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What is IFRS?

By Ali Hussain Almohashi posted 01-22-2017 11:28 AM

  

As the date for the adoption of International Financial Reporting Standards (IFRS) in Saudi Arabia is fast approaching, it is important to know as much as possible about these global accounting standards. The date of adoption will be on January 1, 2017. This article will provide an overview of IFRS.

 

"IFRS Standards are a globally recognized set of standards for the

preparation of financial statements by business entities," according to Paul A Volcker, an American economist and former chief of the US Federal Reserve. IFRS is developed by the International Accounting Standards Board (IASB).

The adoption rate of IFRS is increasing around the world and it is the main accounting standard used in 119 countries. More countries such as the United States are also converging their Generally Accepted Accounting Principles (GAAP) with IFRS, which means they are working together to develop a compatible set of accounting standards. 

 

IASB's mission is to develop standards that improve transparency, accountability, and efficiency. Having high-quality global accounting standards that ease global investments and borrowing is a clear advantage of IFRS. To achieve this, these standards must provide comparable and reliable financial information. Another advantage of IFRS is that global companies with subsidiaries around the world will be able to use one set of accounting standards. This will increase the efficiency of global organizations. It will not only benefit the rich nations of the world, it will also enable small and poor countries to attract investments and access capital.

 

On the other hand, some argue that because of the flexibility of IFRS, which is a principle-based standard, financial statements can easily be manipulated to increase profits or decrease losses. This new standard is also quite different to the old GAAP system used in the US and the United Kingdom, which means we can expect a lot of changes over time.

 

References

Volcker, P. A. (2016, 10 10). Pocket Guide to IFRS. Retrieved from IFRS: http://www.ifrs.org/Use-around-the-world/Documents/2016-pocket-guide.pdf

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