The increasingly global nature of the business environment enhances the need for reporting standards that ensure comparability of financial statements across countries and provide the basis for reliable and transparent disclosure of financial information to the stakeholders. On a company level, using one set of standards reduces the cost of capital. For investors, availability of a common accounting language allows them to better compare financial statements and make investment decisions more easily.  International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) have already become the international language of accounting.  Companies in more than 100 countries are either required or permitted to use IFRSs, and by 2011 the IASB expects the total to increase to 150.

An important development in the process of global convergence with IFRSs was the decision by the European Commission to require companies publicly traded and domiciled in the European Union to prepare their consolidated financial statements in accordance with IFRSs for fiscal years starting on or after January 1, 2005. This decision affected more than 8000 companies listed in the EU stock exchanges thus facilitating the transition to IFRSs across the world. Although the EU decision to adopt IFRSs boosted recognition of international standards, the EU has not endorsed the full set of IFRSs as it  has "carved out" three paragraphs from the standard that deals with recognition and measurement of financial instruments. Another key development was the agreement reached by the IASB and the U.S. Financial Accounting Standards Board (FASB) to eliminate differences between IFRSs and U.S. Generally Accepted Accounting Principles (GAAP) in the long term.  Given the important role played by the U.S. capital markets,  the decision of the Securities and Exchange Commission (S.E.C.) to eliminate the requirement for reconciliation of financial statements by 2009  is of major importance. Prior to November 2007, non-US companies whose securities were registered with the S.E.C. had to reconcile earnings and net assets to U.S. GAAP figures, which was a costly process.

International Financial Reporting Standards of the International Accounting Standards Board

The IASB is an independent, privately-funded accounting standard-setter based in London, UK. The IASB took over accounting standard-setting responsibilities from its predecessor, the International Accounting Standards Committee (IASC) Foundation in March 2001 and since then has been committed to developing "a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements." Among the immediate tasks that faced IASB was to create a "stable platform" of accounting standards given the European Commission's decision to adopt IFRSs. The IASB wanted to ensure that countries adopting international standards had a stable accounting regime that would win the confidence of the market participants. On March 31, 2004 the IASB released standards revised and issued as part of the Improvements Project, thus finalizing the "stable platform." Pronouncements inherited from the IASC continue to be designated International Accounting Standards, or IASs. Pronouncements issued by the IASB are designated International Financial Reporting Standards, or IFRSs. In its broader meaning, the term "IFRSs" also refers to the entire body of the IASB pronouncements, including both IFRSs issued by the IASB and IASs issued by the IASC. The  work on the revisions of the standards is an ongoing process. Realizing the implications for the companies that have to keep changing their accounting practices to incorporate the new requirements, in 2006 the IASB announced that no new standards will become effective prior to 2009 thus providing a period of stability for those already using IFRS platform.

Applicability of International Financial Reporting Standards

IFRSs contain a set of broad principles, rather than step-by-step rules, that are to be applied in preparation of general purpose financial statements.  As specified in the Preface to the International Accounting Standards (2002), IFRSs should be applied for preparation of financial statements of all profit-oriented entities. Furthermore,  a preparer of financial statements cannot claim compliance with IFRSs unless it complies fully with all requirements as set out by the IASB.

IFRSs, as well as International Standards on Auditing (ISAs), are endorsed by the World Bank, the International Monetary Fund, and other international institutions as the best practice standards for corporate financial reporting. As such, in addition to practical use by profit-oriented entities for financial reporting purposes, IFRSs are used  by the World Bank as benchmarks in preparing the Reports on the Observance of Standards and Codes (ROSC) on Accounting and Auditing-- a comprehensive assessment of accounting, financial reporting, and auditing practices within the corporate sector in a given country. The ROSC focuses on the strengths and weaknesses of the accounting and auditing environment, reviews mandatory requirements against actual practices, and gives recommendations with a view to improve the financial reporting environment.  As of end-June 2004, 38 Accounting and Auditing ROSC modules have been completed, of which 20 have been published.

Another important source of information are self-assessments prepared as part of the  International Federation of Accountants' (IFAC) Member Body Compliance  Program launched in November 2003 with the objective to evaluate whether and how the Statements of Membership Obligations (SMOs)  requirements are being fulfilled. The SMOs are issued by the IFAC Board and establish requirements for members and associates to promote, incorporate, and assist in implementing international standards issued by the IFAC and the IASB.  Part 2 of the Compliance Program requires members and associates to complete a self-assessment questionnaire about their best endeavors to promote and incorporate international standards, quality assurance, investigation, discipline programs, and to monitor compliance with applicable professional standards. These responses are available from the IFAC website. Other sources include publications of the major accountancy firms, self-assessments prepared by the national standard-setters, and regional and international organizations.

Standard Setting Body

International Accounting Standards Board (IASB)

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Summaries of IFRSs

Further Reading

IASB Work Plan

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Hegarty J., Gielen  F., and Ana Cristina Hirata Barros,  “Implementation of International Accounting and Auditing Standards - Lessons Learned from the World Bank’s Accounting and Auditing ROSC Program,” September 2004. Available from World Bank website.  

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Deloitte & Touche  IAS Plus website

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Deloitte Touche Tohmatsu, “Closing out 2006,” December 2006. Available from IAS Plus Deloitte Touche Tohmatsu  website

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PricewaterhouseCoopers IFRSs Page

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Ernst & Young IFRS page

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Wong P., "Challenges and Successes in Implementing International Standards: Achieving Convergence to IFRSs and ISAs," September 2004. Available from the International Federation of Accountants website.

http://www.ifac.org/Link