International financial reporting standards, also known as IFRS, are international accounting standards developed by the International Accounting Standards Board (IASB). The IASB is an independent international organization working to improve and standardize the preparation and release of important international financial information. With the increase of companies conducting business in a global environment, the international financial reporting standards framework was developed to ensure standardized accounting principles exist for companies with domestic and international business operations. United States (U.S.) companies are still required to use generally accepted accounting principles (GAAP), although they can report their global financial information under the international framework as well.
The IASB is the international equivalent of the U.S. Financial Accounting Standards Board (FASB). The IASB is a private, nonprofit organization responsible for assessing the financial needs of the global business environment and developing accounting standards that meet the needs of bankers, investors and other stakeholders. The IASB has 15 board members that help guide and direct the organization on which international accounting situations should be addressed through international financial reporting standards. The IASB creates the standards using two basic assumptions: accrual basis and going concern. The accrual basis requires companies to record transactions as they occur; a going concern means the entity will continue into the foreseeable future.
International financial reporting standards are created using a due process that was developed and is monitored by the IASB. When developing new standards, the IASB considers the relevance of information released to users, determines whether a current guideline exists for the specific accounting information, assesses the possibility of creating a quality accounting standard and identifies constraints that might exist. This process may be time consuming since the IASB must consider all the countries that use international financial reporting standards for reporting accounting information. The IASB usually allows individuals in the international accounting community to provide input and comments during the due process phase. This review and comment process allows the IASB to modify potential accounting rules prior to releasing them as official reporting standards.
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The IASB and FASB have been working on a convergence process to create a universal, global set of accounting principles. This convergence process is attempting to merge the international financial reporting standards and GAAP to create one set of accounting principles companies can use when reporting financial information. While most U.S. companies must use GAAP for reporting financial accounting information domestically, foreign countries are commonly adopting international financial reporting standards for their standard accounting principles overall. These dual accounting principle guidelines mean U.S. companies must spend more time developing international financial statements and translating financial information to meet the specific needs of domestic and international users of financial information.