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International Financial Reporting Standards (IFRS): The Basics

Checklist Description

This checklist provides a snapshot of the IFRS—International Financial Reporting Standards—and its growing global significance.

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The increasing pace of globalization over recent years has forced the pace for the adoption of truly comparable and consistent international accounting standards. A decade ago, national versions of Generally Accepted Accounting Principles (GAAP) were commonplace. Nowadays, IFRS has gained broad acceptance and is used in over 100 countries. The United States is moving towards the convergence of US GAAP and IFRS, with the present timetable indicating that the set of standards will be applied to large public companies in 2014, though some should have the option to make the move even earlier. Since early 2008, IFRS has been allowed in the United States without reconciliation for foreign private issuers. The Securities and Exchange Commission’s (SEC’s) roadmap suggests that the decision over the future adoption of IFRS should be made in 2011, though the SEC has suggested that this timescale may be subject to delays.

Presently, the widespread use of US GAAP rather than IFRS can create difficulties for financial analysts, given the challenges in making financial comparisons. However, the timelines for change are far from clear. A joint initiative by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) is aiming to converge existing standards into a single set of standards. In contrast, IFRS has been a requirement in Europe for listed companies since 2005.

In light of the increasingly international trend of IFRS, some emerging economies have been quick to adopt IFRS as their national version of GAAP.

First adopted in 2001, IFRS includes many of the International Accounting Standards (IAS) previously set by the IASB with the objective of improving the level of transparency of companies’ finances. IFRS also generally includes the International Financial Reporting Interpretations Committee (IFRIC) interpretation and that of its predecessor, Standing Interpretations Committee (SIC), prior to March 2002. While the impact of the adoption of the IFRS on company accounts varies between countries, the set of standards imposes very strict disclosure requirements on companies. Intended to improve the visibility of companies’ liabilities, IFRS requires the full disclosure of pension-related obligations, while executive remuneration visibility is also tackled, with IFRS dictating that stock options granted to executives must be included in the accounts. IFRS also has implications for the way companies account for their fixed assets, setting requirements over the fair value of assets. The impact of the adoption of IFRS can also have significance in areas such as merger and acquisition strategy, the provision of bank covenants, and distributions.

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  • IFRS improves the level of comparability between the accounts of companies across different countries.

  • The stringent disclosure requirements improve the visibility of liabilities such as future pension costs and employee stock schemes.

  • The adoption of IFRS can provide greater reassurance for investors, credit rating agencies and lenders, potentially giving companies access to lower-cost capital in line with the lower risk.

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  • The adoption of IFRS can bring significant additional short-term costs to businesses, such as fees to pay specialist external accountants.

  • As adjustments to comply with IFRS can make year-on-year performance comparisons difficult for investment analysts, potentially creating uncertainty and stock price volatility, companies must also devote resources to the preparation of accounts using the legacy conventions.

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Action Checklist

  • Consider the benefits of introducing IFRS to management reporting, bringing improved quality and consistency to internal company information on which key decisions are based.

  • Multinationals should examine the benefits of adopting IFRS throughout their organization to improve international comparability.

  • Companies should be prepared to utilize external expertise to help with the transition to IFRS conventions.

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Dos and Don’ts


  • Companies adopting IFRS should budget for higher short-term costs.

  • Aim to embed the principles of IFRS throughout all levels of an organization to extract maximum benefit.

  • Explore the potential benefits in using XBRL (Extensible Business Reporting Language) in financial reporting.


  • Don’t see IFRS as a “threat;” it can bring long-term material benefits, such as higher investor confidence and lower-cost capital.

  • Don’t ignore IFRS until you are obliged to adopt it by regulators. An understanding of IFRS can help companies to prepare for its adoption, and can offer firms the flexibility to adopt IFRS at a time that works to their advantage.

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Further reading


  • Daske, Holger. “Economic benefits of adopting IFRS or US-GAAP—Have the expected cost of equity capital really decreased?” Journal of Business Finance and Accounting 33:3–4 (April/May 2006): 329–373. Online at:
  • Hail, Luzi, Holger Daske, Christian Leuz, and Rodrigo Verdi. “Mandatory IFRS reporting around the world: Early evidence on the economic consequences.” Journal of Accounting Research 46:5 (December 2008): 1085–1142. Online at:


  • American Institute of Certified Public Accountants (AICPA) on IFRS:
  • IFRS Foundation and International Accounting Standards Board (IASB):

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