The consequence of growing international trade is that companies have to deal with different provisions and laws when they have dealings with other countries. Without a proper safeguard, companies have to use different accounting standards that are difficult to understand.
Also known as IFRS, the International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) and IFRS Foundation. The purpose of IFRS is to provide common language so that company accounts are easily understood across international boundaries. The IFRS are progressively replacing other national accounting standards. IFRS was established to harmonize business accounting all over the European Union but the concept because attractive all over the world. The accounting standards are issued by the IASC (the predecessor of the IASB).
The Objective of a Financial Statement
Financial statements are simply structured representations of the financial performance of a particular organization or business. The purpose of having a financial statement is that it provides information about the company’s financial position. It can also be used in making crucial decisions for the organization and can also be used to manage the resources of the organization. For a financial information to work, it needs to be relevant, comparable, verifiable, timeless, and understandable. This is what the IFRS wants to achieve.
Elements of Financial Statements
Under the new IFRS, elements of financial statements are identified. The elements are related to the measurement of the financial statement, which includes the following:
Asset: Assets refer to the resources that are controlled by the business that will be used for the benefits of the company.
Liability: Liabilities refer to the obligation of the company and the settlement that is expected as a result of an outflow.
Equity: Equity refers to the residual interest of the assets after deducting all the liabilities.
Revenues: This refers to the increase in the economic benefit in the form of inflows of asset or decrease in liabilities.
Expenses: Expenses refer to the decrease in the economic benefits during a certain accounting period and it is expressed in the form of outflows of assets that result in the decrease in equity.
The General Features of IFRS
Fair representation of business accounting is what the IFRS is all about. This means that fair representation of the effects of transactions. It also requires frequent reporting of at least annually. Companies also publish interim financial statements which the presentation should be in accordance with the IAS 34 Interim Financing Reporting. IFRS also requires businesses to present comparative information for all amounts reported in the current period’s financial statements.
To date, the IFRS is not adopted in the United States but this does not mean that you should not learn from it especially if you are planning on expanding your business outside the country. At MKS&H, we can help you understand the complex concept of IFRS. Our tax accountants and our team of tax professionals will help you understand how to maximize your finances and always be safe and legal in operating under the rules the ATO provide.