IFRS or the international financial reporting standards are accounting principles that large businesses use worldwide.
IFRS is a set of standards for how to do bookkeeping and accounting, specifically how to prepare the financial statement, which makes up part of a business’ annual report.
IFRS was developed by the International Accounting Standards Board (IASB), to make financial reporting easier to understand and compare worldwide. It’s used in more than 140 countries worldwide, including most of Europe, Australia, and many countries in Asia and Africa.
Do I have to use IFRS?
Large companies worldwide have to use IFRS, while large companies in the USA use the generally accepted accounting principles (GAAP). Smaller companies worldwide generally have other standards, which will vary depending on what country you’re based in.
Generally, if your business has income below a certain amount, you don’t have to do any bookkeeping. It’s still recommended though, because recording the financial transactions of your business in a general ledger will give you a better overview of your finances and help you learn accounting practices that might be useful later, in this business or the next.
If you have income above this threshold, you have to do accounting. What accounting principles you have to use, and whether you have to submit an annual report or other types of reports, depends on your specific situation. For advise, you should reach out to an accountant or to the tax authorities.
Why are these standards important?
IFRS is meant to ensure that accounting is done correctly, and—importantly—that it can be compared with other businesses.
In a year, there are many people who might require or want to look at your accounts, such as the tax authorities when you file and pay taxes, or banks and investors, if you’re looking for a loan. You can also be required to undergo an external audit of your business.
When companies use the same set of standards for their bookkeeping, it means that the financial information is accessible by all these parties without learning a new set of standards each time, or having to convert to another set of standards.
It’s important to note that IFRS isn’t foolproof: There can still be mistakes or omissions in the accounting.