Viewing the differences between IAS and IFRS


Accounting standards issued by the IASB (International Accounting Standards Board) are known as International Accounting Standards. Companies that are locally listed, as well as those that are not, are under obligation to use their financial statements in the countries that have accepted those standards.


Historically, the International Accounting Standards started in the mid-1960′s, more precisely, in 1966, with an initial proposal to enact the ICAEW, AICPA and the CICA for England and Wales, US and Canada respectively. Consequently, the Accounts International Study Group was founded in the following year, 1967, which aggressively championed for change by publishing papers on topics with great significance. As a result of these papers, the way was paved for the standards that were to come, and in 1973, an agreement was reached to establish an international body with the sole purpose of writing accounting standards to be used internationally.

In mid 1973, the IASC (International Accounting Standards Committee) was established; mandated with releasing new international standards, which would be rapidly accepted and implemented worldwide. The ISAC lasted 27 years until the year 2001, when it was restructured to become the International Accounting Standards Board (IASB).

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A series of accounting standards, known as the International Accounting Standards, were released by the IASC between 1973 and 2000, and were ordered numerically. The series started with IAS 1, and concluded with the IAS 41, in December 2000. At the time when the IASB was established, they agreed to adopt the set of standards that were issued by the IASC, i.e. the IAS 1 to 41, but that any standards to be published after that would follow a series known as the International Financial Reporting Standards (IFRS).

The Difference

The question of the differences between the IAS and IFRS has arisen on a number of occasions in accounting circles, and in fact, some would question if there is any difference at all. One of the major differences is that the series of standards in the IAS were published by the International Accounting Standards Committee (IASC) between 1973 and 2001, whereas, the standards for the IFRS were published by the International Accounting Standards Board (IASB), starting from 2001. When the IASB was established in 2001, it was agreed to adopt all IAS standards, and name future standards as IFRS. One major implication worth noting, is that any principles within IFRS that may be contradictory, will definitely supersede those of the IAS. Basically, when contradictory standards are issued, older ones are usually disregarded.


IAS stands for International Accounting Standards, while IFRS refers to International Financial Reporting Standards.

IAS standards were published between 1973 and 2001, while IFRS standards were published from 2001 onwards.

IAS standards were issued by the IASC, while the IFRS are issued by the IASB, which succeeded the IASC.

Principles of the IFRS take precedence if there's contradiction with those of the IAS, and this results in the IAS principles being dropped.

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by the International Accounting Standards Board (IASB). IFRS has been adopted by more than 12,000 companies in over 100 nations and is becoming the global standard for the preparation of financial statements of public companies throughout the world. However, in the U.S., GAAP (General Accepted Accounting Principles) is applied. Recently, the G20 leaders have called for significant progress towards moving to one set of high-quality global accounting standards. President Obama also called for one set of standards and substantial progress to be made in 2009. Now SEC is working on an updated "roadmap" that will layout a schedule and major milestones for moving U.S. towards its adoption by all U.S. public companies. There are advantages and disadvantages of converting to IFRS, and various arguments have made for and against its adoption.

A single set of accounting standards will provide comparability, and enable companies from different parts of the world to apply the same standards. It increases transparency, allowing easier cross-border investment with greater liquidity and low cost of capital. It will also cut down the time and costs of preparing financial statements according to different standards and regulations, achieving enormous savings of capital in the longer term. The transition cost is estimated to be 8 billion dollars for the entire U.S. economy, with average one-time cost of $3.24 million dollars for multinational corporations. Since the financial reports were reduced from three to one, they will save money in the long run. The adoption of IFRS and use of uniform accounting standards will also eliminate the possible different accounting results from applying different standards and help investors to pursue various strategies including global investment diversification.

