The International Financial Reporting Standards, or IFRS, is a set of principles, designed by the International Accounting Standards Board (IASB), with the goal of creating a global accounting language. The basic idea behind the IFRS is to take the processes that companies around the world use to maintain and track their accounts and make them consistent (or at least comparable) across the board. This consistency or comparability increases the feasibility of international trade, business, and investing because it allows people from different countries to better understand the finances of foreign, publicly traded companies.
The Spread of IFRS
Though referred to as an international or global standard for financial reporting, IFRS is not universally adopted—at least not yet. As an independent body, the IASB has no power to demand that any country must adopt IFRS—let alone all of them. However, many countries have adopted IFRS as their financial reporting standard, including (but not limited to) Australia, Canada, India, Malaysia, Turkey, South Africa, and Russia. As of 2005, the European Union has demanded all publicly listed companies to comply with IFRS principles.
In each of these countries, publicly traded companies are legally required to prepare financial reports utilizing the IFRS system. Since IFRS is not just used as a standard for financial reporting, but also for auditing of a public company’s finances, businesses that trade publicly must comply with IFRS to remain above board.
There is one country that has very notably not adopted the International Financial Reporting Standards, and that country is the United States. Though rumors have circulated for years that the SEC was “moving toward” an adoption of IFRS, those rumors have not yet turned to concrete fact. As of now, the United States instead requires GAAP, or “Generally Accepted Accounting Principles,” as the standard for accounting and financial reporting.
GAAP, while not in line with IFRS, is thought by some to be the superior financial reporting standard simply because it is more detailed and rule-based. As a result, there is no telling when or if the United States (or, more specifically, the SEC) may adopt IFRS. That being said, some United States companies that trade internationally utilize both GAAP and IFRS to ensure that foreign investors, partners, or clients have access to financial reports that they can understand.
And while the SEC doesn’t require United States businesses to use IFRS principles, the agency does expect foreign companies who trade equities in the US to submit IFRS taxonomy information as a regulatory measure. (IFRS taxonomy is the system that allows businesses to transmit financial reports via the Extensible Business Reporting Language, an XML-based technology.)
The Document Management Facets of IFRS
All told, the International Financial Reporting Standards go far beyond document management in scope. Perhaps the most important aspect of the IFRS is how the standards instruct companies about the data that should be included on financial reports—including information about assets, equity, and more.
However, the IFRS principles do address document management in terms of standards on document retention and destruction. In some countries, IFRS simply reinforces laws that are already in place on these subjects. In other countries, it provides new standards where there are no document retention or destruction laws. The goal of these policies is to provide across-the-board policies for how companies retain and archive documents to keep track of their financial activities. As with any other document retention standard, the IFRS gives companies a guideline for how long they need to hold on to certain types of files, or for when and how more sensitive documents should be deleted or destroyed.
How DMS Can Make Complying with the IFRS Easier
If your business operates overseas or is traded publicly in a foreign country, then you are likely already using IFRS as a primary or supplementary financial reporting standard. Having document management software (DMS) can help you comply with many of the principles laid forth by the IFRS, giving easier access and collaboration tools for files that may need to be altered to meet IFRS standards instead of GAAP standards. For instance, these two financial reporting standards generally require slightly varied contract templates. A DMS system where you store and update all of your company’s files, forms, and other data in one place makes keeping multiple versions of contracts easy—ideal if you operate multi-nationally and need to comply with more than one financial reporting standard.
Document management software can also help your business comply with the document retention and destruction principles established by the IFRS. DMS like eFileCabinet, for example, allows businesses to automate the deletion, movement, or archival of certain files at certain times. So, if the IFRS requires your business to keep a certain financial reporting document on hand for five years, you could configure eFileCabinet to delete that file automatically on a date 5 years in the future. You could also tell the system when to move the file from an accessible folder into an archive drawer if such a transfer were necessary.
Are you interested in learning more about eFileCabinet’s document retention features, or about why document retention is so important that accounting standards like GAAP and IFRS feature sections requiring its implementation? Click here to read our blog on the matter.