March 26, 2025

What are the international financial reporting standards

definition
International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are a globally recognized set of accounting principles developed by the International Accounting Standards Board (IASB) to ensure consistency and comparability of financial statements across international boundaries.

IFRS ensures that businesses report financial data accurately and transparently, making it easier for investors, regulators, and stakeholders to compare financial performance.

For companies expanding beyond their home country, IFRS is a critical tool for compliance and investor confidence. As more economies adopt IFRS, businesses that align with these standards position themselves for smoother financial operations and better access to global investment opportunities.

How has IFRS become the global accounting standard

Financial reporting used to be fragmented. Different countries followed their own accounting rules, making cross-border business complex and inefficient. To solve this, the International Accounting Standards Board (IASB) introduced International Financial Reporting Standards (IFRS) in 2001, creating a single framework for financial reporting.

Today, more than 140 countries require or permit IFRS, including major economies like the European Union, Canada, and Australia. Its widespread adoption is driven by the need for transparency, consistency, and investor confidence in a globalized market.

The 2008 financial crisis accelerated the adoption of IFRS. Regulators saw the need for a unified approach to financial reporting to prevent discrepancies and improve economic stability. Since then, IFRS has evolved to address modern financial complexities, including fair value measurement, lease accounting, and revenue recognition.

As global trade and investment grow, IFRS continues to expand. Countries like China and India have developed IFRS-converged standards, signaling a shift toward worldwide alignment. For businesses, adopting IFRS means greater access to global financial markets, simplified regulatory compliance, and increased investor trust. This has made it the standard of choice for international finance.

Key principles of IFRS

IFRS is built on a set of core principles that form the foundation of financial statements and help ensure that financial information is reliable and comparable across different jurisdictions.

1. Accrual accounting

Under IFRS, companies record financial transactions when they occur, not when cash is received or paid. This approach, known as accrual accounting, provides a more accurate view of a company's financial health by recognizing income and expenses in the period they relate to rather than when the payment is made.

For example, if a company receives a supplier invoice for services rendered in December but pays it in January, the expense is recorded in December’s financial statements. This method ensures that costs are matched to the correct reporting period and prevents businesses from shifting expenses to manipulate profits.

2. Fair value measurement

IFRS requires many financial assets and liabilities to be reported at fair value, which means their current capital market price rather than historical cost. This ensures that financial statements reflect the true economic condition of a business at any given time.

For instance, investment securities, derivatives, and certain properties are regularly adjusted to their market value. This principle allows investors to understand the real worth of assets rather than relying on outdated purchase prices.

3. Substance over form

This principle ensures that financial statements reflect the economic reality of transactions rather than just their legal form. IFRS focuses on the true financial impact rather than how a transaction is structured legally.

For example, a company leasing an asset long-term may legally classify it as a rental expense, but if the lease effectively transfers ownership, IFRS requires it to be reported as a financed purchase (a liability and asset on the balance sheet). This prevents businesses from hiding financial obligations through legal loopholes.

4. Going concern assumption

IFRS assumes that businesses will continue to operate in the foreseeable future unless evidence suggests otherwise. This means financial statements are prepared under the assumption that a company is not about to go bankrupt or liquidate.

If a company faces financial trouble, such as declining sales, debt struggles, or legal disputes, it must disclose these risks in its financial reports. This ensures that investors and creditors have a clear picture of potential risks before making decisions.

5. Consistency and comparability

To maintain uniformity in financial reporting, IFRS requires businesses to apply the same accounting policies consistently over time. This ensures that financial statements remain comparable across different periods and companies, helping investors make informed decisions.

If a company changes its accounting methods, IFRS mandates clear disclosure of the change and its financial impact, preventing companies from manipulating reports by switching accounting techniques arbitrarily.

IFRS emphasizes the accurate classification of financial transactions to ensure clear financial reporting. One of the biggest challenges businesses face is inconsistent transaction coding, which can lead to discrepancies in financial statements.

