IFRS stands for International Financial Reporting Standards and it something you can use for your private unlisted small or medium sized business, but the key questions are, what exactly is it and does it apply to your small or medium company?

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⏱️ Time Stamps:
0:00 - Introduction
0:50 - What is IFRS?
1:10 - Difference between IFRS and Local GAAP
3:07 - Purpose of IFRS
5:24 - IFRS and your small or medium sized business

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IFRS is like a dialect of accounting. Whilst accounting and numbers are the language of business, there are dialects of accounting known as accounting standards, basically principles and rules.

Here in the UK, for many years UK GAAP, GAAP standing for Generally Accepted Accounting Principles was used in the production and presentation of financial statements. These financial statements included a profit & loss account, a balance sheet and quite often a cash flow statement.

The goal of IFRS was to essentially harmonise accounting standards, principles and rules into one globally accepted, understandable accounting dialect.

The key really is consistency.

To provide a little history, the development of IFRS gathered pace in the 1990s when interest was expressed by the world’s stock exchanges in a globally accepted set of accounting rules which would, amongst other benefits, make accounts more consistently prepared and hence comparable, and encourage investment on a global scale.
The European Union made a decision that from 2005 its listed companies should follow IFRS. This resulted in thousands of listed companies across the EU switching from local GAAPs to IFRS.
And with cross border transactions becoming more common than ever, IFRS certainly is the way forward for the language of accounting.

IFRS is used by listed companies in more than 140 different countries across the world. primarily to meet the needs of equity investors in large public companies.

In the past, many investment opportunities were hampered because the numbers were presented in different dialects, whether it be UK GAAP, US GAAP or any GAAP!
IFRS reporting is now the norm, rather than exception, for major companies around the world.

In 2009 the IASB, that is the International Accounting Standards Board issued the IFRS for SMEs. This is a completely stand-alone set of guidance developed specifically for smaller companies.

So what are 3 benefits of reporting in IFRS for small or medium sized businesses or an IFRS based local GAAP like FRS in the UK?

No 1 is Cross border transactions. Particularly with e-commerce trading companies and businesses with ‘international’ transactions or even subsidiaries, adopting an IFRS based approach could be beneficial in making your numbers consistent.

No 2 is Investors. If you are thinking of attracting investors into your business, then you’ll want to cast the net as wide as possible and reporting in IFRS would certainly be a positive for international investors.

And no 3 is scaling your growth. If your company starts moving up the gears from a small company to a small group up to a medium sized company and so on, certainly an IFRS based approach to financial statements will start to yield benefit as your reporting requirements will start to become more complex, especially if you are producing consolidated accounts which must be done using a uniform accounting standard.



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