How important is the adoption of IFRS accounting standards? Understand!

Are you unsure about IFRS? In this article we will explain what IFRS is and its importance in the standardization of accounting standards. Check it out!

IFRS is an acronym that should be part of the life of anyone who owns a company or works in accounting. However, doubts may still remain about the meaning, application, and importance of the term.

To help you clarify these questions, CPCON has prepared this article. Read on!

What is IFRS and why is it important?

IFRS is an acronym, originating from the English language, used to refer to “International Financial Reporting Standards”.

Managed by the International Accounting Standard Board (IASB), its main function is to establish a set of accounting norms, in accordance with international standards, to generate stability and transparency around the world.

These accounting standards are necessary because each country has its own accounting rules. In this way, it would be difficult for an investor from another nation to learn the norms of each location he or she wishes to invest in. So if the company follows IFRS, investors will be able to understand the situation of the business very easily.

IFRS around the world

Before 1973, there were no standardized accounting rules. With this, the world was divided between American accounting rules (US GAAP) and British accounting principles (FRS). However, since most of the investors lived in the United States, there was a tendency to accept American rules.

What changed the course of this story were corporate scandals and globalization. Some of the large American corporations, such as WorldCom, have been involved in major scandals that have shaken the stability of US GAAP.

In addition, as the phenomenon of globalization made it possible for people to invest from anywhere in the world, there began to be a greater need for the creation of international standards. Thus, the International Financial Reporting Standards were created.

In Brazil, IFRS became mandatory in 2010. Thus, companies need to comply with IFRS standards as soon as possible, both to avoid legal problems and to enjoy the benefits of International Financial Reporting Standards.

Importance of IFRS for companies

The adoption of IFRS is not only important because it is determined by law, but also because the accounting standards create advantages for companies. Some of them are:

1. Practicality

With the application of international accounting standards, the integration of accounting areas in multinational companies is facilitated. Furthermore, because IFRS is a standardization, accounting activities can be optimized in many ways.

2. Credit facilitation

Following the International Financial Reporting Standards enables companies to be transparent about their financial situation and regulated with regard to accounting processes and compliance. Financial institutions look favorably on companies that have compliance and adopt norms standardizing the processes. This makes it easier to raise money and increase capital.

3. Transparency

IFRS creates more transparency for the company, and this can be converted into future business agreements. When it comes to closing a deal, investors look for transparent companies with solid figures, which they can know the values of before they invest their money. Because of this, the adoption of the standard facilitates agreements and investments.

How to apply IFRS

Now that you know what IFRS is and why it is important, it is time to learn how to apply IFRS. The first step is to prepare the initial transition balance sheet, reviewing the values of assets and liabilities. CPCON constantly participates in projects helping its clients in this phase.

To do this, the accountant must consider all assets and liabilities required by IFRS, apply IFRS to measure all recognized assets and liabilities, and reclassify items in accordance with previous accounting realizations when IFRS does not allow recognition.

CPCON and IFRS

When it comes to implementing IFRS, all expert help is welcome. In this case, count on CPCON, your partner company in the area of Asset Management and Evaluation.

CPCON has IFRS as one of its specialties and, by hiring it, you adapt your company to the international accounting standard in a practical way, and avoid possible legal, corporate, regulatory, or managerial problems.

Check out this and other services offered by CPCON!

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