In financial reporting and accounting, there are two significant terms that come up often: IAS (International Accounting Standards) and IFRS (International Financial Reporting Standards). Both are guidelines and rules of financial reporting, but they have distinct difference between IAS and IFRS. In this blog, we will explore the difference between IAS and IFRS, the history behind their introduction, and the impact of the standards on financial reporting worldwide. We will also consider some frequently asked questions about the two standards to give a clearer view of them.
What Is The Difference Between IAS and IFRS
The primary difference between IFRS and IAS lies in their history, scope, and applicability. While both frameworks aim to standardize financial reporting globally, they differ in updates, flexibility, and the nature of guidelines.
What is IFRS?
IFRS refers to International Financial Reporting Standards, a set of accounting standards published by the International Accounting Standards Board (IASB). The standards were developed to have consistent financial reporting in different countries so that financial statements of companies from all over the world can be compared readily. IFRS is used in the majority of countries, including the European Union and Canada, and is more flexible and principles-based compared to its predecessor, IAS.
IFRS is a general framework of rules that are to be followed by companies while preparing financial statements. It seeks to bring more transparency and comparability to financial reporting, mainly for multinational companies. If you wish to gain more knowledge on IFRS, an IFRS course will be useful in advancing your understanding of the standards and their applications.
What is IAS?
IAS, on the other hand, is a set of accounting standards that were published earlier than IFRS by the predecessor of the IASB, the International Accounting Standards Committee (IASC). The IAS standards were developed between 1973 and 2001 and were the foundation on which IFRS was established. As much as IAS was a step towards global accounting standards, it was replaced by IFRS as the latter had a wider and more accommodating scope of international financial reporting.
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What is the Distinction Between IAS and IFRS?
The key difference between IAS and IFRS is in their creation and application. IAS standards were formulated during the 1970s and 1980s, and while they were useful, they were often criticized for being too prescriptive and rigid. As international trade increased, there was a need for a more dynamic and flexible accounting system. This led the IASB to create IFRS to improve financial reporting and make it more relevant to current business activities.
Below are some of the key difference between IFRS and IAS:
- Development and Evolution: IAS standards were developed by IASC, and IFRS standards were developed by IASB, which replaced IASC in 2001.
- Flexibility: IFRS is more flexible and principles-based compared to IAS, which was seen as more rules-based and rigid.
- Coverage: IFRS has more comprehensive guidelines and addresses a broader range of financial reporting issues compared to IAS.
- Application: IFRS has been adopted by more countries, whereas IAS is largely phased out and replaced by IFRS.
IAS Versus IFRS
While comparing difference between IAS and IFRS, their methodology and practical application in financial reporting need to be considered. IFRS is designed to provide more flexibility and responsiveness so that financial reports of companies can be made to meet the needs of global investors, regulators, and stakeholders.
IAS, by contrast, is based on more prescriptive rules, which may have worked in the past but now seem quite out of date in a globalized and dynamic financial environment.
History
The history of IAS and IFRS documents the development of international financial reporting standards over the decades. IAS was introduced in 1973 to set standards for financial reporting in different countries. However, as the world economy progressed and international trade became more sophisticated, the need for a more extensive and flexible set of standards became clear. This led to the creation of IFRS, which began replacing IAS in 2001.
The shift from IAS to IFRS was a major advancement in global accounting standards because IFRS represented a more transparent, flexible, and globally applicable financial reporting model. IFRS is now used in over 140 countries, including the majority of Europe and Asia, with the IAS standards having mainly been phased out.
The Difference
To summarize what is the difference between IAS and IFRS:
- IAS: The predecessor to IFRS, developed by the IASC from 1973 to 2001. It was more rules-based and less flexible than IFRS.
- IFRS: Developed by the IASB since 2001, IFRS is a more principles-based and flexible style of financial reporting. It is now the standard for financial reporting in the majority of countries and is more relevant to today’s business activities.
In effect, IFRS can be termed the successor of IAS, being a newer and internationally accepted accounting standard.
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Summary
In summary of the difference between IAS vs IFRS comparison:
- IAS standards were the first attempt at the development of international financial reporting standards, developed in the 1970s and 1980s.
- IFRS was introduced in 2001 as a successor to IAS, offering a more flexible and wider approach to international accounting standards.
- IFRS is more accepted since it is the current international standard of financial reporting, while IAS is mostly outdated and no longer used.
- The primary difference between IAS and IFRS is the shift from a more prescriptive, rules-based type (IAS) to a more flexible, principles-based type (IFRS).
FAQs on Difference Between IAS and IFRS
What is the primary difference between IAS and IFRS?
The main difference between IAS and IFRS is that IAS was the predecessor framework to IFRS and was more rules-based and prescriptive. IFRS, the later framework, is more responsive, broader, and adaptable to the needs of modern financial reporting.
Are IAS standards still in use today?
No, IAS standards have been largely replaced by IFRS. However, some IAS standards are still in effect until they are replaced by IFRS standards.
Why did IFRS replace IAS?
IFRS was brought in place of IAS because it was more adaptable and comprehensive in its vision towards financial reporting. It sought to address growing international business complexity and introduce a more transparent and flexible framework.
How can finance professionals stay updated with IAS and IFRS changes?
To stay updated on difference between IAS and IFRS, finance professionals can enroll in an IFRS course, read financial newsletters, attend seminars or webinars, and visit updates from time to time from the IASB along with other financial regulatory bodies.
