What is IFRS? General Guide

The International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board, a working group of financial reporting standard-setting bodies from various countries around the world. . The aim of IFRS is to create a common financial reporting framework that will be more transparent, comparable and efficient for businesses around the world. IFRS provides consistency across companies reporting their financial information in multiple languages and jurisdictions, while still allowing for local variations where appropriate. Let's Johnson's Blog learn about What is IFRS? through the following article.

What is IFRS?

IFRS International Financial Reporting Standards is an acronym for International Financial Reporting Standards, which includes regulations on how to report specific types of transactions and events in financial statements issued by the Association. International Accounting Standards (International Accounting Standards Board – IASB) together with the goals set into general rules. 

This makes financial statements consistent, transparent and comparable around the world. Since then, creating a global accounting language that makes financial statements no longer distinguishable between countries and territories become transparent, consistent, reliable and referable. 

IFRS has the ability to determine how companies and businesses maintain and report their accounts, identifying the types of transactions and events that have a financial impact. 

But the International Financial Reporting Standards were designed to create a common accounting language that helps businesses to provide consistent and reliable financial reporting from one business to another, from one country to another. to another country. 

History of IFRS

Prior to IFRS (2001), International Accounting Standards (IAS) were issued primarily to meet the accounting needs of individual countries or requirements arising from double taxation agreements involving two countries. or more countries.

Due to rapid globalization, multinational companies need a single set of accounting principles that can be applied globally regardless of national boundaries.

IFRS was first proposed in 2001 by the International Accounting Standards Board (IASB) and has since been adopted by most countries around the world.

IFRS is sometimes confused with International Accounting Standards (IAS), which are older standards that IFRS replaced in 2000.

Currently, there are more than 167 countries and territories that are fully IFRS compliant, including all member states of the European Union. The United States and Canada alone use a different system of accounting principles (GAAP).

Why is IFRS important?

The International Financial Reporting Standards (IFRS) are important because they provide a unified framework for financial reporting around the world. This makes it easier to compare and understand the financial performance of businesses, and helps investors make informed decisions about which companies to invest in.

IFRS provides guidance on how businesses should report income, expenses, assets, liabilities, and equity. They also include disclosures of material events, such as acquisitions or divestments. By following IFRS standards, organizations can promote transparency and accountability in their operations.

Standard IFRS requirements

The IFRS standard requirements have made financial reporting globally consistent and transparent, helping businesses make informed financial decisions. They also help businesses plan financial transactions with confidence.

There are several aspects of business for which IFRS sets mandatory rules. These include financial reporting requirements, Income statement Comprehensive, Statement of Changes in Equity and Cash Flow Statement. Here is a brief overview of each type:

Statement of Financial Position

Another name is Accounting balance sheet of a business is a comprehensive statement showing assets, liabilities, and cash flows. It can be used to help decide whether to invest in a company, or to negotiate with a lender. A well-constructed financial statement outlines the company's current financial position and future expectations. IFRS has a lot of impact on how the components of the balance sheet are reported.

Statement of Comprehensive Income (SCI)

Summarize changes in an organization's financial position over a period of time. It is usually prepared as part of an annual report and it can provide important information about an organization's performance. The main components of SCI are net income, cash flows from operating activities, changes in non-cash working capital categories, and investment gains or losses.

The purpose of SCI is to provide shareholders with information that can help them understand how well the company has performed financially over specific periods. It also enables directors and officers to demonstrate the ability to successfully manage operations and make sound decisions based on objective data.

To prepare an SCI, analysts must gather data from a variety of sources: revenue streams, costs associated with those revenue streams, costs associated with business operations, and financial investments. property, plant equipment (PPE), etc. These figures are then combined into a unified picture so that investors and others relying on the financial statements have an accurate understanding of the financial statements. what has gone down in a certain period of time.

Statement of Changes in Equity

A document that companies use to report changes in their earnings or profits for a given financial period. This information can be very useful to investors as it allows them to track the company's financial progress over time. By understanding how profits and losses change over time, investors can better gauge whether they are making money on their investment.

By looking at a company's change in equity statement, you can get an overview of the company's current financial position – good or bad depending on which lines are profitable or unprofitable compared to other levels. before.

Cash Flow Statement

Cash Flow Statement provides a detailed picture of the company's overall financial condition. This report includes information on the source and use of funds, as well as changes in assets and payables in the period. It can be helpful for investors to understand how much money is being used to fund operations and whether there are any issues that may need attention.

Who uses IFRS?

Businesses based in more than 167 countries and regions, including all countries in the European Union, use IFRS.

Many businesses have implemented IFRS or are in the process of implementing it. And, as adoption continues to grow, IFRS has become more popular over time.

The need for IFRS today

So why use IFRS if they are not required? There are several reasons why it is necessary:

• Improved Transparency – The standardized framework makes financial data clearer and easier to understand for both internal users (such as managers) and external audiences (including shareholders).
• Enhanced comparability – By implementing IFRS, public companies can compare their own performance with the performance of similar businesses without having to rely on subjective measures implicit as the income statement or balance sheet. This increased transparency can lead to better decision-making by senior management and improved marketability of the company's stock.

Compare IFRS and GAAP

Both have the same goal of making transparent, clear and honest financial statements of companies globally.

IFRS is designed based on a global standard that is widely applicable worldwide. GAAP is designed based on rules and is mainly used in the US.

There are some differences in the accounting method between IFRS and GAAP, typically the valuation method inventory LIFO is prohibited in IFRS but is still accepted in GAAP.

In November 2008, the United States Securities and Exchange Commission (SEC) issued a “Route” is proposed for a possible path to a globally accepted set of accounting standards. Assess whether IFRS can be incorporated into the financial reporting system for US issuers? However, there has not been much progress on this issue so far.

Roadmap to apply IFRS in Vietnam

Route IFRS . app in Vietnam is divided into 3 different phases, including:

Phase 1 – preparation phase (from 2019 to 2021)

During this period, the Ministry of Finance prepares a number of conditions for the implementation of the project. With the purpose of supporting businesses to start applying IFRS from 2022, specifically: announcing the translation of IFRS into Vietnamese, developing and guiding the application of IFRS, etc.

Phase 2 – pilot phase (from 2022 to 2025)

The Ministry of Finance selects a few organizations such as the parent company of State economic groups, large-scale unlisted companies, etc. to prepare consolidated financial statements under IFRS. FDI enterprises voluntarily apply IFRS for separate financial statements, When this enterprise ensures full information and explains clearly and transparently to tax authorities, management agencies, etc. specific obligations to the state budget.

Stage 3 – mandatory period for applying IFRS (from after 2025)

Enterprises, organizations, companies, etc. are required to prepare consolidated financial statements according to IFRS. Including all parent companies of state economic groups, listed companies, and large companies that are unlisted parent companies. 

Other enterprises that are parent companies are allowed to voluntarily prepare consolidated financial statements under IFRS. In addition, businesses need to ensure all information and explain transparently to the tax and management agencies about the determination of obligations to the state budget.

Epilogue

If you are still wondering What is IFRS? and whether it can improve your accounting standards, we are here to help. You should note that these standards are set by international financial institutions such as the International Accounting Standards Board (IASB) and the International Financial Statement Interpretation Committee (IFRIC). The standards provide a unified reporting framework for financial statements and business-related information to be used by users of financial statements across industries, companies and countries. They aim to ensure accurate reporting of financial information while reducing the risk of financial reporting errors. So go ahead and comment if there's anything else you'd like Johnson's Blog mention!