International Financial Reporting Standards (IFRS) is an accounting tool offering a framework within which companies provide their financial information. The framework introduces standards that makes it possible to compare and contract financial information among businesses. More than 25,000 companies have adopted IFRS standards in 88 stock exchanges worldwide. According to the 2018 report, %87 of jurisdictions require the standards for the majority of their companies. In other words, out of 166 jurisdictions, 144 require domestic companies to use the standards, and 86 require the same from Small and Medium Enterprises (SMEs).
Improving Financial Reports
IFRS leads to transparency, efficiency, and accountability. The report states that $35tn of the global Gross Domestic Product (GDP) of $76tn belong to the jurisdictions requiring the use of IFRS standards. The standards offer transparency as they enable comparison and contrast of financial information, therefore, enhancing investors’ ability to make informed decisions. In addition, through the use of standards, anomalies and ambiguities are minimized, which leads to higher accountability of the people who run businesses. The framework offers comparability in a global scale, which is particularly of importance to regulators across the world. It makes sure the information is sound and reliable.
International reporting standards also improve efficiency by providing investors with information about opportunities and risks. Investors around the world are able to have access to financial information worldwide and make investment decisions accordingly. They can compare financial information between and among companies and decide on which project or business to invest. Consequently, they affect capital allocation globally. The 2019 UN report maintains that Foreign Direct Investment (FDI) amounted to $1.2tn in 2018, %58 of which was invested in developing countries. International investments can significantly enhance economic development and prosperity, and IFRS standards enable businesses to offer their information globally without having to bear reporting costs.
Iran’s Adoption of IFRS
Iran is among the countries which require the use of international standards. Public companies, banks, insurance companies, and other financial institutions are required to adopt and use these standards. Although SMEs are not yet required to use these standards, their use is currently under consideration. The Audit Organization of Iran (AOI) (www.audit.org.ir) has adopted IFRS standards and is required to use them by law. Auditors’ reports have to state that the financial statements conform to international standards. IFRS standards have also been translated into Farsi. Iranian Institute of Certified Accountants (IICA) and Iranian Association of Certified Public Accountants (IACPA) are associations that bring together certified accountants in Iran.
IFRS is widely adopted and used around the world. The transparency, accountability, and efficiency enable investors to make more informed decisions, which affects allocation of capital worldwide. The adoption of international reporting standards is not only valuable to regulators , it is also beneficial in attracting international investors. Businesses interested in attracting international investors can benefit from adopting IFRS standards.
Answer the following questions in an audio recording. (4min)
1. Has your company adopted IFRS standards? (If the answer is yes, move to a, otherwise answer b)
a. How difficult was it to make the transition from national standards to IFRS standards?
b. What challenges would your company face if they decide to adopt IFRS standards?