Accounting Science

“Origin of International Financial Reporting Standards and Their Development.

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mariam elghandour

On February 17, 2025

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Financial accounting has evolved tremendously over time. With increasing globalization and interconnectedness of financial markets, the need for harmonizing accounting standards globally became apparent. This led to the journey of the Origin of International Financial Reporting Standards (IFRS), which aim to provide a common accounting language that enhances transparency, reliability, and comparability of financial data across borders. In this article, we will travel through time to trace the Origin of International Financial Reporting Standards (IFRS), observe the key stages in their development, shed light on the factors that prompted their emergence, their objectives, and their impact on financial accounting worldwide.

Early Roots: Before International Standards

Before the emergence of what we now know as the Origin of International Financial Reporting Standards (IFRS) in their current form, financial accounting was governed by a set of accounting principles and practices that varied from one country to another. In the United States, for example, Generally Accepted Accounting Principles (GAAP) were developed in the 1930s, while the United Kingdom established its own standards. Many other countries followed a mix of local and international standards.

Early Efforts to Harmonize Accounting Standards:

The idea behind the Origin of International Financial Reporting Standards (IFRS) dates back to the early 20th century, when some professional organizations, such as the Institute of Chartered Accountants in England and Wales (ICAEW), founded in 1880, and the American Institute of Certified Public Accountants (AICPA), founded in 1887, began calling for the development of international accounting standards.

Despite these early efforts, the actual work related to the Origin of International Financial Reporting Standards (IFRS) did not begin until the second half of the 20th century, with the increase in international investments and the growth of multinational corporations.

This diversity in accounting standards led to several problems, including:

Difficulty in comparing the financial statements of companies from different countries.
Inconsistency of financial information provided by multinational corporations.
High cost of financial reporting for companies operating in more than one country.
Weak investor confidence in the financial statements of companies from some countries.

The Genesis of International Financial Reporting Standards (IFRS): The Beginnings

The formal beginnings of the Origin of International Financial Reporting Standards (IFRS) can be traced back to the early 20th century, but practical steps began in 1973 with the establishment of the International Accounting Standards Committee (IASC). This committee was an independent private body based in London, with members representing professional accounting bodies from nine countries (Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom, and the United States). The committee aimed to develop high-quality international accounting standards that could be applied in various countries around the world.

The IASC issued a set of International Accounting Standards (IASs) between 1973 and 2000, which covered various aspects of financial accounting, such as:

IAS 1 Presentation of Financial Statements.
IAS 2 Inventories.
IAS 7 Statement of Cash Flows.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 Events After the Reporting Period.
IAS 16 Property, Plant and Equipment.
IAS 38 Intangible Assets.

The Standard-Setting Process at the IASC:

The process involved in the Origin of International Financial Reporting Standards (IFRS) at the IASC followed a specific process for developing standards, which included the following steps:

Identifying the Issue: The committee identified topics that needed new or revised accounting standards.
Research and Study: The committee conducted research and studies on the topic and discussed best accounting practices applied in various countries.
Issuing an Exposure Draft: The committee issued an exposure draft of the proposed standard and invited interested parties to submit their comments and suggestions.
Reviewing Comments: The committee reviewed the comments received on the exposure draft and made necessary amendments.
Issuing the Final Standard: The committee issued the final standard after it was approved by the committee members.

Restructuring and the Emergence of the International Accounting Standards Board (IASB):

In 2001, a key event in the Origin of International Financial Reporting Standards (IFRS) occurred. The IASC underwent a comprehensive restructuring process and was replaced by the International Accounting Standards Board (IASB). The Board became the body responsible for issuing International Financial Reporting Standards (IFRS).

The IASB was distinguished from its predecessor by:

A More Independent and Transparent Organizational Structure: The Board has greater independence in the standard-setting process and is funded by a wide range of international organizations and large corporations.
An Improved Standard-Setting Process, Focusing on Broad Participation by Stakeholders: The Board follows a due process for developing standards, which includes publishing exposure drafts for public comment, holding public hearings, and consulting with national standard-setters.
A Focus on Developing High-Quality, Principles-Based Standards: International Financial Reporting Standards (IFRS) focus on the general principles of accounting, rather than setting detailed rules for every situation, giving companies greater flexibility in applying the standards according to their specific circumstances.

Global Spread and Adoption of International Financial Reporting Standards (IFRS):

Since its establishment, the IASB has issued a set of International Financial Reporting Standards (IFRS) that have replaced many of the previous IASs. The Origin of International Financial Reporting Standards (IFRS) has led to widespread adoption around the world, with more than 140 countries adopting them fully or partially, including the countries of the European Union, Australia, Canada, and many countries in Asia, Africa, and South America.