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Many companies may soon be required to report in multiple accounting standards if the US does not either accept or move toward IFRS. Maintaining multiple standards reporting only increases accounting and auditing costs and provides no value to any country. Over 100 countries have adopted or in the process of adopting IFRS. Delays in adopting IFRS by the US will make multi-national companies to report their primary reports in IFRS, resulting in parallel reports in US GAAP. This will create more auditing fees and possible errors. The US should move towards the IFRS standards as a matter of urgency. As more and more countries adopt IFRS, it is in the U.S. interests to apply the same accounting standards. Most of the U.S. companies will benefit from one set of accounting standards since are multinational companies and they operating globally. IFRS will make it easier to control and monitor their subsidiaries in foreign countries and achieve cost savings from maintaining several accounting standards. It can also help to eliminate potential financial misunderstandings and simplify investment decisions.

With its strong moral standard, intolerance for unethical behavior, the US has been a world leader for centuries. Its financial and accounting standards have been used by other countries as a yardstick to measure their economic and financial success until recently. We need to be a leader and the driving force in establishing and adopting international standards. It is the time for us to get involved and play an important role in shaping the international standards. Otherwise, it will hurt us in the long run.

Competition works and is a good thing because it will ensure better quality with lower price. Competition between different sets of standards will offer the advantage of getting better information. There is really no one size fits all standards. The uniform single accounting standard can stifle innovation, ingenuity, competition, creativity and capitalism entrepreneurship. The differences between GAAP and other countries' standards can be very useful and provide insight into the reasons and values they conduct financial reporting in a particular way. By focusing on our differences, we will benefit from increased productivity, higher quality, technological innovation, thus better meet the demands of the marketplace. Switching to IFSB will give IASB monopoly status, with the potential to compromise the quality of the IASB standards.

A recent survey shows that to convert to IFRS, U.S. companies have to pay more than their European counterparts. The added benefits of comparability versus cost to implement IFRS will not justify the adoption. According to the SEC, it will cost .12% of revenues to implement the standards nationwide, which means the cost can be as high as several billion dollars. The cost to achieve the additional comparability is not worth several billion dollars. It will drain on our slowly recovering economy. From a cost benefit perspective, convergence is obviously superior to adoption.

Transition to IFRS itself can present be a lot of challenges. The economy of the U.S. is the largest in the world and nobody knows exactly the scope and magnitude of applying IFRS to such a large economy. IFRS has not been tested in any country like the U.S. On the other hand, U.S. GAAP has been evolving with various changes in the U.S. and stands the test of time, especially the frauds such as Enron and Tyco International. Enforcement can also create some problems. While the U.S. has effective enforcement, it is very challenging to implement stringent enforcement among those member countries due to the differences in economic and political system among the adopting nations and their financial reporting practices.

In summary, adopting IFRS will provide comparability, increased audit efficiency, reduced information misunderstanding and cost savings as more and more economic activities become globalized. The flip side is it will eliminate competition and incentives to innovate. The quality will suffer since compromises have to be made to achieve consensus due to various political pressures and economic interest. However many support for a move to a single set global accounting standards and it is believed that the U.S. will ultimately IFRS or have IFRS and U.S. GAAP coexist.

International Financial Reporting Standards - Advantages and Disadvantages:

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Globalization is a trend businesses cannot ignore. The transformation to International Financial Reporting Standards (IFRS) from U.S. GAAP began in early 2005, with numerous states in the European Union adopting techniques to prepare their financials in accordance with the new standards. Since 2005, many states that were planning on converting to U.S. based Generally Accepted Accounting Principles (GAAP) have switched their focus to adopting IFRS. Countries like New Zealand, Canada, and Australia have already implemented IFRS, while Japan plans to do so by 2011 and the United States by 2014; a huge change that will affect everyone.

Now that a little background has been brought to the table on the history of International Financial Reporting Standards, it is important that you know the key differences when comparing U.S. based GAAP with IFRS. To begin, IFRS does not permit Last in First Out (LIFO) as an inventory cost method. However, it is to my knowledge that only a small number of companies, about ten percent still use LIFO. IFRS ideas regarding revenue recognition are more widespread than GAAP containing very little instruction specific to each industry. IFRS uses a single-step method for impairment write-downs compared to the two-step method U.S. GAAP supports. Under the single-step method, write downs are far more likely to take place. Overall, the main and most important difference is the fact that IFRS provides much less specific detail and has fewer requirements to adhere to in reporting than GAAP does.

