During the next year or two you will increasingly see the letters IFRS which stand for International Financial Reporting Standards. That is because the
There are a number of reasons why a business owner should care about the differences between the two accounting standards. Today’s post is intended to introduce you to the overall concept and let you know what the very high points of the change means.
First of all, the
The IFRS is an equally comprehensive but different set of principles promulgated by the IASB, or International Accounting Standards Board. When GAAP and IFRS financials are placed side by side for the same company and the same period of time, there are some areas where a typical company will look better under IFRS and other areas where management will be disappointed. Over time, proponents of changing to IFRS say these discrepancies will work themselves out.
There are a number of reasons this author believes the
Very large publically held multi-national companies are being encouraged to voluntarily adopt IFRS beginning this year. In 2011, the SEC will make a ruling on about a possible mandatory conversion.
The London based IASB is working with American accounting groups to integrate and improve a number of accounting treatment methods that, according to the U.S. accounting community aren’t as good as GAAP treatment.
Many in the
Publically held companies will be the first to feel the effects and pay the costs of converting their accounting presentation to IFRS. Smaller companies are currently expected to provide their banks GAAP compliant financial statements (often reviewed or audited). It is currently unclear how bank credit departments and other users of a small or medium sized business financials will change their requirements, but if the momentum gains steam it will likely be a requirement 2, 3, or 4 years down the road to provide IFRS compliant financial statements.
Again, I want to emphasize that this is not an imminent change that you need to worry about right now, but successful owners and managers of small and medium sized businesses will keep this issue on their radar screen and periodically assess how far into the conversion the