The most widely used language in communication today is English. Using this language allows people easy access to a wide range of knowledge and facilitates communication between people from different countries.
In the field of finance, IFRS is the common language used so that businesses and financial accountants in one country can read and understand financial reports from other countries when "exchanging" information.
What are IFRS?
IFRS (International Financial Reporting Standards) These are known as the International Financial Reporting Standards, comprising accounting standards issued by... International Accounting Standards Board (International Accounting Standards Board – IASB) aims to set common rules for financial reporting. unified, transparent , and comparable Worldwide. Creating a global accounting language helps financial reports become transparent, consistent, reliable, and accessible across countries and regions, making them universally recognized and easily analyzed and referenced.
IFRS defines how companies maintain and report their accounts, identifying the types of transactions and other events that have a financial impact. International Financial Reporting Standards (IFRS) were established to create a common accounting language, so that businesses and their financial reporting can be consistent and reliable from company to company, and from country to country.
International Accounting Standards Board (IASB)
The International Accounting Standards Board (IASB) comprises a group of independent experts from diverse fields, including accounting standards development specialists, auditors, accounting trainers, and experts in the preparation and practice of financial reporting. Furthermore, as required by the IFRS Foundation Constitution, these experts must come from diverse geographical regions.
The Committee members are responsible for developing and publishing IFRS Standards, including IFRS Standards for small and medium-sized enterprises. The Committee is also responsible for approving the IFRS Guidance developed by the International Financial Reporting Standards Interpretations Committee (IFRIC). Committee members are appointed by the Fund's Commissioners through open and rigorous recruitment programs.
Why the transition from IAS to IFRS?
International Accounting Standards (IAS) existed previously, but why the transition to IFRS? There are three reasons for this:
The principle of cost price is no longer appropriate in the current context.
IAS is primarily based on the historical cost principle, while IFRS leans towards the fair value principle.
Currently, financial instruments, especially derivatives, information technology are constantly changing, and investments in value-added sectors are increasing. This leads to a growing difference between the original cost and the actual value of assets and liabilities. Therefore, the original cost principle is no longer appropriate in the current economic context.
Although IAS includes the principle of fair value in some standards, these are considered insufficient, failing to address many issues, and difficult to understand and standardize.
Therefore, International Financial Reporting Standards (IFRS) emerged as a necessity to help accurately reflect the fair value of assets and liabilities.
Shortcomings in the conversion between national accounting standards and IAS.
Previously, despite the existence of IAS, each country had its own accounting standards that needed to be followed. This created a significant drawback for companies operating in multiple countries. Even a company incorporated in one country but listed on the stock market in another country posed an obstacle to evaluating the information presented and consolidating reports.
Therefore, switching to a common standard like IFRS is essential to save societal resources and increase information transparency.
IFRS is an attempt to shift from harmonization to convergence.
Previously, those working in accounting, auditing, finance, and taxation would often discuss how to harmonize accounting standards between different countries. This meant that standards differed significantly, and we were striving for harmonization.
Meanwhile, IFRS was created as an effort to bring the accounting standards of different countries closer together. And in the future, these accounting standards may converge at a single point.
In summary, IFRS refers to accounting standards for financial reporting that are commonly used in many countries around the world to eliminate the differences between previous accounting standards, supporting transparency and reliability for businesses. IFRS is of immense importance in the current era of integration.
The importance of IFRS in the current context
International Financial Reporting Standards (IFRS) are of immense importance in this era of deep economic integration and development.
- To create a common accounting language, an international framework for preparing and presenting financial reports in a consistent and reliable manner worldwide;
- To help businesses, organizations, investors, auditors, and accountants worldwide understand, utilize, and gain a comprehensive overview of corporate and organizational finance;
- It helps to reflect the true value of organizations and businesses more accurately than individual national accounting standards such as Vietnam's Vietnamese Accounting Standards (VAS) and older international accounting standards like IAS (1973-2000);
- IFRS standards save companies and businesses with branches in multiple countries the cost of converting financial statements. By adhering to IFRS standards, organizations and businesses can simplify accounting procedures using a common language.
- Many countries around the world have begun to mandate or plan to transition to International Financial Reporting Standards (IFRS). In 2016, more than 100 countries required or permitted the use of International Financial Reporting Standards (IFRS). As of April 2018, according to IFRS.org, 144 out of 166 surveyed countries (87%) had mandated the use of IFRS. The majority of the remaining 22 countries are in the process of implementing or have already permitted the use of IFRS.
- Currently, Vietnam began translating IFRS in 2020 and published the translation in 2021. Implementation period Voluntary IFRS adoption will take place from 2020 to 2025, and after 2025, IFRS will be applied in Vietnam according to the direction of the Ministry of Finance.
Given its importance, while understanding IFRS is essential for those working in multinational corporations, it can now be applied to a wide range of businesses. Therefore, professionals in accounting, auditing, finance, and taxation in Vietnam need to understand what IFRS means to keep up with the Ministry of Finance's transition from Vietnamese Accounting Standards (VAS) to IFRS.