In simple words, certain rules and regulations, principles, concepts or laws which are generally acceptable if issued by a regulatory authority or an agency, it is called accounting standards. When these standards are issued globally, then it is known as the International Financial Reporting Standards or in short IFRS. Before 2001, it was called the International Accounting Standards or IAS which later became IFRS.
In early times, the governing body was the International Accounting Standards Committee or in short IASC which was set up in 1973. From 1973 to 2009, IASC issued 41 global accounting standards. These accounting standards were called the International Accounting Standards (IAS). IASC had a committee called Standing Interpretation committee (SIC) that used to interpret or define the accounting standards issued by IASC in their own ways. SIC-1, and SIC-2 are some of the interpretations of IAS by the SIC. In 2001, IASC was replaced by IASB. In their first meeting, IASB adopted all IAS issued by the IASC with some minor changes in it. From then, IASB started issuing new accounting standards which would be used globally. These issued accounting standards of IASB are called the IFRS. The interpretive body of IASB is called IFRIC and their interpretations are called IFRIC interpretations.
The basic objectives of IFRS are:
- To develop accounting standards that would be acceptable worldwide. That means the AS issued by them should be transparent, understandable and highly effective.
- To improve the quality of financial reporting internationally. Because the companies work in the global platform and it is necessary that the issued AS should be easily understandable by all the parties they work with. By doing so, it becomes fluent for the countries to understand the information’s of the company.
- To provide a common global language for business affairs. Accounting is called the language of business, so it is important to set up a common format in which AS are easily explainable to all the global partners in a single and simple way. This helps the companies to maintain a certain business tradition all over the world.
- To make company accounts:
- Comparable: that means the investors or partners can match any company’s accounts with the other.
- Understandable: if financial accounts or financial information of any company is prepared in basis of IFRS, then it is easily understandable to their investors.
- Reliable: as all the companies follow same rules and procedures, so we can consider them to be reliable.
- Relevant: as per the requirement of users or as per the requirement of different countries, all the necessary information are provided.
Difference between IFRS and Indian AS:
IFRS are usually principle based while Indian AS or GAAP are ruled based. IFRS are based on fair value concept while Indian GAAP are based on Historical cost concept.
To know more, please share us your queries from contact us form.