The main differences in International and U.S. standards create certain advantages and disadvantages. Detail has been the key factor that has made GAAP successful for so many years. Eliminating required specifics may cause uncertainty and distrust in auditing and more fraudulent scandals in the accounting world. Stockholders and lenders may lose faith as a result of this with full detail not being shown. Frightening enough, this could affect many other areas of our economy. I have never heard of anyone wanting to invest in something they do not know almost every piece of information about; the rock investments have been made on. To put it in perspective, the 'book' on Generally Accepted Accounting Principles is almost ten inches thick, while International Reporting Standards measures only between two and three.

No matter how you look at it, the main goal and reason to convert to IFRS is to put everyone globally on the same level with respect to preparing financial statements. This being said and done will allow domestic companies to present their financials on the same level as foreign competitors. Furthermore, companies with subsidiaries on other continents will be able to prepare statements in one, worldwide, universal accounting language understood by all. While it all sounds easier and less confusing, the only way IFRS will work is if firms comply one hundred percent. Not fully converting will eliminate the main goal- global comparability.

The main goal of global conversion may be hard to achieve. Many believe that U.S. Generally Accepted Accounting Principles is a tried and true standard, the foundation of U.S. accounting success. We have to question if something will be lost with the acceptance of International standards or if it could even work without complete convergence. Two problems exist that may present an issue to certain firms facing the question of whether to convert or not. Some companies may have to stick with GAAP by request of certain authorities or regulators. One would think regulations and authorities would change stance as well, but for now it is uncertain. Also, there will hardly be an incentive for companies to convert if they have no market incentive to prepare their statements this new way. For example, maybe the company deals solely in a small domestic industry. An incentive must be created. Hopefully, once a handful of firms convert, all others will follow for one reason or another.

Overall, the idea of instituting a worldwide set of standards is a bold and well thought out idea. If properly implemented, the global accounting language could entice foreign investors and create a greater interest in our economy possibly providing a stimulus. The advantages and disadvantages are quite clear; the only thing left to do is complete a global transformation. If IFRS fails and GAAP is readopted, economic instability may result. Certainly no one wants to invest in an unstable market.


Brandon Miller

International Reporting Standards Gain Global Recognition

Consider it a gift to global investors - the ability, for the first time ever, to make "apples-to-apples" comparisons of financial numbers produced by corporations, no matter where they're headquartered. That's what the International Financial Reporting Standards (IFRS) aim to accomplish. As of July 2008, for the first time since 1973 when the London-basedInternational Accounting Standards Committee (IASC) , now the International Accounting Standards Board, was established, the standards will be a global reality. These standards will be recognized globally and will be set for organizations large and small. This article will cover how IFRS stand to alter global accounting procedures and what their adoption means for financial statement analysis.

Setting the Stage for IFRS

The "coming of age" of IFRS is no yawn: in the past, investors had to look at financialsproduced by companies worldwide - particularly outside the major industrialized countries - with some or much skepticism, and question the veracity of those numbers. Could a potential stakeholder examine the financial results of a major clothing manufacturer in the United States or Canada, for instance, and compare those results with figures from competitors inChina, Thailand or Brazil to decide which organization truly represents a better investment? (For related reading, see Advanced Financial Statement Analysis.)

The answer: Not necessarily, and only with great difficulty. Many investors simply decided that only the most sophisticated analysts around the world were capable of making those comparisons and deciding who was cooking the books, sloppily managing numbers or misrepresenting the relationship between theoretically privately held companies and the governments in the countries where those companies are based.

Before IFRS, true transparency in numbers among companies worldwide simply did not exist, or was deemed possible. As a result, cross-border investments were curtailed, as was the growth of the overall global economy, particularly in emerging-market countries. In the past, investors generally chose to put their money in companies and countries where they would be most comfortable with truthfulness in accounting practices and systems and the sign-off of accounting firms standing behind those numbers. With the implementation of IFRS, this is set to change. (For related reading, see Re-evaluating Emerging Markets.)