Some of the key factors that have contributed to the spread of related to the Origin of International Financial Reporting Standards (IFRS) include:

Support from International Organizations, such as the World Bank and the International Monetary Fund: These organizations encouraged developing countries to adopt what would become known through the Origin of International Financial Reporting Standards (IFRS) to improve the transparency and reliability of their financial information.
The Desire of Multinational Corporations to Standardize Their Accounting Practices: Applying what would stem from the Origin of International Financial Reporting Standards (IFRS) made it easier for multinational corporations to prepare consolidated financial statements for all their branches around the world.
The Efforts of Many Countries to Attract Foreign Investment by Adopting International Accounting Standards: Foreign investors prefer to invest in companies that apply what originated from the Origin of International Financial Reporting Standards (IFRS), as these standards provide more reliable and comparable financial information.
The Recognition from many Stock Exchanges: Many stock exchanges, such as London Stock Exchange and Frankfurt Stock Exchange, allow companies to prepare their financial statements according to International Financial Reporting Standards (IFRS).

Objectives of International Financial Reporting Standards (IFRS):

To Develop a Single Set of High-Quality, Understandable, and Enforceable Global Accounting Standards: The ultimate goal, stemming from the Origin of International Financial Reporting Standards (IFRS), is to standardize the language of financial accounting globally, making it easier to understand and analyze the financial statements of companies from different countries.
To Promote Transparency, Reliability, and Comparability in Financial Reporting: The Origin of International Financial Reporting Standards (IFRS) was to help in preparing more transparent and reliable financial statements, better reflecting the economic reality of the entity, and also facilitating the comparison of the performance of companies from different countries.
To Facilitate the Movement of Capital Across Borders by Providing Consistent and Reliable Financial Information to Investors: The initiative behind the Origin of International Financial Reporting Standards (IFRS) was to encourage attracting foreign investments by providing high-quality financial information to investors.
To Reduce the Cost of Financial Reporting for Companies Operating in More Than One Country: By standardizing accounting standards, the Origin of International Financial Reporting Standards (IFRS) has helped to reduce the cost of financial reporting for companies operating in more than one country, as companies no longer have to prepare different financial statements according to the local standards of each country.
To Improve the Efficiency of Financial Markets by Providing High-Quality Financial Information that Helps Investors Make Informed Investment Decisions: International Financial Reporting Standards (IFRS) contribute to enhancing the efficiency of financial markets by providing accurate and transparent financial information that enables investors to better assess risks and returns.

Evolution of International Financial Reporting Standards (IFRS):

Since the Origin of International Financial Reporting Standards (IFRS), these standards have been continuously developed and updated by the IASB. The Board is keen to:

Review and Improve Existing Standards to Enhance Their Quality and Relevance to Users’ Needs: The Board periodically reviews International Financial Reporting Standards (IFRS) to ensure that they remain relevant to the needs of financial statement users and makes necessary amendments to enhance the quality and effectiveness of these standards.
Develop New Standards to Keep Pace with Developments in the Business Environment and Commercial Practices: The Board works on developing new standards to keep pace with the rapid developments in the business environment, such as the emergence of cryptocurrencies and e-commerce.
Convergence with Generally Accepted Accounting Principles (GAAP) in the United States to Reduce Differences Between the Two Systems: The Board seeks to achieve convergence between International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) applied in the United States, in order to enhance the comparability of financial statements of US companies and companies that apply international standards.
Cooperate with National Accounting Standard-Setters to Promote Consistency in the Application of International Financial Reporting Standards (IFRS): The Board cooperates with national accounting standard-setters in various countries around the world to ensure that International Financial Reporting Standards (IFRS) are applied consistently and effectively.
Focus on Simplifying the Standards and Making Them Easier to Understand and Apply, Especially for Small and Medium-Sized Enterprises: The Board recognizes the importance of simplifying International Financial Reporting Standards (IFRS) to facilitate their application by small and medium-sized enterprises, which may not have the same resources and expertise available to large companies.

Impact of International Financial Reporting Standards (IFRS) on Financial Accounting:

The Origin of International Financial Reporting Standards (IFRS) has had a significant impact on financial accounting around the world, leading to:

Standardization of Accounting Practices in Many Countries: International Financial Reporting Standards (IFRS) have become the primary reference for preparing financial statements in more than 140 countries.
Improved Quality and Reliability of Financial Reports: Applying International Financial Reporting Standards (IFRS) has contributed to improving the quality and reliability of financial information provided by companies.
Increased Transparency and Comparability Between Financial Statements of Companies from Different Countries: It has become easier for investors to compare the performance of companies from different countries thanks to the standardization of accounting standards.
Enhanced Investor Confidence in Global Financial Markets: International Financial Reporting Standards (IFRS) have contributed to enhancing investor confidence in financial markets by providing more transparent and reliable financial information.
Facilitated the Work of Multinational Companies: International Financial Reporting Standards (IFRS) have reduced the complexities of financial reporting for multinational companies, as they can now prepare consolidated financial statements according to unified accounting standards.
Development of the Accounting Profession and Raising the Level of Accountants’ Competence: The spread of International Financial Reporting Standards (IFRS) has led to increased demand for accountants qualified to understand and apply these standards, which has contributed to the development of the accounting profession and raised the level of accountants’ competence.

