IFRS: definition, using and features

International Financial Reporting Standards (IFRS) represent a set of standardized principles and regulations for the preparation of financial reports by companies. Due to their unified structure and consistent standards, investors are able to compare the financial performance of companies across various countries, facilitating the global movement of capital.

IFRS is used in 167 countries around the world, although it is not mandatory in all of them. The United States, China, Japan, and Canada have their own principles and regulations for preparing financial statements that conform to IFRS standards. In Russia, the implementation of IFRS started in 2010, with the introduction of Federal Law No. 208-FZ “On Consolidated Financial Statements”. Only financial institutions and certain state and unitary entities were initially required to prepare financial statements in accordance with IFRS requirements. Since 2014, all companies whose securities are listed on organized trading platforms and those with state involvement have been required to maintain and publish IFRS-compliant reports.

Currently, consolidated financial reports under IFRS are prepared by:

1. financial institutions,
2. state-owned enterprises,
3. joint stock companies with state ownership,
4. companies whose shares are traded on organized exchanges in Russia.

IFRS provides investors with the opportunity to compare financial performance across different countries. However, due to variations in tax policies and accounting systems, IFRS represents a framework of generally accepted accounting principles rather than a single, rigid regulatory standard. The core philosophy behind IFRS emphasizes economic substance over strict formalism.

Some significant IFRS standards include:

• the going concern assumption. The going concern assumption assumes that a company will continue operating as usual in the foreseeable future.
• the accruals principle. The accruals principle dictates that significant events occurring during a reporting period must be recorded in financial statements, even if their impact on financial results is not immediate. For instance, a company may establish a reserve for potential liabilities arising from an increase in a foreign currency’s exchange rate.

Additionally, the IFRS financial statements should include notes and a disclosure of accounting policies. The company’s notes provide detailed explanations and clarifications of items in the financial statements. The disclosure of accounting policies explains the basis on which certain items are included in each section of the financial statements and provides information on the specific accounting policies used by the company.

IFRS financial reporting includes four primary forms:

1. the balance sheet – presents the company’s assets, liabilities, and equity
2. the statement of comprehensive income – can be separated into a profit and loss statement and statement of other comprehensive income
3. the statement of changes in equity – details the change in net equity value for the company’s shareholders
4. the statement of cash flows – reports on the company’s inflows and outflows of cash.

In Russia, in addition to International Financial Reporting Standards (IFRS), Russian Accounting Standards (RAS) are also applied. These standards are mainly used for tax purposes. The main differences between IFRS and RAS relate to the way they regulate, consolidate, classify, value, and apply professional judgment in accounting. IFRS offer more flexibility in terms of accounting based on the economic sense of transactions, while RAS strictly regulate every aspect of financial reporting and documentation.