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What Are the Advantages of IFRS?

C. Mitchell
C. Mitchell

There are three primary advantages of International Financial Reporting Standards (IFRS): universality, flexibility and ease of application, and low cost threshold for compliance. They are designed to be the same no matter where or how they are applied. Organizations in adherence can be easily compared and evaluated, even though they are usually able to apply and interpret the standards according to what works best for their business. In nearly all respects, the international standards are framed as principles rather than hard-and-fast rules. This makes them somewhat flexible, as well as reducing the cost of compliance by allowing companies to exercise their own best judgment.

The International Financial Reporting Standards were drafted in part to create a single governing standard that companies around the world can follow in their accounting. Many countries already have their own generally accepted accounting principles that achieve this, but on a limited, jurisdiction-specific basis. One of the biggest potential advantages of IFRS is the creation of a uniform set of financial transparency and reporting procedures that does not change from place to place.

Woman with hand on her hip
Woman with hand on her hip

Nonetheless, only a handful of national governments mandate IFRS adherence. Were the IFRS more ubiquitously enforced, international corporate accounting could be far simpler. One of the oft-mentioned advantages of IFRS is the ease of accounting burdens on international corporations, as well as the improved ways in which multinational corporations could be compared and contrasted in terms of their overall profitability and financial accountability.

Adapting the IFRS to a given company, department, or trade scenario is relatively flexible in part because of how the IFRS are framed. Unlike many countries’ generally accepted accounting principles, which are set out as fixed mandates, the international standards are almost entirely framed as guidelines. So long as accounting teams meet the spirit of the standard, they can usually adopt any means of financial reporting and financial analysis as they please. This makes adaptability one of the most important advantages of IFRS, at least from a business standpoint. It also puts the expertise back in the hands of the corporations when it comes to knowing what is best for particular situations.

The generally low cost of compliance is another of the key advantages of IFRS. When businesses are allowed to devise their own financial analysis schemes with the financial tools that they see fit, they are often able to cut costs. They can spend time ensuring that existing practices fit within the guidelines, for one thing, rather than having to revamp their rules entirely to fit within a prescribed framework. Consultancy fees and compliance audits can also be cut back.

There are many advantages of IFRS, but as with most things, there are disadvantages, too. In some cases, the very universality, flexibility, and cost-friendliness that make the standards desirable can serve as drawbacks. Even countries adopting IFRS outright often supplement the standards with additional guidance, usually in an effort to rectify perceived flaws or minimize the areas open to potential abuse.

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