Ramp’s AI-suggested accounting rules detect patterns in expense categorization and recommend standardized classifications, ensuring transactions are consistently coded across the company. This helps maintain compliance with IFRS principles like substance over form and faithful representation, allowing businesses to trust that their financial data is categorized correctly every time.

How does the IFRS framework work?

The IFRS framework functions through a structured financial reporting process, where finance teams, executives, and auditors ensure compliance. Accounting teams handle transaction recording, asset valuation, and financial disclosures, while CFOs and financial controllers oversee IFRS application at a strategic level.

Recognition criteria define when financial elements should be reported

IFRS establishes clear rules for recognizing income, expenses, assets, and liabilities. Companies cannot arbitrarily record transactions. They must follow specific recognition criteria to ensure financial statements accurately reflect business performance.

Record revenue when you earn it, not when you receive cash. This ensures that financial statements align with the actual period of economic activity. Similarly, expenses are recorded when incurred, even if the payment occurs later.

For example, if a company delivers a service in December but receives payment in January, IFRS requires the revenue to be recorded in December. This prevents businesses from manipulating earnings by delaying or accelerating payments.

Measurement principles determine how financial items are valued

Once financial elements are recognized, IFRS provides measurement guidelines to ensure they are valued correctly. The two most common approaches are fair value measurement and historical cost measurement.

As discussed earlier, fair value measurement requires businesses to report certain assets and liabilities at their current market value. In contrast, historical cost measurement records assets at their original purchase price, which is commonly used for machinery, equipment, and inventory.

Some financial items, like pensions and long-term contracts, are measured using present value techniques, adjusting future cash flows to reflect their worth in today’s terms. These measurement principles prevent companies from inflating asset values or hiding liabilities, ensuring accurate financial reporting.

Effective cash flow management is key to financial stability under IFRS. Ramp helps businesses track expenses, automate categorization, and gain real-time cash flow visibility. Its ERP integration streamlines payments and improves forecasting, ensuring better financial planning.

Disclosure requirements enhance transparency in financial reporting

Beyond recognition and measurement, IFRS mandates detailed financial disclosures to provide a complete picture of a company’s financial position. Businesses must disclose their accounting policies, assumptions, and financial risks, ensuring that stakeholders understand how financial statements are prepared.

For example, if a company estimates bad debt expenses, it must disclose the methodology used. This prevents companies from concealing financial risks and ensures that investors can make informed decisions. Transparent disclosure also reduces the risk of financial misstatements and fraud, promoting accountability in financial reporting.

The IFRS accounting standards ensure financial information is structured, consistent, and transparent. Businesses need systems that allow them to apply accounting policies systematically to maintain compliance.

Ramp’s bulk editing and mark-as-ready features enable finance teams to update multiple transactions at once, ensuring financial statements reflect accurate, up-to-date financial data. These tools help businesses apply IFRS accounting principles efficiently, reducing time spent on manual adjustments and speeding up financial close cycles.

The conceptual framework ensures IFRS remains relevant and reliable

The International Accounting Standards Board (IASB) maintains the IFRS framework, ensuring it evolves to address modern business challenges. The conceptual framework is a guiding document underpinning IFRS principles, ensuring that financial reports provide relevant, neutral, and comparable information.

IFRS prioritizes faithful representation, requiring companies to present financial data that is complete, unbiased, and error-free. It also enforces comparability, meaning businesses must apply IFRS consistently over time so investors can analyze financial trends accurately.

Recent updates, such as changes to lease accounting, demonstrate how IFRS adapts to improve transparency. Businesses are now required to disclose lease obligations on their balance sheets, preventing hidden liabilities and ensuring investors have a clear view of financial commitments.

IFRS vs. GAAP

While IFRS is the global standard, GAAP remains the dominant framework in the United States. Both systems aim to ensure accuracy, consistency, and transparency, but they follow different philosophies in how financial information is recorded and presented.

