What is meant by IFRS
IFRS is an acronym that stands for International Financial Reporting Standards; there are 17 of these standards that outline the information required to appear and how it should be presented in annual accounts for limited companies. Previous standards are known as International Accounting Standards (IAS), which were issued by the International Accounting Standards Committee up to December 2000. From 2001, the committee was replaced by the International Accounting Standards Board and future standards became IFRS standards.
These standards only apply to limited companies, who have an obligation to provide annual accounts to Companies House. Sole traders and partnerships do not have to prepare a set of accounts â€“ they are required for lenders and the figures are pulled on to self-assessment tax returns â€“ but there is no obligation to make their accounts public. Both IAS and IFRS standards exist today and are used for accountancy purposes. In the unlikely event that there is a contradiction between the two sets of standards in a situation, the IFRS standards take precedence. The IFRS standards have been adopted by 166 jurisdictions globally, and 144 of that number require the standards to be followed for public limited company accounts. As accounts cross borders and enter other jurisdictions, particularly for overseas investments and/or trading, having a set of standards that many jurisdictions follow aids understanding of the information that is presented.
The standards aim to provide three conditions to annual accounts; transparency, accountability and efficiency, and require disclaimers and declarations from the directors and accountants to agree that these have been followed. Previously, all jurisdictions had their own sets of accounting standards that they followed and what could be ideal for one jurisdiction would go against requirements by another. The IFRS standards is a collection of information that is required rather than desired in order to allow fully informed economic decisions to be made in any jurisdiction. Investors who have or are looking to put capital into a business do not need to remember different layouts and standards between jurisdictions and thus investing over borders becomes easier.
Under the IFRS standards, the balance sheet and profit and loss account are referred to under different names. The balance sheet becomes the statement of financial position and the profit and loss account is known as the statement of comprehensive income. The statements operate exactly as the balance sheet and profit and loss account present and are practically identical, and there is no set that is required to be used provided all minimum information required is included.
The standards are reviewed constantly to keep up with changing laws and economy states. There is currently no certainty on what effect Brexit will have on the IFRS within the UK; based on the risks involved for economic decisions and transparency if the UK adopts a different framework and that the IFRS standards are recognized globally, the UK could be better off if IFRS remains in place. Tags:
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