The International Financial Reporting Standards, or IFRS, were put in place by the International Accounting Standards Board (IASB) as a way to level the playing field in global markets. By setting the same standards for reporting and financial transparency, the IFRS can help to make communication, comparison, competition, and trade easier on an international level.
In their own words from their official site, “Our mission is to develop International Financial Reporting Standards (IFRS) that bring transparency, accountability and efficiency to financial markets around the world. Our work serves the public interest by fostering trust, growth and long-term financial stability in the global economy.” This is done through their three-tiered approach of transparency, accountability, and efficiency.
The only real way for new corporations to make it big is to make themselves available for public investing and trading. Being a key player on the stock market is best done when a company is willing to be transparent about assets, trends in the company, and market information that is critical to their role in the global market.
When polled, many people working on the stock exchange feel that this is the number one thing missing in the economy of this country. Companies that have not adopted the IFRS are not held to these same standards, and the lack of transparency can be very hard on those researching investment opportunities.
One main tenet of the IFRS is to ensure that all companies adopt the principle of being transparent and honest. Companies that abide by these standards will be easier for potential investors to take an interest in with knowledge and information to back up their decision making process.
This country has seen some disgraceful examples of what happens when corporations are not made to be accountable for their mistakes and poor judgement in certain areas. This is something that will always happen, but the IFRS is there to make sure that people are aware of how a company will handle such situations before they invest in those stocks.
There are a few ways that they do this, but the main item that offers the most promise for accountability is that the “standards provide information that is needed to hold management to account. As a source of globally comparable information, IFRS is also of vital importance to regulators around the world.” Compliance with these regulations will ensure the right kind of accountability in most situations.
By creating a set of standards that has to be met by all companies across the board, the IFRS help companies be more efficient. Their mission statement says: “For businesses, the use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs.”
Having a good DMS program set to allocate all needed information and documents to the right places will help any company stay within compliance of INFRS and will handle it all in a very efficient way. Organization is the key to success in many different corporate arenas, and these standards aid in this goal of better organization and increased efficiency.
SEC Might Support IFRS
Recently, the IFRS made waves in the media outlets when the Securities and Exchange Commission, or SEC, announced that they were considering supporting the IFRS. Accounting Today ran a story stating that: “Securities and Exchange Commission chair Mary Jo White said the SEC is considering a recommendation from SEC chief accountant James Schnurr that would allow for the supplemental use of International Financial Reporting Standards by U.S. companies in addition to their U.S. GAAP financials.”
The United States is currently one of the major world economies that has not officially jumped on board with the IFRS. Many companies based in the US have adopted the standards as it is a good way to boost their place in the global market, but it is not required by law.
This decision by the SEC could possible move many more corporations in the country to take on the IFRS on at least a supplemental basis. Other experts in the industry are predicting that this could make a permanent change in the way the country views and utilizes these global standards. Many of these same experts feel that the adoption of such transparent and accountability enhancing standards could actually strengthen the economy in this country.
It is important to note that for many companies, the switch to meeting compliance with these standards would take a lot of time and would require a substantial financial sacrifice. The ability to function on a wider scale such as participating in the international market would surely make the sacrifice more of an investment, but it is still important to remember. This is not something that every corporation is automatically set up to handle. The push to make these standards more main stream could cause a financial strain on many companies that might not be able to recover fast enough to enjoy the benefits of trading in a global field. This is a very real danger that has to be carefully considered before such standards are made into corporate law in the country.