International Financial Reporting Standards (IFRS) represent a single set of world-wide standards and interpretations used by companies to prepare financial statements, a critical source of information published annually, useful to various stakeholders (shareholders, debtors, clients, employees and governments) in understanding a company’s financial performance and management’s stewardship of the company’s resources.
Contrary to some national generally accepted principles of financial statements preparation, IFRS provide general guidance for preparation of financial statements, rather than setting tough rules for reporting. The goal of IFRS is to enable compilers of financial statements to follow the same principles, and not to look for loophole in clearly defined rules in order to pass them by. Among the main principles are: accrual basis of accounting, going concern principle, principle of prudence, principle of relevance, etc.
Reasons for IFRS application by companies:
- possibility to obtain information necessary for taking managerial decisions;
- improve comparability of financial statements across national jurisdictions, since international financial reporting standards make it easier to compare figures and are understood internationally, that helps multinational businesses to stay up-to-date and competitive in the globalization of markets;
- provide investors, who seek comparable financial information to make well-informed investment decisions, with a cohesive view of finances, that consequently attracts investments and loans, facilitates entrance of foreign markets, enhances prestige and favours trust from potential partners;
- fair disclosure and transparency of information achieved through following the same rules of financial statements preparation and detailed explanatory notes to statements.
Preparation of statements in compliance with IFRS is performed either through parallel accounting or transformation of financial statements.
When transferring statements, figures of financial statements as per IFRS are formed based on figures from statements as per national standards, adjusted by difference in principles of preparation of accounts and statements.
Such work results in set of financial statements prepared in compliance with IFRS principles:
- transformed Balance Sheet,
- transformed Profit and Loss Report,
- transformed Cash Flow Statement,
- transformed Statement on Changes in Equity,
- Notes to Financial Statements,
- transformation tables.