Future of International Financial Reporting Standards (IFRS):

Since the Origin of International Financial Reporting Standards (IFRS), the IASB continues to develop and update International Financial Reporting Standards (IFRS) to meet the needs of financial statement users in the changing business environment. The board aims to:

Convergence with Generally Accepted Accounting Principles (GAAP): The IASB is working with the Financial Accounting Standards Board (FASB) to reduce the differences between International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) applied in the United States, with the goal of achieving a single set of high-quality accounting standards applied globally.
Simplifying the Standards: The Board seeks to simplify International Financial Reporting Standards (IFRS) and make them easier to understand and apply, especially for small and medium-sized enterprises.
Enhancing Transparency and Disclosure: The Board focuses on enhancing transparency and disclosure in financial reports by developing new disclosure standards that meet the needs of investors and other stakeholders.
Keeping Pace with Technological Developments: The Board is studying the impact of technology on financial accounting and developing new standards to keep pace with these developments, such as standards related to cryptocurrencies and digital assets.
Sustainability and Social Responsibility: More consideration is given to these aspects within the International Financial Reporting Standards (IFRS)

Role of Technology in Applying International Financial Reporting Standards (IFRS):

Accounting software and Enterprise Resource Planning (ERP) systems greatly assist in applying International Financial Reporting Standards (IFRS) by:

Automating Accounting Processes: Software reduces human errors and saves time and effort in applying the standards, and ensures that accounting entries are recorded correctly according to International Financial Reporting Standards (IFRS).
Ensuring Compliance with Standards: Software helps ensure that International Financial Reporting Standards (IFRS) are applied correctly by providing tools to verify the accuracy of financial data and its compliance with the standards.
Easily Generating Financial Reports: Software facilitates the process of preparing financial reports according to,International Financial Reporting Standards (IFRS) including the income statement, balance sheet, and statement of cash flows.
Enhancing Transparency and Control: Software provides tools to enhance transparency and control over the application of International Financial Reporting Standards (IFRS), by tracking changes in financial data and identifying responsibility for these changes.

Examples of Applying International Financial Reporting Standards (IFRS):

IAS 1 Presentation of Financial Statements: This standard specifies how to present financial statements, including the Statement of Financial Position (Balance Sheet), Income Statement, statement of changes in equity, and statement of cash flows. This standard ensures consistency in the presentation of financial information across different companies and countries.
IAS 2 Inventories: This standard specifies how to value and present inventory in the financial statements, and stipulates the use of Inventory Valuation Methods such as FIFO (First-In, First-Out) and weighted average, and does not allow the use of the LIFO (Last-In, First-Out) method.
IAS 16 Property, Plant and Equipment: This standard specifies how to recognize, measure, depreciate, and disclose fixed assets, and ensures that all fixed assets are treated consistently.
IAS 38 Intangible Assets: This standard specifies how to recognize, measure, amortize, and disclose intangible assets, such as patents, trademarks, and copyrights.
IFRS 9 Financial Instruments: This standard specifies how to classify, measure, and present financial instruments, such as stocks, bonds, and financial derivatives.
IFRS 15 Revenue from Contracts with Customers: Defines how to recognize revenue.
IFRS 16 Leases: This standard specifies how to account for leases by lessees and lessors, and requires lessees to recognize assets and liabilities for most leases on the balance sheet.

Ethical Considerations in Applying International Standards: Since the Origin of International Financial Reporting Standards (IFRS), there have always been some ethical standards accountants should commit to. Financial reports should be made with integrity, transparency, and objectivity.

Relationship Between the Origin of International Financial Reporting Standards (IFRS) and Auditing:

The Origin of International Financial Reporting Standards (IFRS) significantly impacts the work of external auditors, as auditors must ensure that the entity’s financial statements have been prepared in accordance with these standards. Auditors evaluate the accounting policies applied by the entity, examine the evidence supporting the figures in the financial statements, and issue a report expressing their opinion on the fairness of the financial statements and their compliance with International Financial Reporting Standards (IFRS).

Conclusion:

International Financial Reporting Standards (IFRS) have come a long way since the beginning and have become the dominant language of financial accounting in most parts of the world. The continuous development of these standards and efforts to overcome the challenges facing their application are essential to ensure their continued effectiveness in achieving their objectives. The Origin of International Financial Reporting Standards (IFRS) and its development is a success story of international cooperation in the field of financial accounting, and an important step towards enhancing transparency, reliability, and the efficiency of global financial markets.