IFRS stands for International Financial Reporting Standards. It is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB) which aims to make financial statements consistent, comparable, and transparent across the world.
These rules specify that companies maintain and report their accounts and define different types of transactions and other financially impactful events.
Many companies voluntarily follow these guidelines, but in some 144 countries these accounting practices are a legal requirement for financial institutions and public companies.
OBJECTIVES OF IFRS
The IFRS are formulated to serve the following objectives –
- To facilitate easy international comparisons and analysis.
- To provide a global framework for how public companies prepare and disclose their financial statements.
- To bring about convergence of national accounting standards and International Financial Reporting Standards to high-quality solutions.
- To assist companies appropriately categorize and report financial data.
ASSUMPTIONS IN IFRS
The underlying assumptions in IFRS are as follows :-
- Accrual Assumption – The transactions are recorded in the books of accounts on accrual basis i,e. as and when they occur or chronologically on a time basis and not when the settlement of transactions takes place.
- Going Concern Assumption – It is assumed that the life of the business is infinite, i,e. the entity will continue its operations for an indefinite period.
- Measuring Unit Assumption – This assumption implies that all financial transactions and recording will happen in the common standard currency consistently across accounting periods.
- Constant Purchasing Power Assumption – Constant purchasing power means the value of capital is adjusted to inflation in the economy at the end of the financial year.
Thus, in simple words, International Financial Reporting Standards are the rules issued by the IASB that corporate accountants have to follow when reporting financial data on behalf of their companies and ensure that the financial statements can easily be interpreted from company to company and country to country.