Standards help bring different situations to a common denominator. What does it look like in the financial sector? First of all, this approach relates to reporting. In this case, the financial standard helps to bring information about the position of the organization in a typed form.
Introductory information
There are various financial reporting standards. Some of them are aimed at controlling civil servants, while others are studying various private and public structures. A specific financial standard can be introduced within the enterprise to collect all the necessary information and process it appropriately. Moreover, they may affect not only the reporting, but also often put forward certain requirements for conducting business. For example, the amount of borrowed funds should not exceed 10% of the total amount of all used money. If this requirement is not met, then it is necessary to make decisions to bring the situation to the right kind. The most popular and famous are international financial reporting standards. Therefore, analyzing the essence of this phenomenon, we will focus on them.
What does the international practice offer?
Initially, you need to start with a definition. International Financial Reporting Standards, also known as IFRS, are a set of accounting approaches that indicate how certain types of transactions and other events need to be reflected. Who are they preparing? This is done by an organization called the “Council on International Financial Reporting Standards”. It is she who determines how best to keep and present accounts so that no problems arise in the future. The financial standard in this case was introduced in order to have a “common language” of accounting. After all, if each company does everything as it wants, and even the states make their own corrections, then verification of information by the regulatory authorities of different countries will be difficult.
Why is this necessary?
IFRS has been introduced to maintain transparency and stability in the financial world. This allows investors and enterprises to make adequate decisions, as they can see what is happening with the company in which the investment is planned. It is convenient to work with state supervisory authorities. IFRSs are accepted as standard in many parts of the world. International business, as well as those who invest in it, benefit most from this. This situation has developed through transparent practice. After all, investors like to know exactly how things are going.
How it works?
International financial standards cover a wide range of accounting transactions. At some points in business practice, they may even be mandatory. IFRS is based on a number of principles. They affect assets, liabilities, capital, expenses and income. There are a lot of them, but to get an idea of the essence, it’s enough to give just a couple of examples:
- Accrual principle. This means that events should be displayed in the corresponding period, regardless of when the cash flow occurred.
- The principle of business continuity. It implies that the company will work in the near future and the management has neither the need nor plans to curtail its activities.
The information provided, in accordance with IFRS, must contain:
- Statement of financial position. Also known as balance.
- Statement of comprehensive income. It can be submitted as one form or provide for the separation of profit and loss. Allocation of other income, equipment and property is also acceptable.
- Statement of changes in equity. It contains information on retained earnings for a given financial period.
- Cash flow statement. It displays financial transactions that were carried out in the company for the specified period.
Is it difficult to switch to other reporting?
Changing the company's financial standard to meet international requirements is not so difficult. In short, this process is as follows:
- An accounting policy is being developed.
- Functional currency and presentation funds are selected.
- Initial balances are calculated.
- Transformation models are being developed.
- The corporate structure of the company is evaluated to determine the associates, subsidiaries, joint ventures and affiliates, information from which must also be included in accounting.
- The company’s business features are determined and the information that is needed to calculate transformation adjustments is collected.
- Regrouped and reclassified financial statements.
A special role is played by automation. In practice, it is possible to introduce, as well as comply, the IFRS financial standard without it, but very laborious. Fortunately, there is a choice from various complexes and platforms, which will allow you to choose exactly what meets your needs. You can use the existing default settings or create the necessary configuration yourself.