What is IFRS? Its Requirements, Role and Benefits
International Financing Reporting Standards are the accounting regulations and rules laid down by the International Financing Reporting Standards (IRFS) Foundation and the International Accounting Standards Board. These accounting rules and regulations should be followed while making a detailed report on all the financial transactions of a business.
IFRS has been set in order to have a uniform, high quality, comprehensible, and internationally approved and accepted set of rules and regulation when it comes to accounting, reporting, and publishing financial statements. Under IFRS, all companies that are accountable to the public and other financial institutions are required to prepare and publish their financial statements in a report that is made in accordance with the rules and terms as mentioned in the global accounting standards.
What are the requirements of IFRS?
According to the IFRS, business entities in Dubai must have the following statements in their financial reports to meet the standards as specified by the global accounting rules and regulations –
- Every Dubai business entity that is registered under the IFRS, must publish a financial report in accordance with the set standards at least once a year.
- A balance sheet or statement of financial condition by the end of the financial period, which will furnish all the financial balances of the business reflecting the ownership: whether the business entity is a partnership, sole proprietorship, private company limited, a corporation or a governmental/ non-profit entity.
- A statement of changes in equity furnishing the details about the business’s share capital retained profits and loss, and income reserves. If the company’s ownership is not a sole proprietorship, statement of changes in partner’s equity or shareholder’s equity or taxpayer’s equity for the respective financial period must be mentioned in detail clearly.
- A cash flow statement that highlights the changes in the financial balances of a business individual or organisation and Cash and Cash Equivalents (CCE) like investments. The flow of cash that is going out and coming in the business should be made noticeably clear.
- A profit and loss account or a statement of comprehensive income for the respective financial year must be added. This statement can have two components – one, the income statement stating the revenue and expenses incurred by the company that period and two, a comprehensive income statement of all other aspects like profits or losses on properties, foreign operations, and other investments.
- Financial notes or any additional information that is added to the financial report stating all the accounting policies that have been practiced and any new policies that have been incorporated recently.
- If new accounting policies have been adopted, financial statements of the period before the implementation of the policy and the financial statements of the period after the implementation of the policy must be attached.
Role of IFRS
The role of International Financial Reporting Standards for businesses in Dubai is extremely crucial. Following points will intimate you regarding the importance of the IFRS for businesses in Dubai: –
- To bring accountability and transparency in the processes of finance accounting and auditing in Dubai, UAE.
- To bring uniformity and consistency in the accounting practices all over the world so that accounting policies can be better understood of one company to another in one country to another.
- IFRS play a huge role in investments of a company as the company’s annual financial report helps investors in analysing and investing according to the transparent business practices and policies.
- It also plays a huge rule in widening the horizons of the economy by helping domestic companies in getting foreign investments.
Benefits of IFRS
Here are some of the major benefits that can be availed by businesses in the UAE through the implementation of the IFRS: –
- IFRS saves time and reduces costs as companies no longer have to make multiple reports for multiple standards. They just have to make a report for IFRS, which serves as a global standard.
- Since IFRS is a global standard, foreign investments are now easily possible. The accounting details and practices in Dubai, UAE followed by a company can attract foreign investments easily.
- The more comprehensible and high-quality data in the financial reports will lead new investors to chip in domestic and foreign companies.
- It will be a lot easier for companies to manage their agencies and subsidiaries as everyone will now under be one set of standards and rules.
- There will be total transparency among business companies which will allow no discrimination and domination of a few.
- It helps in making accounting practices more flexible and principled – companies and the business now have the authority to adopt policies that will lead to a reasonable and standard valuation.
Many countries have adopted the International Financing Reporting Standards and many countries, including the U.S ha not yet enrolled under the scheme but is analysing and watching it closely. But the future of the policy certainly looks promising for the UAE with businesses striving to go global.
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What is IFRS? Its Requirements, Role and Benefits