IFRS A An International Standard

The IFRS is a common global financial language for business affairs that is understandable and comparable across international boundaries.

Learning Objective

  • Upon completion of this unit,

    • students will be able to discuss the purpose of the International Financial Reporting Standards (IFRS)




Key Points

    • The IFRS began as an attempt to harmonize accounting across the European Union, but the value of harmonization quickly made the concept attractive around the world.
    • The Conceptual Framework for Financial Reporting states the basic principles for the IFRS.
    • The IFRS defines the objective of financial reporting as reflecting an accurate view of the business affairs of the organization.
    • The IFRS sets forth three basic accounting models and underlying assumptions of financial reporting.




An International Standard

Many countries use or are moving towards using the International Financial Reporting Standards (IFRS), which were established and maintained by the International Accounting Standards Board (IASB). In some countries, local accounting principles are applied for regular companies, but listed or larger companies must conform to the IFRS, so statutory reporting is comparable internationally, across jurisdictions .

IFRS in Developing Countries

A map of developing countries, without the least advanced countries and the failed countries.

IFRS Defined Objective of Financial Statements

A financial statement should reflect true and fair view of the business affairs of the organization. As these statements are used by various constituents of the society/regulators, they need to reflect an accurate view of the financial position of the organization. It is very helpful to check the financial position of the business for a specific period.

Three Basic Accounting Models

  1. Current Cost Accounting, under Physical Capital Maintenance at all levels of inflation and deflation under the Historical Cost paradigm as well as the Capital Maintenance in Units of Constant Purchasing Power paradigm
  2. Financial capital maintenance in nominal monetary units, i.e., globally implemented Historical cost accounting during low inflation and deflation only under the traditional Historical Cost paradigm
  3. Financial capital maintenance in units of constant purchasing power, i.e., Constant Item Purchasing Power Accounting – CIPPA – in terms of a Daily Consumer Price Index or daily rate at all levels of inflation and deflation under the Capital Maintenance in Units of Constant Purchasing Power paradigm and Constant Purchasing Power Accounting – CPPA – during hyperinflation under the Historical Cost paradigm.


Three Underlying Assumptions

  1. Going concern: for the foreseeable future an entity will continue under the Historical Cost paradigm as well as under the Capital Maintenance in Units of Constant Purchasing Power paradigm
  2. Stable measuring unit assumption: financial capital maintenance in nominal monetary units or traditional Historical cost accounting only under the traditional Historical Cost paradigm.
  3. Units of constant purchasing power: capital maintenance in units of constant purchasing power at all levels of inflation and deflation in terms of a Daily Consumer Price Index or daily rate only under the Capital Maintenance in Units of Constant Purchasing Power paradigm.


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