IFRS (International Financial Reporting Standards)

GAAP (Generally Accepted Accounting Principles)

Adoption

Used in 140+ countries, including the EU, Canada, and Australia

Primarily used in the United States

Approach

Principles-based, allowing more professional judgment

Rules-based, with strict guidelines for financial reporting

Revenue recognition

Focuses on control of goods/services transferred to the customer

Follows detailed industry-specific rules for revenue recognition

Inventory valuation

Prohibits the Last In, First Out (LIFO) method

Allows both LIFO and FIFO methods

Asset valuation

Uses fair value accounting for certain assets

Primarily uses historical cost accounting

Lease accounting

Requires nearly all leases to be reported on the balance sheet

Classifies leases as operating or financing leases

Expense recognition

More flexibility in expense reporting

Strict rules on when expenses must be recorded

Financial statement structure

Less prescriptive in format but requires key financial disclosures

Standardized financial statement format with specific line items

Regulatory body

Governed by the International Accounting Standards Board (IASB)

Overseen by the Financial Accounting Standards Board (FASB)

What businesses need to know about IFRS reporting requirements

IFRS reporting is an ongoing requirement for businesses, with financial statements typically prepared annually and, in some cases, quarterly. Publicly traded companies must submit IFRS-compliant reports to regulators, investors, and other stakeholders to maintain transparency and compliance.

Some jurisdictions also require interim financial statements, ensuring businesses provide up-to-date financial information throughout the year.

  • IFRS requires standardized financial statements. Companies using IFRS must prepare four key financial statements: the balance sheet, income statement, statement of cash flows, and statement of changes in equity. These statements must provide a true and fair view of a company’s financial position. Each financial statement must be presented clearly and comparably across reporting periods. IFRS also requires additional notes to the financial statements, explaining significant accounting policies and estimates.
  • Revenue and expense recognition must align with IFRS principles. Under IFRS, businesses cannot recognize revenue until they satisfy performance obligations in a contract. This means companies must record revenue when control of goods or services is transferred to the customer rather than when payment is received. Similarly, expenses must be reported in the same period as the related revenue, following the matching principle to ensure financial accuracy.
  • Asset and liability valuation follows fair value principles. IFRS requires certain assets and liabilities to be recorded at fair value, reflecting their current market price instead of historical cost. This applies to investment properties, financial instruments, and some intangible assets, like goodwill and research and development expenses. Companies must regularly assess the fair value of these assets and adjust financial statements accordingly.
  • Businesses must comply with IFRS disclosure requirements. IFRS mandates detailed disclosures on accounting policies, risk management, and financial assumptions. Companies must explain how they recognize revenue, value assets, and calculate liabilities. If a business uses estimates, such as depreciation rates or impairment tests, it must disclose the methodology and assumptions behind those calculations.
  • IFRS compliance deadlines and regulatory oversight matters. Publicly traded companies in IFRS jurisdictions must submit annual and interim reports that comply with IFRS standards. Regulators in different countries set specific filing deadlines, and missing them can lead to penalties, fines, or investor distrust. To ensure continuous compliance, businesses must stay updated on IFRS amendments issued by the International Accounting Standards Board (IASB).

Why adopting IFRS is a strategic advantage for businesses

IFRS is a global financial language that helps businesses operate seamlessly across borders. Companies in over 140 countries use IFRS to ensure transparency, consistency, and trust in financial reporting. Adopting IFRS means businesses can compete in international markets, attract global investors, and simplify compliance with financial regulations.

Adopting IFRS also brings operational advantages by improving financial accuracy, risk management, and decision-making. Companies that embrace automation in their accounting workflows can simplify compliance, reduce manual errors, and accelerate financial reporting.

Ramp helps businesses streamline IFRS reporting by automating transaction categorization, syncing real-time data with ERP systems, and ensuring financial statements remain audit-ready.

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Ken BoydAccounting and finance expert
Ken Boyd is a former CPA, accounting professor, writer, and editor. He has written four books on accounting topics, including The CPA Exam for Dummies. Ken has filmed video content on accounting topics for LinkedIn Learning, O’Reilly Media, Dummies.com, and creativeLIVE. He has written for Investopedia, QuickBooks, and a number of other publications. Boyd has written test questions for the Auditing test of the CPA exam, and spent three years on the Audit staff of KPMG.
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