International Accounting Standards (IAS) are guidelines and standards developed by the International Accounting Standards Board (IASB).

IAS provides a common framework for the company and businesses around the world. Accordingly, these standards serve as a framework for the preparation and presentation of financial statements, ensuring consistency, transparency, and comparability in financial reporting on a global scale.

International Accounting Standards (IAS) was subsequently replaced by International Financial Reporting Standards (IFRS) in 2001.

Why need International Accounting Standards?

International Accounting Standards (IAS) are like a set of rules that companies around the world follow when reporting their financial information. Here’s why we need these rules:

1. Global Business Transactions:

In today’s interconnected world, companies often operate across borders. Businesses find it easier to communicate their financial information globally when using a common set of accounting standards. This helps investors, creditors, as well as other stakeholders understand and compare financial statements more effectively.

Example: Imagine a US-based company sells products to a Japanese company. So, both companies adhere to IAS, ensuring they prepare financial reports using the same standards. This makes it easier for investors as well as stakeholders from different countries to understand and compare the financial health of these companies.

2. Consistency and Comparability:

IAS ensures that companies use the same accounting principles and rules. This consistency allows for fair comparisons between companies, industries, and even countries. Presenting financial information uniformly enables investors as well as analysts to make informed decisions.

Example: Companies in the technology sector in Germany and the United States can be compared more effectively when financial statements adhere to the same international standards. IAS provides a common language for financial reporting, allowing stakeholders to assess performance across different industries.

3. Reducing Information Asymmetry:

Information asymmetry occurs when one party has more information than the other. By implementing international accounting standards, companies aim to reduce information asymmetry between themselves as well as investors. This transparency builds trust and confidence in financial markets.

Example: An Indian company enters into a joint venture with a South African company. By using IAS, both parties ensure that financial information is presented consistently, minimizing information gaps and promoting transparency between the partners.

4. Facilitating Cross-Border Capital Flows:

Investors often look for opportunities in different countries. A common set of accounting standards simplifies the process of evaluating and investing in foreign companies. This, in turn, promotes cross-border investments and contributes to the global flow of capital.

Example: When a French company acquires a Mexican company, having both companies follow IAS streamlines the process. The acquirer can easily understand the financial position of the acquired company, making the merger or acquisition smoother and more transparent.

5. Regulatory Alignment:

Many countries adopt IAS or IFRS to align their financial reporting standards with international norms. This alignment is crucial for multinational companies, as it streamlines compliance with various regulatory requirements in different jurisdictions.

Example: A Chinese company seeks to list its shares on the New York Stock Exchange. Adhering to IAS becomes crucial as it aligns the company’s financial reporting with the regulatory requirements of the international market, making the listing process smoother.

6. Improved Decision-Making:

Uniform accounting standards provide relevant and reliable information, aiding decision-making processes for investors, creditors, and other stakeholders. This, in turn, contributes to the efficient allocation of resources in the global economy.

7. Harmonizing Financial Reporting:

International accounting standards promote the harmonization of financial reporting practices worldwide. So, this harmonization reduces the complexity and costs associated with preparing financial statements for companies operating in multiple countries.

8. Enhancing Accountability and Governance:

IAS emphasizes transparency and accountability in financial reporting. Adhering to these standards encourages companies to adopt robust governance practices, fostering investor confidence as well as protecting the interests of various stakeholders.

In summary, International Accounting Standards (IAS) play a crucial role in creating a common financial language for businesses globally. In addition, they enhance transparency, comparability, and trust in financial reporting, ultimately contributing to the stability and efficiency of international financial markets.

How many Accounting Standards are issued?

The International Accounting Standards Board (IASB) has issued International Accounting Standards to establish a common global language for business affairs, in general. In addition, reviewing and updating accounting standards periodically leads to the evolution of amended or new standards. The IASB issued following IASs to date:

IAS 1Presentation of Financial Statements 
IAS 2Inventories 
IAS 3Consolidated Financial StatementsSuperseded by IAS 27 & IAS 28
IAS 4Depreciation AccountingWithdrawn
IAS 5Information to Be Disclosed in Financial StatementsSuperseded by IAS 1
IAS 6Accounting Responses to Changing PricesSuperseded by IAS 15
IAS 7Statement of Cash Flows 
IAS 8Accounting Policies, Changes in Accounting Estimates and Errors 
IAS 9Accounting for Research and Development ActivitiesSuperseded by IAS 38
IAS 10Events after the Reporting Period 
IAS 11Construction ContractsSuperseded by IFRS 15
IAS 12Income Taxes 
IAS 13Presentation of Current Assets and Current LiabilitiesSuperseded by IAS 1
IAS 14Segment reportingSuperseded by IFRS 8
IAS 15Information Reflecting the Effects of Changing PricesWithdrawn
IAS 16Property, Plant and Equipment 
IAS 17LeasesSuperseded by IFRS 16
IAS 18RevenueSuperseded by IFRS 15
IAS 19Employee Benefits 
IAS 20Accounting for Government Grants and Disclosure of Government Assistance 
IAS 21The Effects of Changes in Foreign Exchange Rates 
IAS 22Business CombinationsSuperseded by IFRS 3
IAS 23Borrowing Costs 
IAS 24Related Party Disclosures 
IAS 25Accounting for InvestmentsSuperseded by IAS 39 & IAS 40
IAS 26Accounting and Reporting by Retirement Benefit Plans 
IAS 27Consolidated and Separate Financial StatementsSuperseded by IFRS 10, IFRS 12
IAS 28Investments in Associates and Joint VenturesSuperseded by IFRS 12 (Associates)
IAS 29Financial Reporting in Hyperinflationary Economies 
IAS 30Disclosures in the Financial Statements of Banks and Similar Financial InstitutionsSuperseded by IFRS 7
IAS 31Interests in Joint VenturesSuperseded by IFRS 11 & IFRS 12
IAS 32Financial Instruments: Presentation 
IAS 33Earnings per Share 
IAS 34Interim Financial Reporting 
IAS 35Discontinuing OperationsSuperseded by IFRS 5
IAS 36Impairment of Assets 
IAS 37Provisions, Contingent Liabilities and Contingent Assets 
IAS 38Intangible Assets 
IAS 39Financial Instruments: Recognition and MeasurementSuperseded by IFRS 9
IAS 40Investment Property 
IAS 41Agriculture 

However, detailed version, latest update and any changes can be obtained from IFRS and IAS Plus website.

This blog post is written by Monir Bhuiyan, a member of ACCA (Association of Chartered Certified Accountants) and ICAB (Institute of Chartered Accountants of Bangladesh).