In the world of corporate finance, International Financial Reporting Standards (IFRS) compliance is a decision by a company, organization, or government to follow and enforce a certain set of unified accounting principles. Compliance usually goes far beyond simply deciding to adhere, however. In practice, financial standards compliance also involves a lot of work in terms of structuring disclosure practices, calibrating accounting tools, and training staff members and leaders in best practices. A certain amount of auditing and self-assessment is usually also involved.
Fairness and transparency in accounting, particularly in corporate accounting, is generally held to be quite important in most parts of the world. When corporations are not honest about their profits and losses, entire economies can suffer, either through inflation, degradation, or credit collapse. For this reason, most countries have enforced accounting standards or laws to which all entities doing business are bound. The International Finance Reporting Standards are one set of such rules, and IFRS compliance is essentially the decision, whether voluntary or forced, to follow them.
While the principles that make up the IFRS have been around for some time, they were not proposed as a comprehensive standards package until 2001. The International Accounting Standards Board promoted the IFRS and IFRS compliance as a way to introduce more universality into the corporate accounting sphere. Most countries have their own financial reporting rules that are jurisdiction-specific. They are often very similar to the rules of their neighboring countries and major trade partners, but are rarely identical. The main idea behind the IFRS was to introduce a single set of standards that could be uniformly understood and anticipated around the world.
Uniformity only works when there is adoption, however, and adoption is only truly effective with active compliance. The first step in IFRS compliance is a decision to follow the standards and to adhere to the way they dictate structuring internal accounting and reporting functions. This usually happens on a national level, as governments are usually in the best position to dictate the governing standards.
IFRS compliance can also happen independently, on a corporation-by-corporation level. A company already bound by jurisdiction-specific accounting rules may nonetheless strive for IFRS compliance as well if doing business with an IFRS-bound country. Trading partners on different continents at times unilaterally decide to comply as a means of streamlining their own trade accounting.
Compliance is not usually as simple as it sounds, particularly for companies in countries that have not officially adopted the standards. The IFRS are set up more as guiding principles than as hard-and-fast rules, which has both ups and down. On one hand, compliance is generally flexible and can often fit around other reporting and accounting obligations. There can be some confusion with respect to what is and is not actually acceptable, though, which means that a lot of scrutiny is usually required.
Companies planning for IFRS compliance often hire a specific IFRS accountant team to critically read all guidelines, then come up with ways of tailoring them to fit the business’ specific needs. Regular financial analysis is usually required. Many companies perform regular audits of their IFRS accounting practices to ensure continued adhesion over time.
