What is IFRS?

What is IFRS?

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by the International Accounting Standards Board (IASB). The purpose of these standards is to prepare the financial statements of joint stock companies in the form of a global standard.
The International Accounting Standards Board (IASB) is an independent body in London with 15 members from different countries and has been operating since 2001. The board has been established by large accounting firms, private financial institutions and a number of other professional organizations in the field of accounting. To date, more than 120 countries have made IFRS mandatory for corporate financial reporting.
By accepting IFRS, a company can submit its financial statements to foreign competitors with similar principles. As a result, there is comparability between the information of these companies, and in addition, parent companies whose subsidiaries exist in other countries that have adopted IFRS will be able to have a common accounting language. The use of IFRS can also be beneficial for companies that intend to increase their foreign investment.

Although some believe in the need for universal acceptance of IFRS, some believe that full acceptance of IFRS will reduce the quality of financial reporting, and it is assumed that incurring the high costs of changing the internal standard to IFRS will not bring much benefit.

Examples of some differences between the Iranian accounting standard and IFRS

Due to the proximity of accounting standards to IFRS, a significant part of these two standards are compatible, but the significant differences can be classified as follows:

At the level of general concepts

The authors of the IFRS have focused more on general principles and concepts to improve the compliance of standards with the conditions of different countries, while the current accounting standards have given more details.

At the level of accounting standards

For example, R&D expenditures in IAS 7 are included in the cost on the date of occurrence, but in IFRS research costs are incurred, but development expenditures are considered as capital expenditures.

Another example is the method of calculating depreciation. Accounting Standard No. 11 provides for three methods of direct line, descending and unit method. According to Article 151 of the Law on Direct Taxes, assets are classified and for each class a specific method of depreciation is considered, while in IFRS, it is calculated. Depreciation is based on actual estimates.

How to implement IFRS in Iran

In Iran, due to the move towards creating an international capital market, the stock exchange intends to implement the use of this standard in 1995 in listed companies. Thus, all companies and institutions listed on the stock exchange and their subsidiaries and affiliates are allowed to submit IFRS consolidated financial statements and do not need to submit consolidated financial statements according to Iranian standards.
Given the above, it is necessary to convert financial information from current standards to IFRS, and to achieve this, it is necessary to have two capabilities in large companies. The first is that financial professionals must have the expertise to make changes between the two standards, and the second is to have a powerful tool for translating financial information into IFRS.

How to move to IFRS

All companies intending to apply IFRS must submit initial IFRS-based financial statements at the date of transition to this Standard. In these financial statements, the following points should be considered:
1. Identify all assets and liabilities as required by IFRS.
2. Items that the IFRS did not allow to be recognized as an asset or liability should not be considered.
3. Change in the classification of items that have been recognized as assets and liabilities under the Internal Accounting Standard but have been performed in different types with IFRS.
In some cases, IFRS is used retrospectively, in which case management’s judgment of the circumstances of the event is required.
IFRS also requires them to disclose how to switch to IFRS in the financial statements.
Considering the conditions that a company is required to meet in reaching IFRS-based financial statements, it is clear that all financial events must be re-judged professionally and re-recorded using the IFRS approach, although many of these events are likely. Due to the similarities between the two standards, they have the same financial record.

Features of a financial software for IFRS

A financial software can be very useful for professional accountants if it has an approach to keeping accounting records based on both internal standards and IFRS because the best practice for preparing financial statements based on IFRS is to make professional judgments for each financial event. Other features that can be considered for financial software with IFRS support include:
1. Ability to submit financial statements to both standards
2. Ability to transfer similar financial documents between two standards for ease and speed of access to financial statements
3. Ability to provide comparative reports between the two standards

The benefits of changing to international standards

By changing to this type of standard, all domestic competitors and stakeholders, and most importantly foreign, can easily analyze and compare companies without any ambiguity. Using this standard, companies with subsidiaries in other countries can easily use an accounting language for all companies. The use of this standard as an international language allows investors around the world to conduct their analysis of investment in this country without ambiguity. So using an international standard can have a good effect on foreign capital inflows.

Disadvantages of changing to international standards

Many believe that removing the GAAP standard altogether and using it could be costly. To this end, it can be said that the costs incurred can outweigh the benefits. However, it should be noted that currently, about 120 countries have adopted this standard, and about 90 of these countries have completely changed their standard to international standard.

last word

Therefore, we should not ignore the fact that this standard will be used by all investors in the coming years, and every investor expects to receive financial statements using this standard to invest in any country. Therefore, the program of change to international accounting standard can be done in such a way that over a period of time, accounting standards change to international standards. EU member states began the change in 2002 and completed it in 2005. And the United States started this move in 2008 and continued this change until 2014. We know that the world does not have an international language in general, but we also know that a large number of people today can speak English. This fact indicates that we all need a language for communication, and today this language is in the investment alphabet of international accounting standards. In general, using an international language is much easier and more cost-effective for investors. This issue can be a big step for our country for foreign investors to enter.