IFRS are internationally accepted accounting standards that companies around the world need to follow in preparing their accounts.
An IFRS account reconciles the financial statements of a company to an international standard by consolidating the income and expenses that are recorded on a monthly basis in each country but reported on a yearly basis.
For example, a company that has a subsidiary operating in three countries would report its financial results in each country, one country might be reporting a profit of $20,000 for the first year of operations, another country might be reporting a loss of $15,000 and a third country might be reporting a profit of $25,000. IFRS consolidates the profits from each country and reports them in a single statement, which can reduce accounting and reporting costs for companies.
Features of IFRS Complied Financial Statements
The main advantages to using an IFRS account include the consolidation of the financial statements and improved comparability for financial statements between international companies. IFRS account holders are not subject to the financial reporting and accounting standards that are followed by US companies that prepare their financial statements according to generally accepted accounting principles (GAAP). Instead, they are required to follow the IFRS standards which are international in nature.
An IFRS account is a consolidated statement that consolidates all transactions of the company that are conducted in different countries and reported in the financial statements. The accounts of an IFRS account reflect the company’s financial activity in a single global account, which can provide better overall financial statements for the company.
“IFRSs” is the collective term used to describe the authoritative pronouncements issued by the IASB. Technically, IFRSs comprise the following:
1. two series of standards – those explicitly called International Financial Reporting Standards and the older series of International Accounting Standards, and
2. two series of Interpretations – those issued by the former Standing Interpretations Committee (SIC) and those issued by the existing International Financial Reporting Interpretations Committee (IFRIC) of the IASB.
Application of IFRS in Australia
Under a broad strategic direction from the FRC, the AASB has adopted IFRSs for application by entities reporting under the Corporations Act 2001 for annual reporting periods beginning on or after 1 January 2005. This is to ensure that general-purpose financial statements prepared by for-profit entities in accordance with AASB standards will also be in accordance with IFRSs.
The AASB has a transaction neutrality policy, which means similar transactions and events should be accounted for in a similar manner by all types of entities, whether in the for-profit sector, the not-for-profit private sector, or the public sector – unless there is a sound reason to be different in particular circumstances.
Every Australian ‘company ‘reporting entity’ is required to publicly disclose their financial data in terms of IFRSs. There are more than 500 companies doing business in Australia. All of them should comply with Australian Accounting Standards and its prescribed International Financial Reporting Standards. The most recent Australian Accounting Standards is the Australian Accounting Standards 2016. Its previous version was Australian Accounting Standards 2007.
The AASB considers the specific needs of not-for-profit entities in the private and public sectors when preparing new and revised IFRSs for adoption in Australia.