen on Investing in Foreign Countries or Raising Capital from Foreign Countries however are obstructed by the fact that Accounting Laws in the nation of origin and the foreign country vary significantly because of which they are unable to transact. The only option left for an organization is to restate its records according to the laws of the Foreign Country but this in itself is a very time and money consuming effort.
So as to support free trade of money so that Companies can Invest/Raise money from different countries, the entire world has now begun the procedure of Adoption with IFRS.
Published by Shilpa Bhardwaj