The Significance of Adopting Global Accounting Rules
International Financial Reporting Standards are the interpretations, framework, standards and accounting rules which are adopted by International Accounting Standards Board. The standards incorporate a Statement of Financial Position, statement of cash flows or a cash flow statement, a statement of recognized expense or income or a statement of changes in equity, a complete income statement and the notes which must include a summary of important accounting policies.
The standards were implanted to enhance the comparability of financial reporting of two companies based in two different countries. Therefore, the standards helped in identification of opportunities for improving financial reporting through elimination of some narrow differences that exist between the present accounting standards. These standards are utilized for establishing accounting standards that are uniform across the globe. Further, the standards have been broken down into various Statements of Financial Accounting Standards.
Statements of Financial Accounting Standards are the formal documents which provide details of guidance and accounting standards about selected accounting policies. These statements are issued to all the reporting companies that are expected to follow these standards. Moreover, such standards ensure a greater degree of corporate transparency.
The main purpose of adopting International Financial Reporting Standards is the conviction that one common accounting language across the world is essential for improving the transparency and comparability of financial reporting for the investors. Therefore, the investors would be able to compare the disclosures of companies irrespective of the base country. This would also assure the investors about transparency of financial reporting.
The assumptions underlying these accounting rules or standards are:
According to these standards, the qualitative features of a financial statement are understandability, reliability, comparability, relevance, prudence, materiality, completeness and substance. Moreover, the five essential elements of a financial statement are assets, liabilities, equity, revenue and expenses. A particular item is considered to be recognized in financial statement when it is stable, has a measurable value or cost and possesses a prospective economic benefit.
The accounting rules or standards aim at improvement of specified accounting standards, facilitate the utilization of interactive data and develop the funding and structure of international financial reporting.