High Quality Accounting Standards
The need for high quality accounting standards when reporting financial information has never been greater. Accounting is the language of business and financial statement analysis is a powerful tool to understanding the performance and position of a business. Without robust and reliable standards those analyzing the financial statements cannot effectively do so and decisions may be made based on incorrect or incomplete information.
The framework that sets out the types of standards and processes for the preparation, presentation, and disclosure of financial information is the International Financial Reporting Standards (IFRS). IFRS is developed by the International Accounting Standards Board (IASB) which is an independent, international body made up of leading accountancy firms, professional associations, and national standard setters. It first came into effect in 2005 and has been updated several times since.
The IASB issued its first International Financial Reporting Standard in 2001 and subsequently issued 15 more standards. The IASB continued its process of issuing standards until it finished issuing all 15 related standards in 2013.
The IFRS are designed to improve the comparability, quality and relevance of financial statements, generally accepted accounting principles (GAAP) across countries. IASB’s standards-setting activities are designed to ensure that high quality accounting standards are adopted across all countries.
The IASB has set the foundation of numerous accounting principles that must be followed when preparing financial statements in accordance with IFRS. These principles are known as the “due process” and include disclosures, recognition criteria and measurement principles.
One of the most basic and important accounting principles for both investors and companies is that, revenues should be recognized or recorded only when all of the terms of a revenue contract have been satisfied. This means that revenue should be recorded only when goods or services have been shipped or performed. It is also important to note that even though a contract has been signed, revenue should not be recognized or recorded until all of the terms of the agreement have been satisfied.
In addition to the recognition and measurement requirements, IFRS also sets out many other principles and requirements. These principles and requirements are designed to ensure that different companies provide investors with comparable and comparable information. Some of the other important standards set by the IASB include disclosures regarding items such as related party transactions, contingencies, impairment of assets, and other liabilities.
The IASB also provides guidance on the subjective elements of financial statements. For example, the IASB issued a standard in 2011 that sets out guidance on the use of estimates. This standard provides clarification on how to make estimates on variables that are uncertain or which have yet to be determined. This standard requires that an entity must consider both the information available when a particular estimate is being made, as well as the risks associated with an estimate.
One final note of importance regarding the IFRS is that it is an ever-evolving set of standards. Such standards are reviewed and amended periodically, with new set of standards consistently being issued in order to keep up with the ever-changing business dynamics.
In conclusion, accounting standards serve an extremely important purpose when it comes to reporting financial information. Without high quality accounting standards, investors and companies alike would be without a reliable and trustworthy way to understand the performance and position of a business. The IASB has developed the International Financial Reporting Standards in order to provide an international framework for ensuring the comparability, quality and relevance of financial statements across countries. These standards set out comprehensive principles and requirements to ensure that financial statement analysis is reliable and complete. IFRS forms an essential foundation for businesses and investors alike as it provides the basis for producing accurate, high quality, and relevant financial statements.