SEC Gets With the Program 

Dramatically greater transparency appears within reach as IFRS is implemented. That's because the Securities and Exchange Commission (SEC) in the U.S. appears set to endorse the use of IFRS by both U.S.-based and overseas companies alike, either in conjunction with or instead of U.S. generally accepted accounting principles (GAAP).

In July 2007, the SEC voted to publish a concept release for public comment on allowingU.S. issuers, including investment companies, to prepare their financial statements in IFRS.

"Having a set of globally accepted accounting standards is critical to the rapidly accelerating global integration of the world's capital markets," SEC Chairman Christopher Cox said in a public statement in July 2007. 

"Today, nearly 100 countries require or allow the use of IFRS. We will be soliciting public comment … on whether U.S. companies, like many of their competitors around the world, should be permitted to use IFRS."

In 2000, 95% of 59 countries surveyed said they had adopted international standards or expected to; 39 had a formal plan to do so, according to GAAP Convergence 2000, a report from the International Forum on Accountancy Development, a group representing the world's six largest accounting firms. 

A month before that decision, the SEC proposed eliminating the requirement that foreign private issuers using IFRS reconcile statements to U.S. GAAP.

Just as important U.S. companies - without being asked for their views or input - are increasingly being required to use IFRS when reporting the financial results for their European-based subsidiaries and certain other foreign operations. That requirement is part of the European Union's decision that stated that some 7,000 publicly-held European companies had to report in IFRS by 2005. 

A number of SEC commissioners have embraced IFRS, an endorsement that appears to the stanards' success. Because of the depth and breadth of the U.S. securities marketplace, the world's largest, and because of the SEC's reputation as a fierce enforcer of securities regulations in the U.S., the SEC's support and endorsement of the IFRS standards is key to ensuring that these standards become even more widespread.  In fact, one of the greatest challenges facing global securities agencies is how to enforce IFRS around the world. (For background reading on the SEC, check out Policing The Securities Market: An Overview Of The SEC and How The Wild West Markets Were Tamed.)

Corporate Executives Ignore the Trend

While the SEC moves toward adopting IFRS, U.S. corporate executives have largely remained ignorant of their years-long evolution, confident that they will never replace U.S. GAAP. According to a survey completed in 2007 by accounting firm Grant Thornton LLP:

More than 55% of those polled disagreed with the SEC's proposal to let foreign firms file financial statements in IFRS, and almost 50% opposed letting U.S. firms with extensive overseas operations adopt IFRS instead of using U.S. GAAP. 

67.5% said they would prefer dealing with a principles-based accounting system (which IFRS is supposed to be) over the more rules-based approach of U.S. GAAP.

The study suggests that an overwhelming number of U.S corporate executives tend to turn a blind eye to IFRS; however, the largest U.S.-based companies have spoken out in favor of these accounting principles.

"One of the friction points [in global accounting] is that we currently don't have a lingua franca, a common way of talking to each other about financial statements," said Phil Ameen, vice president and controller at General Electric and one of the few U.S. executives to become involved with IFRS from the get-go. "For that reason we're enormously excited about having to learn only one set of standards."

Adds Ken Kelly, vice president and controller of spice producer McCormick & Co., "Several years ago I would have said, 'I don't need to look at this,' but the pace of change has been quick. World capital markets are moving closer together with electronics and the pace of global business; probably standards worldwide are lagging behind what the global corporate community is doing." 

Evolution Toward IFRS 

IFRS have been in development for decades - since the early 1970s, when the IASC was established in London. The IASC was started with the goal of providing a robust accounting system for  countries that don't have one of their own or lack the immediate ability to develop one. The group was replaced in March 2001 by a more robust agency, the International Accounting Standards Board (IASB), also established in London. The IASB is charged with the development of IFRS, and has worked closely with national accounting standards-setting agencies like the U.S. Financial Accounting Standards Board (FASB) in a process known as "convergence."  

Historically, individual countries have established their own versions of GAAP; there has been Japanese GAAP, French GAAP and so on. The problem with all of these varying generally accepted accounting principles is that they have differed not just in nuance, depending on the specific issue, but in many cases extraordinarily - so that accounting principles regarding derivatives, insurance or pension treatment in the U.S., for instance, have had almost no similarity to the accounting principles for the same issues in Europe, Asia or elsewhere.

