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What is IFRS? | 3 Reasons to Use for SME鈥檚 - YouTube
Channel: Accounting and Tax Academy by Tony D
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ifrs it sounds like jargon but it's an
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important concept to understand in
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accounting
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ifrs stands for international financial
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reporting standards
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and it's something you can use for your
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private unlisted small
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or medium sized business but the key
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questions are what exactly is it and
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does it apply to your small or medium
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company
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in this video i'm going to cover what
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exactly is ifrs
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the difference between ifrs and local
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gaap what is the purpose of ifrs
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why do most large companies use ifrs and
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finally ifrs and your small business
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before i get into today's video be sure
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to hit that subscribe button as well as
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a notification bell to make sure you're
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kept up to date with
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all of our latest content this really
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helps us to produce more helpful videos
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and to get you real quality advice from
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real qualified accountants
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[Music]
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now this opening section is actually
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very short but in the most simplest way
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i can actually think of
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ifrs is like a dialect of accounting
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once accounting and numbers are the
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language of business
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there are variations of the accounting
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language known as accounting standards
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basically principles and rules
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[Music]
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here in the uk for many years it was uk
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gap gap standing for generally accepted
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accounting principles was used in the
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production and presentation of financial
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statements
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these financial statements included a
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profit and loss account
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a balance sheet and quite often a cash
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flow statement
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in the u.s it was us gap in germany you
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guessed it
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it was german gap now the issue with so
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many local gaps can be compared to
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apples let's suppose uk gap is a green
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apple
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us gap a red apple and german gap a
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braeburn apple
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fundamentally an apple is an apple and
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likewise fundamentally accounting is
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accounting
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but like the apples each gap has its
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variations
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to begin with the apples are all of a
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different color they have different
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levels of firmness
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taste texture sweetness and bitterness
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each gap has
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variations like the apples and quite
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often if you were to produce the same
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set of financial statements
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using the same numbers under uk gap u.s
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gaap and german gap
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some of the key metrics like profit and
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assets would often be different for a
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given period
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therefore a set of accounts in the uk
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was not always consistent with a set of
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accounts from the usa
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as a footnote the usa has not fully
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prescribed to ifrs just yet
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instead they are taking an approach of
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convergence that is
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narrowing the gap between us cap and
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ifrs
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in fact there are a number of countries
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that apply convergence
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as they retain their own local gaps
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often for political
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legal and cultural reasons
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at the beginning of april we granted
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early access to the accounting and tax
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academy membership site
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in july of this year we're opening our
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doors to everyone
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our members will have access to in-depth
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tutorials
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free downloads and exclusive discounts
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and the best part is it's absolutely
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free to join
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head to the link in the description box
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below to register your interest today
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[Music]
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the goal of ifrs was to essentially
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harmonize
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accounting standards principles and
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rules into one
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globally accepted understandable
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accounting dialect
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the key really is consistency like our
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apples if we took the green red and
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braeburn
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and blended them together into one
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consistent apple that is enjoyed across
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the world whether you are in the uk
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us or as far afield as australia you
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know
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what you're getting when you're
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crunching into an ifrs apple
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to provide a little history the
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development of ifrs gathered paced in
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the 1990s when interest was expressed
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by the world's stuck exchanges in a
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globally accepted set of accounting
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rules
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which would amongst other benefits make
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accounts more consistently prepared
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and hence comparable and encourage
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investment on a global scale
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the european union for example made a
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decision that from 2005 its listed
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companies
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should follow ifrs this resulted in
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thousands of listed companies across the
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european union switching from local gaps
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to
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ifrs and with cross-border transactions
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becoming more common than ever
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ifrs certainly is the way forward for
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the language of accounting
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[Music]
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ifrs is used by listed companies in more
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than 140 different countries across the
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world
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primarily to meet the needs of equity
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investors in large
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public companies in the past many
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investment opportunities were hampered
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because the numbers were presented in
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different dialects
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whether it be uk gap us gap or any gap
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ifrs reporting is now the norm rather
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than the exception for major companies
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around the world
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an example of a set of ifrs compliant
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financial statements for a large bank
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here in the uk can be seen on screen
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first of all the notes of the financial
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statements
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transparently declare that the financial
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statements have been prepared
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in conformity with international
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financial reporting standards
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ifrs essentially the financial
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statements consist
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of a statement of financial position the
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statement of profit and loss
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and other comprehensive income the
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statement of changes in equity
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the statement of cash flow notes
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comprising
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a summary of significant accounting
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policies and other explanatory
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information
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and finally comparative information in
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respect of the preceding period
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[Music]
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in 2009 the iasb that is the
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international accounting standards board
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issued the ifrs for smes this is a
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completely standalone set of guidance
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developed specifically for
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smaller companies the ifrs for sme
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is only a few hundred pages long and is
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less detailed than most local gaps
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and certainly far less than the 3 000
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odd pages of principles and rules for
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full ifrs
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the ifrs for smes is available for any
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country to adopt whether or not it has
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adopted
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full ifrs so far over 80 countries have
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adopted the ifrs for smes
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for the purposes of applying the ifrs
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for smes
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an sme is not determined by its monetary
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size
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instead the definition is as follows
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smes are entities that
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do not have public accountability and
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publish general purpose financial
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statements for external users
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essentially this means that most
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non-listed organizations that are
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non-financial institutions such as banks
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or insurance companies
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are likely to meet the definition
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including small and medium private
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limited companies
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however here in the uk a new set of
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financial reporting standards
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namely frs 100 101 102 and 105
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were implemented in 2015 that replaced
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the old regime of the local uk
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gap and these frses are broadly based on
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ifrs principles
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and rather ifrs is for smes per se it is
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frs that non-listed small
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and medium-sized companies are permitted
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to use here in the uk by the frc that is
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the financial reporting council of the
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uk
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many countries like here in the uk
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require the use of
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ifrs for listed companies but allow
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local gaap which can be based on ifs
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principles
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for non-listed companies or ifrs for
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smes
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to check what your company is using
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speak to your accountant or head over to
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the accounting policy section of the
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deck
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of financial statements and it will
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highlight what standards have been used
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for your company
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so what could be three useful benefits
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of reporting under ifrs for smaller
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medium-sized businesses
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or an ifrs-based local gap like frs in
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the uk
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well number one is cross-border
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transactions particularly with the
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e-commerce trading companies
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and businesses with international
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transactions or even subsidiaries
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adopting an ifrs-based approach could be
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beneficial in making your numbers
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more consistent number two is investors
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if you are thinking of attracting
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investors into your business then you'll
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want to probably cast on that as wide as
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possible and reporting in ifrs
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will certainly be a positive for
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international investors
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and number three is scaling your growth
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if your company starts moving up the
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gears from a small company to a small
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group
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up to a medium-sized company and so on
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certainly an ifrs-based approach as
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early as possible
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to your financial statements will start
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to yield benefit as your reporting
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requirements will start to become more
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complex
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especially if you are producing
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consolidated accounts which must be done
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using a uniform accounting standard
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i hope this video has helped you
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understand more about ifrs
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that is international financial
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reporting standards and taking you one
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step closer to knowing your numbers
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as always let us know in the comments
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your thoughts on today's video or if
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there are any topics you'd like us to
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cover in the future
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finally be sure to like and subscribe as
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this really does help us to get our
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content out there
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this is tony d'angelo for the accounting
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and tax academy thanks for tuning in
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