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What Is Ifrs? - International Financial Reporting Standards
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IFRS, or International Financial Reporting Standards, is quickly becoming the global standard for business financial reporting. It is up for constant debate in the United States as to whether businesses should adopt IFRS or stick with the US standard of GAAP. IFRS has fewer rules than GAAP and is less structured, though it is at least as effective if not more so. The major benefit is that it is global, meaning that it allows for a connection between international businesses that the GAAP does not. For many people change is a scary thing and seems unnecessary, though in the case of switching to IFRS change is not only a good thing, but potentially incredibly beneficial for the US.
IFRS offers the US, and other countries, the opportunity to adopt a program which is sophisticated, easy to follow, and simplified from other programs such as the GAAP. With IFRS all businesses will be able to compare financial documents, businesses will become more efficient in all areas of productivity, and the percentage of reporting errors will decrease significantly. If the US mandates a conversion to IFRS, which will almost certainly happen in the very near future, the major barrier between the US and other countries will be broken down and the market will become more competitive and thus more profitable for the US economy.
A huge benefit for domestic companies is that IFRS is not GAAP. GAAP is very rigid, regimented, specific, and rule-based; it is complicated to follow correctly, nearly impossible for foreign competitors to decipher, and difficult for even US companies to adhere to. There is a huge margin of error for domestic businesses when it comes to reporting with GAAP and the switch to IFRS would greatly reduce these errors. IFRS offers US businesses the opportunity to put the worries of GAAP behind them and start fresh with a new concept and easier platform.
Financially, IFRS will cost a fair amount of money to switch over to initially though the potential for future earnings will make it well worth the investment. Many US companies have subsidiaries which have already switched to IFRS so it is imperative for these businesses to switch, though other businesses need to consider the benefits as well. Adopting a global reporting standard allows for the opportunity to partner with other businesses around the world thus creating a global brand, rather than simply a domestic one. The earning potential from partnerships which can be created because of the switch to IFRS is limitless. Not only will domestic revenue and the economy benefit, but US businesses will achieve a higher ranking in the global economy.
Some people are wary of making the switch because they feel they are placing a huge investment in something that they are unfamiliar with, but just because IFRS is unfamiliar to them does not make it new; IFRS is already widely used and with great success outside of the United States. The ease of use, potential for earnings and partnerships, and global recognition should be enough to make US corporations feel secure in their decision to adopt IFRS.
George Freeth is a IFRS Consultants and is a co-founder of the IFRS Support growing outsourced IFRS vs GAAP and IFRS Convergence. George Freeth has more than 10 years of experience in IFRS, IFRS transition, accounting, International Financial Reporting etc.
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