The international financial reporting standard is one of the steps for the gradual globalization of the economic and economic sectors of the countries of the world when they bring accounting under common standards. What is their essence? What documents should be guided by? What is IFRS reporting?
general information
What does this amazing term mean - “international financial reporting standard”? How to understand it? We will not go into details and just say that these are the same ordinary financial statements, only named in the English manner. It should be noted that there are different international financial reporting standards. The documents that represent them are issued by two different institutions. These standards are used in more than a hundred different countries. Most financial markets require companies trading their securities to provide consolidated financial statements created in accordance with IFRS.
The history of development
It all started around the middle of the last century. During that time, much has changed - both the name and the content. Previously, even other designations were used! And the number of principles at first was insignificant - only a few. Now there are dozens of them. This is how international financial reporting standards have changed. IFRS and GAAP now rule the ball in the world. Although they differ slightly, but very significant efforts are now being made to bring them closer. True, not as fast as many people would like. What can you do - the negative aspect of bureaucracy in action ...
And what about the situation in the Russian Federation?
International financial reporting standards in Russia are recognized and their use is recommended. In some cases, companies are even required to use them. For example, if they want to enter a foreign market that operates in accordance with IFRS. Although the territory of the Russian Federation has its own provisions on the financial statements. When can there be a need for IFRS? Various companies, in addition to the already considered option with access to exchange markets, may still need international financial reporting standards in Russia if she wants to get a loan from a foreign credit institution. Do not work under the laws of others? In this case, IFRS is necessary, because they act as an intermediate link that satisfies both parties.
What is IFRS?
The development of international financial reporting standards provides for the creation of a system of documents and explanations that allow determining the procedure for compiling all data. They are created to facilitate the fixing of the situation and the provision of truthful information. Despite the fact that there are two conventional directions in the world, IFRS and GAAP, they are referred to the same in Russian literature. Each of them is known as the international financial reporting standard. Although in fairness it should be noted that this is the literal name of the European IFRS. American GAAP translates a little differently. If you want to get acquainted with their official translation, then you need to visit the website of the Ministry of Finance of the Russian Federation.True, quite a few complain that public servants are not concerned about the quality of their work. In addition, you must understand that when new standards come out, their text changes slightly. As a rule, this applies to individual paragraphs, or definitions are refined. Here it should be noted one more point that IFRS differs from PBU adopted in the Russian Federation. The fact is that the international standard only establishes principles and leaves quite wide possibilities for free interpretation. Whereas in the Russian Federation there are rules that strictly regulate all aspects.
Can their knowledge be useful to an ordinary accountant?
Yes, and how! If a person knows at least one international financial reporting standard, then significant career prospects are open to him. Initially, it should be noted that specialists with similar skills are in demand not only in the central, but also in the regional administrative divisions of many large companies. So knowledge of IFRS is a significant advantage for an accountant. And do not think that this applies exclusively to accounting. The real situation dictates its conditions. Therefore, understanding and dealing with IFRS is a useful skill for financial professionals as well. Moreover, their knowledge is useful not only in cases where a person wants to become a simple accountant or financial analyst. In order to head a department or take a director’s chair, it will also be a significant plus (or even a necessity) to understand IFRS. And in order to know them better, it is advisable to understand at an advanced level the English language. Then reporting in accordance with IFRS will be much easier.
Where to study them?
Applying international financial reporting standards in practice is certainly good. But they should first be learned. This can help both self-education and paid services. Fortunately, there are a lot of advertisements offering assistance in mastering IFRS. But at the same time, one should not chase cheapness. After all, employers value quality. There are fairly popular and recognized training centers whose training is much appreciated. After reviewing a large number of ads for serious positions, you can notice certain trends and highlight conditional favorites. And it should be understood that such training will not be easy. For a full analysis of IFRS, you need two to three months of regular classes. After all, these standards have been improved and supplemented for decades. There is something to learn here. But international accounting standards will provide a significant competitive advantage.
A little more about their device
As previously mentioned, despite the use of the word “standards”, there are no strict rules that do not allow certain interpretations. It is necessary to clearly understand that IFRS is a set of specific principles according to which statements are prepared. Strictly, up to the last comma, it is not necessary to copy the recommended design options here. A major role in IFRS is given to openness and completeness. Why so? The fact is that openness and completeness provide a wide range of information about the enterprise. Thanks to this, his activity becomes transparent. Having a report in your hands, you can independently make your own opinion and decide on whether to interact or not, and what you can count on. By the way, the "rules" of the preparation of financial statements (and in fact the principles) are very interesting. They deserve special attention in this article.
