Our world is constantly moving closer together. We think and act more and more globally. We order products from online retailers from all over the world and can fly to almost any country by plane. This makes it all the more obvious that financial regulations should be standardized worldwide. In the following article you will find more detailed definitions and facts about IFRS, IASB and IAS.
What does IFRS stand for?
The abbreviation IFRS stands for “International Financial Reporting Standards“, which is a translation of the international accounting standards.
This refers to standards for annual financial statements and consolidated financial statements that enable international comparability of financial reporting. These regulations make it possible to standardize financial reporting across national borders.
This is in contrast to the German Commercial Code (HGB). This regulates commercial law within Germany. Accounting in accordance with IFRS makes it much easier to gain insight into the financial information of companies in other countries.
The standards are published by the International Accounting Standards Board (IASB). The abbreviation IAS in turn stands for “International Accounting Standards”, i.e. the rules themselves. The IAS create a framework for accounting, in which the regulations of the individual countries, which are always somewhat different, are to be integrated.
For whom is IFRS or IAS mandatory?
According to the EU regulation, capital market-oriented companies are obliged to comply with IFRS. This mostly concerns groups of companies or even large corporations trading in shares or bonds. But also companies that want to work with securities in the near future and are in the middle of an admission process are included.
Stock exchange-oriented companies that years ago still prepared financial statements according to the German Commercial Code (HGB) had to reorient themselves to IFRS accounting. Further details are also regulated by the German Accounting Law Reform Act (BilReG), which introduced IASB and IFRS accounting for individual and consolidated financial statements.
Voluntary use of IFRS and IAS
Some companies in Germany adhere to international accounting standards, although they are not obliged to do so. They are allowed to voluntarily prepare their annual financial statements – in addition to the HGB – in accordance with IFRS. A major reason for this is the stock market: Shares of German companies that comply with IASB accounting standards are generally in greater demand. In some stock market sectors, IAS standards are even an admission requirement.
In addition, voluntary use often enables better cooperation with stakeholders from abroad who want financial information about the company. This also makes it easier to find international investors.
Despite all this, many companies are still skeptical and tend to fear the disadvantages. According to the German Chamber of Industry and Commerce (IHK), around 80 percent of companies prefer not to deal with the complex and costly regulations of IFRS yet.
Where are the IFRS standards to be found?
For German and at the same time stock exchange-oriented companies that are obliged to comply with the International Financial Reporting Standards, the current accounting standards from the Official Journal of the European Union apply.
Translations of the European Commission occasionally show differences in the definitions and sometimes allow other interpretations of the IFRS. However, as long as German companies stick to the translated version from the Official Journal, they are on the legally compliant and thus legally secure side.
IFRS 9, IFRS 15 and IFRS 16: What the figures mean
The accounting rules for the balance sheet came into force in 2005. Since then, they have been continuously updated. Accordingly, the figures conceal the newly published IFRS standards.
For example, at the beginning of 2018 the accounting for revenue recognition (IFRS 15) and the accounting for financial instruments (IFRS 9) became mandatory. The latter is designed to enable the valuation of financial instruments. Among other things, the requirements deal with the classification and accounting for hedging transactions.
A very important standard is IFRS 16, which was introduced at the beginning of 2019 and deals with the accounting of leases. The requirements have some effects on companies. For example, the changed inclusion of leasing transactions in accounting can increase the level of debt and reduce the equity ratio.
The many innovations have already made many finance departments and accounting experts sweat. The question therefore arises as to the extent to which the IFRS make sense at all and what intentions they pursue. Learn therefore in the following more about the goals of the IASB.
IFRS the goals
In principle, the primary purpose of the standards is to provide transparent disclosure of information about the finances and assets of companies.
The International Accounting Standards Board pursues the following additional objectives with its established standards:
Effect of IFRS and IAS on IT areas
Since larger companies can no longer prepare their balance sheets in accordance with the German Commercial Code (HGB), many hurdles have arisen. The IFRS standards have a major impact on the IT systems used. These include management tools, accounting software or various booking systems. This is because they have to be regularly adapted to the new regulations.
Here it quickly becomes clear: even though IFRS accounting has been in force since 2005, not all systems have yet been converted correctly. The interface problems that arise can be solved primarily with optimized project management. In addition, in the future even more experts in the companies as well as training for individual employees will be necessary in order to be able to correctly comply with the international standards.
