Why IFRS ?

 

Why IFRS? Simple answer to this question is that IFRS is acceptable globally and provides a common accounting/reporting language to the world!

The history and development of international standards for accounting and auditing trails back all the way to the late 1960s, but never have they reached greater prominence than today as the world moves closer towards international convergence.

A key moment in the move to IAS/IFRS came on 6th June 2002 when the European Council of Ministers approved the regulation that would require all EU companies listed on a regulated market to prepare accounts in accordance with International Accounting Standards for accounting periods beginning on or after 1 January 2005.

With over 100 countries requiring or accepting International Financial Reporting Standards, the likelihood of companies around the globe using the same accounting standards is in view.

Never in history has there been a time when we were closer to the ideal where companies around the globe all use the same accounting standards in their financial reporting. International Financial Reporting Standards (IFRS) are now required or accepted in over 100 countries, and some estimate that number will grow to 150 countries in the next few years.

About 9,000 listed companies in Europe use IFRS, and IFRS are the accounting standards in Australia, New Zealand and South Africa. They will be the standards in Brazil starting 2010, India and Canada starting 2011. And China is phasing in IFRS for public, private and state-owned companies starting in 2007.

For accounting standards to garner worldwide acceptance they must be universally applied. Comparability is essential if “in accordance with IFRS” means that the same or similar transactions are accounted for the same way everywhere, producing financial statements in accordance with IFRS will add value. Investors would no longer need to waste time and effort to reconcile financial information as they compare similar companies from different countries. Capital would flow more efficiently, at less cost to more companies in more places.

A single system of financial reporting would benefit a host of constituents. With quality standards, consistently applied, investor understanding and confidence rises. That translates to strong, stable, liquid markets. With quality reporting, investors wouldn’t need to compensate for a lack of under-standing by demanding a risk premium. With consistent application and the resulting comparability investors and analysts have an easier time knowing how to best allocate capital. Having one financial language reduces preparation and audit costs. No longer is there a need to learn different standards, or keep current in them, at the expense of more fruitful pursuits. Regulation can be easier if properly coordinated. Education and training become easier and more focused.

 Convergence of accounting standards has played a major role in the growing acceptance of IFRS. As the differences narrow between IFRS and other widely-accepted accounting systems, resistance to IFRS is beginning to fall away.

 

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~ by Sameer Gupta on July 24, 2008.

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