Once again, I am back with financial accounting, but this time it is about something I respect and agree with, International Financial Reporting standards (IFRS). The way I see it, there is always a need for people who have the same purpose and similar belief systems to have one language they recognise and can understand wherever they are, and this is how I interpret the international financial reporting standards and Generally Accepted Accounting Principles. I will do my best to break it down a bit more.
Generally, financial Reporting standards are a set of principles and guidelines used by an organisation to present its financial statements to the public or the individuals who make use of these reports and its primary objective is to provide information that enables all stakeholders make informed decisions. There are several financial reporting frameworks used globally by accountants but the most popular are International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). Financial reporting standards help ensure that financial statements are prepared in a reliable and consistent manner that makes it comparable across industries and jurisdictions. Some of the importance of the framework are.
- Globalization: The world has become more of a global economy, and it only makes sense that to help improve cross-border investments a common reporting framework is adopted. This enables investors and businesses compare financial statements from different countries across the globe and make informed financial and investment decisions.
- Efficiency: For Multinational companies, it takes away the complexity of having several different standards of financial reporting across their companies in different countries, resulting in more efficient and effective financial reporting, which can help them make better business decisions and improve their overall performance.
- Transparency: A unified financial reporting standard helps to provide an accurate representation of a company’s financial position and performance, and this promotes transparency, which is essential for building trust and confidence in financial markets
- Consistency: It ensures that financial statements are prepared the same way every time and everywhere in the same format. This makes it easier for investors, analysts, and other stakeholders to compare financial statements across different industries and countries.
- Compliance: It ensures that companies must comply with the same standards, and this helps to ensure adherence with generally accepted accounting principles, thereby reducing the risk of fraud and misrepresentation
I recall when the Asset Management Arm of my organisation first adopted and claimed compliance with the Global Investment Performance standards (GIPS)of the CFA Institute Global (which means complying with best practice in the management and reporting of your portfolio performances). Being the first company in Nigeria to adopt the standards we were extremely proud of our hard work, and I was particularly proud as it reiterated the values, I had always known we had as a firm and how it resonated with my personal values. In my opinion having a unified framework for reporting financial statements and portfolio returns is highly underrated and cannot be overemphasized. Imagine if everyone managed and computed portfolio returns using a framework that could be interpreted by investors and all stakeholders, this would improve transparency within the industry and build investor confidence.
INTENSIVE WEEK