A half-century ago, industrialized nations began working on global accounting standards to assist developing and smaller nations that could not establish their standards.
On the other hand, investors, regulators, large firms, and accounting firms now understand the importance of establishing universal accounting standards in all financial reporting sectors as the world business environment has become more global.
The most common global accounting standard used for financial reporting is the IFRS.
What is the full form of IFRS?
IFRS stands for International Financial Reporting Standards. IFRS are the global accounting standard used for preparing and presenting financial statements. IFRSs are maintained by the International Accounting Standards Board (IASB), an independent body funded by the IFRS Foundation and regulatory bodies.
The IFRSs are based on eight distinct accounting principles that ensure consistency and efficiency. The most significant users of IFRS include many public companies listed on major stock exchanges and governments worldwide.
IFRS and its Global reach
The International Financial Reporting Standards (IFRS) are the world's most comprehensive and universal accounting standard, adopted by more than 100 countries and jurisdictions to facilitate global financial reporting. The IFRS Foundation is an international not-for-profit organization that develops and promotes the IFRS.
The notable capital markets yet to adopt IFRS entirely are
- The U.S., which currently focuses primarily on USGAAP
- Japan allows voluntary adoption
- China and India, whose local accounting standards are almost 70% to 80% similar to IFRS
Even big American firms that primarily report under US GAAP, with business interests and subsidiaries in more than 100 countries, use IFRS to report their financial results. This trend has implications for their accountants, who are increasingly comprised of small and medium-sized businesses. Furthermore, many private U.S. firms require IFRS because foreign investors own them.
What is the Scope for IFRS
Why Is IFRS Reporting Going to Grow?
The future growth in using IFRS is expected to come from two primary sources.
- First, the use of IFRS is expected to grow due to the move towards convergence of financial reporting standards. This will mean that the IFRS will be used more widely in the financial reporting of companies in the E.U., as well as other regions where the IFRS is currently the standard financial reporting framework.
- The second source of future growth in the use of IFRS also involves convergence. It involves the convergence of International Accounting Standards (IAS) and U.S. Generally Accepted Accounting Principles (US GAAP). This convergence is expected to result in a common set of financial reporting standards for the world. This single set of standards is expected to be based on the IFRS. This will lead to an increase in the use of IFRS.
Why Should you get Skilled in IFRS?
The primary reasons to get skilled in IFRS are
- Mandatory financial reporting. If you are required by law to file your financial reports using IFRS, almost all finance professionals in the company must know about IFRS.
- Assess competitor balance sheets and reports. If you are in the FP&A function, you must have an underpinning knowledge of IFRS to compare your competitors across geographies.
- Check the financial stability of a vendor or a supplier.
- Conduct due diligence in a merger or acquisition. Given the intensity and speed needed in M&A deals, fluency in understanding IFRS is essential for competitive analysis. Understanding the nuances of IFRS can help in better decision-making and avoid last-minute surprises, which can impact the deal value.
- Answer questions from a foreign investor.
- Compare, contrast and reconcile local GAAP to IFRS.
How do you get skilled in IFRS?
The best way to get skilled in IFRS is to take a certification program from an authoritative accounting body. This will help you in
- With a certification, you will have a goal to target, pushing you to study in an organized manner.
- The syllabus by the accounting bodies is made after discussions with the Industry, so you will only learn what's contextually relevant in the current period.
- A Certification gives you a stamp of authority and signals to recruiters and managers that you did invest in upgrading your skills and have been assessed by a Global authority.
- Adding an IFRS certification adds close to 18% to your current salary. Please read our detailed blog on the same.
To find the best IFRS certification, read our blog comparing the three best authoritative accounting bodies worldwide.
Scope of IFRS in regards to ESG
The scope of IFRS is expanding to address Environmental, Social, and Governance (ESG) factors due to growing awareness and interest in sustainability and responsible business practices. Here's the scope of IFRS about ESG:
- IFRS Sustainability Reporting: While IFRS primarily deals with financial reporting, there is a growing push for integrating sustainability information into financial reports. Some jurisdictions have adopted or are considering the adoption of additional sustainability reporting standards or guidelines that align with IFRS. These may include disclosures related to ESG factors, such as carbon emissions, social responsibility initiatives, and governance practices.
- IFRS Foundation's Sustainability Standards Board (SSB): The IFRS Foundation has established the Sustainability Standards Board (SSB) to develop a global baseline of high-quality sustainability reporting standards. The SSB aims to work alongside existing standards setters and initiatives and develop a comprehensive set of sustainability reporting standards compatible with the existing financial reporting framework.
- Alignment with ESG Frameworks: IFRS is working to align its standards with other established ESG frameworks and reporting initiatives, such as the Task Force on Climate-related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), and Sustainability Accounting Standards Board (SASB). This alignment helps in promoting consistency and comparability in ESG reporting.
- Materiality and ESG Disclosures: IFRS emphasizes the importance of materiality in financial reporting. Suppose ESG factors are considered material to a company's financial performance or ability to create value over the short, medium, or long term. In that case, they should be disclosed in financial reports per IFRS principles.
- Investor Demand: Increasingly, investors seek information on a company's ESG performance and its potential impact on long-term value. This investor demand for ESG information influences corporate reporting practices and considers ESG factors in financial decision-making.
- Regulatory and Market Pressure: Regulatory bodies in various countries are considering or mandating ESG reporting for certain entities. Stock exchanges and capital markets are also introducing ESG-related listing requirements and reporting obligations for listed companies.
IFRS Opportunities for Chartered Accountants
IFRS reporting is a highly specialized field of accounting that is expected to grow dramatically as standards change as a result of IFRS 9 and IFRS 15.
As a Chartered Accountant, you can expect an increase in demand for your skills and services as businesses and organizations look to adjust their processes to reflect the upcoming changes.
As the standards change, the requirements for preparing financial statements will also change. Many businesses may need assistance adjusting to the new standards and will be looking for people with your skills and expertise. Given these factors, this accounting field has an excellent opportunity for growth and development.
IFRS reporting standards will change significantly in the next 3-5 years, specifically IFRS 9 and 15. These standards impact your company's reporting requirements and significantly influence how you present information. These changes should be taken seriously because of their potential to affect your business in the long term.
With the U.S. also looking for convergence with IFRS, the global need for skilled IFRS professionals will only increase exponentially.