For decades there have been some forms or other forms of accounting and financial reporting across the world. Different countries have different accounting and financial reporting standards. These different accounting standards define and recognize assets and liabilities as well as costs and benefits in very different ways and these different definitions makes result into different values for different items. In many countries liabilities and costs are recognized in as such a way that they end mixing up things. In the same ways assets and benefits too are treated differently in different countries. These practices lead to huge differences in the values of assets and liabilities and costs and benefits.
As a result of different accounting standards and practices the costs and benefits as well as the assets and liabilities considerations in different countries are different. This leads to huge distortion in international business scenario and leads to confusion as well as misuse of the same for personal gains and unfair reasons. In changing business scenario where the number of businesses are becoming global are increasing with every passing day. This is creating lot problems for the investors because of different accounting standards being followed by different countries. In such situation, understanding financial reports have become a difficult task for the investors. Also sometimes, it has been found that some international businesses have been misusing these differences in accounting practices for personal gains or for avoiding taxes and sometimes huge differences in valuation of companies has been found. Also it had been found that there had been huge inconsistency in the financial reporting because of some inconsistent principles of different accounting standards.
To respond to the problems of inconsistent accounting principles, standards as well as to bring more transparency in accounting and reporting of financial reports in domestic as well as the international businesses, making costs and benefits as well as assets and liabilities consideration uniform and homogeneous, International Accounting Standards Board and Financial Accounting Standards Board formed a joint committee to frame a sound framework for financial accounting and reporting for businesses based on some consistent and sound principles. And the result of the join exercise is International Financial Reporting Standards.
This new mechanism and set of standards in forms of International Financial Reporting Standards are expected to bring down the differences in the costs and benefits consideration across the globe. Like all the other accounting and financial reporting standards of the world, IFRS have well defined and well structured financial reporting framework. This framework has been developed taking care of everyone’s interests. Though, the IFRS have been hugely influenced by the US financial reporting standards. This framework makes financial statements of every company and organization look same and homogenous. The below section provides information as how under the IFRS a financial will be prepared or look like.
Elements of the IFRS financial statements
An IFRS financial statement under the IAS 1 should have these financial statements:
- Balance sheet
- Income Statement
- Statement showing the changes in the equity
- Statement of Cash Flow
- Information about the Equity Holders
- Precise description of accounting practices
- Explanatory notes
By following the IFRS mechanism, the differences in cost and benefits consideration will be lowered significantly.
By following the guidelines for preparation and reporting of the financial reports will be standardized and become homogeneous across the world. Each and every item will be treated in similar ways and fashions and the value derived will be the same across the world. This total eliminate the differences in the costs and benefits considerations and the misuse of the financial and accounting standards will be lowered and removed significantly. This move will not only help in removing the distortions of the accounting practices and huge differences in costs and benefits considerations but also will help in integration of the whole world into one entity by speeding up the process across the world. This eliminate the uncertainty of happening of unseen in respect of financial and accounting reporting practices in any part of the world and is expected to benefit a lot to everyone in the process.
Though the practice of eliminating and removing the costs and benefits differences in different countries by introducing the International Financial Reporting Standards will speed up the economic and accounting integration in the world but at the same time this going to affect the world in negative ways too. The different accounting and financial standards and practices are results of difference circumstances, situations and conditions in different countries. The needs of the different countries are different depending on the political, constitutional set, economic conditions, social environment as well as populace. Because of the different conditions and needs, different countries need different and differential accounting and financial standards and practices to benefit the citizens and businesses of that country.
In less developed and developing world, inequality is wide spread and this inequality is present in every sphere of life. The margin and small businesses needs different types of supports and incentives to do the business in the country. For this purpose, countries devise suitable standards and policies that can help the local economic to grow and develop over time and become more efficient. But with the introduction of the International Financial Reporting Standards, these facilities would not be able to local traders and businesses and those will be hit hard from this change as the differences in costs and benefits consideration is the real incentive to them and with the elimination of the same, they would be at disadvantageous positions. So it argued that no such thing should be done to remove the different costs and benefits considerations in different countries.
 Conceptual Framework (PAUSED), accessed on 23rd May 2012 from http://www.ifrs.org/IASCFCMS/Templates/Project/Page.aspx?NRMODE=Published&NRNODEGUID=%7b5B671FAA-9B0E-4992-983B-D686F400DFCB%7d&NRORIGINALURL=%2fCurrent%2bProjects%2fIASB%2bProjects%2fConceptual%2bFramework%2fConceptual%2bFramework%2ehtm&NRCACHEHINT=Guest