What is IFRS? What does IFRS mean? Why do audit reports need to be converted to IFRS? And how important are these standards? Let’s find out with our company right in this article!

1. What is IFRS?

IFRS (International Financial Reporting Standards) is known as the international financial reporting standards, including accounting standards issued by the International Accounting Standards Board (IASB) with the set goal common rules for uniform, transparent and comparable financial reporting around the world.

IFRS defines how companies maintain and report their accounts, identifying other types of transactions and events that have a financial impact. The International Financial Reporting Standards (IFRS) were established to create a common accounting language, so that businesses and their financial statements can be consistent and reliable from company to company. another, country to country.

2. Importance of IFRS

International Financial Reporting Standards – IFRS is of great importance in a period of deep economic integration and development.

• Create a common accounting language and an international framework for the preparation and presentation of financial statements in a consistent and reliable way around the world;
• Helping all businesses, organizations, investors, auditors and accountants in the world to understand, use and have an overview of corporate and organizational finance;
• Helps to reasonably reflect the values ​​of organizations and enterprises, more than individual accounting standards of each country such as Vietnam Accounting Standards (VAS) of Vietnam and old international accounting standards such as IAS (1973 – 2000);
• Save the cost of converting financial statements for companies and businesses with branches in many countries. By following IFRS standards, organizations and businesses can simplify accounting procedures in a common language.
• There are many countries in the world that have begun to mandate or plan to move to IFRS international standards. In 2016, more than 100 countries requested or authorized the use of International Financial Reporting Standards (IFRS). As of April 2018, according to IFRS.org, up to 144/166 surveyed countries (accounting for 87%) have mandated the use of international accounting standards IFRS. Most of the remaining 22 countries are either on track to implement or have already approved IFRS.
• Following the trend, Vietnam will move to 2020 applying 20 simple IFRS standards and from 2025 to apply IFRS in Vietnam based on the orientation of the Ministry of Finance.

With this importance of issue, not only accountants and auditors who want to work in multinational companies need to understand what IFRS is, but everyone who wants to work in the field of Accounting – Auditing – Finance needs to understand what IFRS is. – Taxes in Vietnam need to understand what IFRS means to catch up with the trend of converting from Vietnamese Accounting Standards (VAS) to IFRS according to the Ministry of Finance.

3. Why is there a transition from IAS to IFRS?

There used to be international accounting standards (IAS) but why is there a transition to IFRS. There are three possible explanations for this:

3.1. The original price principle is no longer relevant in the current context

Indeed, the IAS is mainly based on the original price principle. Meanwhile, IFRS leans towards the principle of fair value.

Currently, financial instruments, especially derivatives, information technology change every second, and the investment in value-added fields … is increasing. This makes the difference between the original price and the actual value of assets and liabilities increasingly distant. Therefore, the original price principle is no longer relevant in the current context.

Although the IAS also has fair value principles in some standards. But, these are assessed as not enough, do not solve many problems, difficult to think and synchronize.

Therefore, International Financial Reporting Standards (IFRS) were born as a necessity to help accurately represent the fair value of assets and liabilities.

3.2. Inadequacies in the conversion between the accounting standards of each country and IAS

Previously, despite having IAS, countries had their own accounting standards that needed to be followed. This creates a significant disadvantage for companies operating in many countries or in the case of companies established in one country but listed on the stock exchange in another country.

For example:

Company A is incorporated in the EU, prepares its financial statements in accordance with IAS. However, Company A is listed on the US stock market. This causes company A to convert its financial statements in accordance with US accounting standards. Differences and differences between these two accounting standards cost company A a lot of time and money to convert financial statements.

Or multinational companies with a parent company located in one country and subsidiaries located in another. Making consolidated financial statements according to accounting standards in the parent company’s country will be difficult because each subsidiary located in a different country from the parent company has different accounting standards.

Therefore, the shift to a common standard like IFRS is essential to save society’s resources and help increase information transparency.

3.3. IFRS is an attempt to change from harmony to convergence

Indeed, in the past, people working in the Accounting – Auditing – Finance – Tax industries would often talk about how the accounting standards of one country can be harmonized with other countries. This means that standards are much different and we are moving towards reconciliation.

Meanwhile, IFRS was born as an effort to help countries’ accounting standards get closer to each other. And in the future, accounting standards may meet, converging at a point.

In a nutshell, IFRS is understood as accounting standards in financial reporting that are commonly used by many countries around the world to remove barriers to differences in previous accounting standards, supporting transparency. , reliable for businesses. And IFRS has a great importance in the integration period like today.

Hopefully, through our answers about what IFRS is and the importance of IFRS today, it will answer your questions. Please contact us immediately for advice and support in converting financial statements to IFRS!

IFRS Auditing and Consulting Company Limited
The company provides a wide range of services such as audit of financial statements, tax advice, accounting services and valuation services with leading experts working in large auditing firms, multinational corporations