What about the principles?
There are a lot of them. Their total number exceeded fifty. But at the same time, fundamental principles are distinguished:
- Requirements for the qualitative aspect of information.
- The principles of reflection of data in accounting.
- Separate items.
All this will be considered more carefully. After all, the goals of international financial reporting standards are consistent with the announced principles. Let's detail.
Requirements for the qualitative aspect of information
In this case, the characteristics that the data should possess should be determined, which are generated during financial accounting and used for reporting. Most often they are used to satisfy the requests of external actors. In this case, the aspect is done on:
- The usefulness.
- Clear.
- Relevance.
- Stability.
- Comparability.
- Credibility.
Let's look at a few points. What is meant by the usefulness of information? The principles of international financial reporting standards require that available data can be used by users to make informed economic decisions. It follows from this that it must be appropriate, reliable, understandable and comparable. What does all this mean? Information relevance is understood to mean its ability to influence the adopted economic decisions of users by means of evaluating the results obtained and forecasting future events. By timeliness we understand a situation where data without delays are included in the financial statements. This is fundamental to ensure relevance. Material information is considered essential if its absence can lead to other decisions. It can have both qualitative and quantitative indicators. For users, the materiality of the information is determined by the possibility of using it to form an assessment of the results of activities and make a forecast of the future development of the organization or government structure.
And what else?
The reliability of the information is important. It consists in the absence of significant errors and the avoidance of the presence of biased assessments, which allows you to truthfully display economic activity. For this, it is necessary to ensure that in the information the economic content prevails over the legally fixed form. It is also necessary to care about neutrality and the possibility of verification.
Let's look at a small example. Fixed assets are leased. They belong to a certain company. And another enterprise uses them, receiving all the benefits from it. Therefore, fixed assets are displayed in the list of its assets. The legal form suggests that they belong to the company. But the economic content implies that the funds must be displayed in the list of assets of the enterprise. We will give a little more attention to the possibility of verification. After all, the international financial reporting standard requires not only that the data are provided, but also that you can make sure that they are true. So, the possibility of verification implies that if information is verified by various specialists, then all of them should come to the same result. In addition, the generated reporting should be understandable to different user groups. Therefore, it is required that it possesses unambiguity, that there is no excessive detailing and that there is clarity of presentation. But there is an important point! The requirements put forward do not mean that it is not necessary to disclose financial statements because of its complexity. It is just necessary to put forward certain requirements for the level of knowledge among users.
And it's all?
Not! We continue to consider the principles in detail. Comparability of information means the possibility of comparing the available financial statements in the time interval and / or spatial coordinate system. For example, over several time periods and with data from other enterprises. In case there are changes, it is necessary to display their reasons, as well as the results.An important role is played by the qualitative characteristics of information. Its usefulness depends on her. In practice, this is all determined by the professionalism of the accountant. Indeed, in this case, a contradiction arises between the benefits of the definition and the costs. How? The more detailed information we prepare, the better we will know about the state of affairs. But at the same time, the cost of obtaining it will increase.
Display grouping
When there are large data arrays, they can be combined according to the following principles:
- Double entry.
- Accounting units.
- Frequency.
- Ongoing activities.
- Cash valuation.
- Of charges.
- Discretion.
Let's consider them in more detail. The principle of double entry involves the use of this tool for accounting and financial reporting. Postings can be simple or complex. But the total should always be the same. The principle of the accounting unit implies that the company is considered separately from its owners and other commercial entities. This is necessary for the correct accounting of the results of its activities. This is especially important for individual entrepreneurs. The principle of periodicity implies that regular reporting is required. After all, the economic activity of the enterprise is carried out continuously. Therefore, to assess the results of activities, it is necessary to fix a certain point in time for which reporting will be generated. And for the period between two reporting dates and determines the change in the financial condition of the company. The principle of continuing operations is based on the assumption that the enterprise will carry out its activities in the future. Based on this, rules are developed for evaluating individual reporting items and using initial cost.
We continue to consider grouping
The principle of monetary valuation is based on the fact that the financial statements are expressed in cash. It should be noted that in practice different estimates are used. So, grouping can be addressed to these types of value:
- Initial.
- Current.
- Market.
- Clean.
- Given.
- Fair.
In the case of the accrual basis, it is stipulated that all income and expenses must be displayed exactly in the reporting period when they arose, and money was not received or paid. The principle of prudence provides for greater readiness for potential losses, rather than for profit. Therefore, assets are considered at the lowest of all cost options, while liabilities are measured at the largest option.