International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a body of accounting standards that set out how companies should recognize, measure, present and disclose transactions in their financial statements. They are issued by the International Accounting Standards Board (IASB) and are required or permitted in more than 140 jurisdictions, including the European Union, the United Kingdom, Canada, Australia, Brazil, South Korea and South Africa. Strictly, the name now refers to IFRS Accounting Standards, to distinguish them from the newer IFRS Sustainability Disclosure Standards.

IFRS is the main alternative to US generally accepted accounting principles. It was designed to give investors a common financial language across borders, so that a company in Germany and a company in Singapore present results in a comparable way. US domestic companies do not use IFRS, but foreign companies listed in the United States may file with the SEC using IFRS without reconciling to US GAAP.

The body of IFRS includes several types of pronouncement:

• International Accounting Standards (IAS), numbered IAS 1 to IAS 41, originally issued by the predecessor International Accounting Standards Committee between 1973 and 2001; many remain in force, such as IAS 2 on inventories, IAS 16 on property, plant and equipment and IAS 36 on impairment.
• International Financial Reporting Standards, numbered from IFRS 1 onward, issued by the IASB since 2001, such as IFRS 9 on financial instruments, IFRS 15 on revenue and IFRS 16 on leases.
• Interpretations issued by the IFRS Interpretations Committee (IFRIC) and its predecessor (SIC), which address specific application questions.
• The Conceptual Framework for Financial Reporting, last revised in 2018, which sets out the objective of financial reporting and the concepts the standards are based on.

A complete set of IFRS financial statements comprises a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows and notes, together with comparative information.

IFRS is often described as more principles-based than US GAAP, meaning it gives broad principles and expects preparers and auditors to use judgment, rather than providing detailed rules and bright-line tests. Supporters say this focuses attention on the economic substance of transactions and makes standards harder to game. Critics say it can reduce consistency, since different companies may apply the same principle in different ways.

The two frameworks have converged considerably, particularly on revenue recognition, but notable differences remain:

• IFRS prohibits the LIFO inventory method, which US GAAP allows.
• IFRS permits revaluation of property, plant and equipment and intangible assets to fair value, while US GAAP generally requires historical cost.
• Impairment losses on assets other than goodwill can be reversed under IFRS but not under US GAAP.
• Under IFRS 16, lessees treat almost all leases as finance leases, while US GAAP keeps a separate operating lease category with straight-line expense.
• IFRS 9 uses a three-stage expected credit loss model, while US GAAP's CECL model recognizes lifetime expected losses from day one.
• Development costs that meet set criteria must be capitalized under IFRS, while US GAAP generally expenses research and development.

Adoption varies by country. Some jurisdictions require IFRS for all listed companies, others permit it, and some, such as the European Union, endorse each standard through a legal process and occasionally modify it. Japan permits voluntary adoption, while China and India have national standards that are substantially converged with IFRS. A simplified version, the IFRS for SMEs Accounting Standard, is available for private companies in many countries. Countries with very high inflation must apply IAS 29 on hyperinflation, and groups present consolidated financial statements under IFRS 10.

IFRS 17, effective from 2023, transformed accounting for insurance contracts. IFRS 18, Presentation and Disclosure in Financial Statements, effective from 2027, introduces defined subtotals such as operating profit and requires disclosure of management-defined performance measures. In 2023 the ISSB issued its first two sustainability standards, IFRS S1 and IFRS S2, the second on climate-related disclosures, which several jurisdictions have begun to adopt. Rules for measuring fair value, set out in IFRS 13, are closely aligned with US GAAP and organized around a fair value hierarchy, and hedge accounting under IFRS 9 is designed to align more closely with risk management.

• IFRS Foundation