Not all countries have had their own GAAP, particularly those in emerging market countries - in part because many haven't had the financial wherewithal or sophisticated home-grown accounting professions capable of putting together their own accounting regimes. As a result, they've adopted an accounting regime (or parts of an accounting regime) from an industrialized country. In most cases, however, those systems haven't been adopted lock, stock and barrel, but piecemeal - adding to investor confusion.

What gave a great boost to the continuing development of IFRS, virtually guaranteeing global acceptance, was a mandate from the European Union that companies in all member countries must report in IFRS by 2005.

Principles Vs. Rules 

While some might consider the introduction of IFRS to be just another dull accounting concern, implementation may be anything but. That's because the IASB doesn't have the power to force adoption of IFRS by fiat: No country is under any requirement to use these standards. Indeed, the introduction of individual IFRS is being done by consensus, with accounting professionals from a broad array of countries and companies participating in discussions as each new specific accounting rule is proposed. The process can take years; once a new rule is put on the table, a "request for comment" is issued globally before it becomes adopted by the IASB.

One of the continuing points of contention surrounding IFRS is whether the principles should be more "rules-based" or "principles-based." The rules-based approach often is favored by U.S.-based corporations and accounting experts; it calls for having a specific accounting rule for each and every accounting eventuality that may come along, for fear of lawsuits. The generally  far more litigious in the corporate world than any other country, and companies have liked the idea of having specific accounting rules to refer to in court to back up their accounting treatment decisions if they're sued.

In Europe and elsewhere, by contrast, where corporate litigation is far more the exception than the norm, accounting pronouncements have been much more principles-based, giving accounting professionals far more leeway regarding how to interpret the standard. In practical terms, that means that a single U.S. accounting rule can be more than a hundred pages long (the case with derivatives accounting, for instance); elsewhere, a rule on the same issue may need no more than a handful of pages.

Other key issues of disagreement:

When to mark to market assets and liabilities; companies all over the world are concerned with enormous volatility being introduced to their balance sheets depending when and how mark-to-market accounting is applied

How to estimate the fair value - the true market value - of an asset and liability, particularly in the absence of a well-known, transparent market mechanism for doing so (for instance, today's value of a stock or heavily-traded commodity)

Corporate Criticism

Just how contentious can these discussions be? Very. Consider some of the notes that the IASB received when it issued a request for comment on an exposure draft for International Accounting Standard (IAS) 37, which is to govern contingent assets and liabilities. 

In an October 2005 letter to Henry Rees, the project manager for the IASB, Loretta V. Cangialosi, vice president of Pfizer Inc. in New York called IAS 37 "non-operational, un-auditable, representationally unfaithful, abuse-prone, costly and of limited (and perhaps negative) shareholder value."

"We believe that if this standard is issued in its current form, the gap between the expected and actual quality of financial statements will grow in a manner that will not be cured, even with extensive disclosure and information," she said. "And worse, the deterioration might be visible for years." 

Other corporate executives were just as unhappy. Take sharp viewpoints like these, and the difficulty of achieving quick consensus on any single standard quickly becomes all too obvious.

For Stakeholders, It's Not Too Early To Learn

In many countries that are moving toward adopting IFRS, these won't become effective until 2012 to 2015. But as the European experience demonstrates, it's never too early to jump in.

One problem: Outside the EU, there aren't a lot of places investors and stakeholders can go for information. That's partly because - particularly in the U.S. - educating corporate financial executives is taking precedence over educating stakeholders, and the major accounting firms are just beginning to set up IFRS practices.

Nevertheless, the Big Four are training their corporate clients, and many are establishing their own newsletters/websites on the issues. Deloitte's IFRS PLUS is one of the best-known of such publications, which includes a bevy of information on how the IASB is structured, as well as detailed information about specific IAS rules and where they are in the development process. 


Savvy investment professionals - and investors - will recognize that, even though there's no hurry to get caught up on IFRS, doing so may give them a leg up early on. "Like them or not, there's no turning back," says McCormick's Kelly. "It's time for all of us to grit our teeth and dig in."