What is IFRS? A plain-English introduction

What does IFRS stand for?

International Financial Reporting Standards. The full body of rules is now called IFRS Accounting Standards, and it includes four kinds of document:

• IFRS: standards issued by the IASB since 2001, numbered IFRS 1 to IFRS 19.
• IAS: International Accounting Standards issued by the IASB's predecessor, the IASC, and still in force unless replaced. IAS 2 on inventories is an example.
• IFRIC Interpretations: answers to specific questions, issued by the IFRS Interpretations Committee.
• SIC Interpretations: older interpretations from the IASC era, a handful of which remain.

When people say "IFRS" they usually mean all four together. For a one-line summary of each standard, see every IFRS and IAS explained in one line.

Who sets the standards?

Three bodies matter. The IFRS Foundation is a not-for-profit organisation that funds and oversees the standard setters. The IASB writes the accounting standards. The IFRS Interpretations Committee deals with practical questions about applying them. Since 2021 the Foundation has also housed a sister board, the International Sustainability Standards Board (ISSB), which writes sustainability disclosure standards rather than accounting standards.

The IASB does not enforce anything. Each country decides whether to require the standards, and its regulators and auditors check that companies follow them.

How did IFRS develop?

The adoption by European Union listed groups in 2005 was the turning point: overnight, thousands of the world's largest companies moved to one set of rules, and many other countries followed.

How is a new standard made?

The IASB follows a public due process, so anyone can see and comment on a standard before it is final:

1. Research. The board studies whether there is a problem worth solving.
2. Discussion paper. For large projects, it sets out possible approaches and asks for views.
3. Exposure draft. A proposed standard is published for comment, usually for at least 120 days.
4. Final standard. The board considers the comments, then issues the standard with an effective date, often two or three years later, to give companies time to prepare.
5. Post-implementation review. A few years after a major standard takes effect, the board checks whether it works as intended.

IFRS 18 followed this path: an exposure draft in 2019, the final standard in April 2024, and an effective date of 1 January 2027. See IFRS 18 explained.

What does principles-based mean?

IFRS standards state a principle and expect preparers to apply judgement, rather than listing detailed rules for every situation. IFRS 15, for example, says revenue is recognised when control of a good or service passes to the customer, then gives indicators of control. It does not list industry by industry when each kind of sale counts as revenue.

The advantage is that the standards cope with new kinds of transaction. The cost is that two companies can reach different answers on similar facts, so the standards require them to disclose their significant judgements.

What does a standard actually change? An example

A software company sells a three-year subscription for CU 900, paid upfront on 1 January 2026. Under IFRS 15 the company has a promise to provide access for three years, so it recognises revenue as it provides the service:

The cash arrives on day one, but revenue follows the service. Without a standard, a company could be tempted to report all CU 900 in 2026. The amounts are illustrative, in currency units (CU).

What do IFRS financial statements contain?

A complete set includes a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows, and notes. From 2027, IFRS 18 adds required subtotals to the statement of profit or loss, such as operating profit.

Is IFRS the same everywhere?

Mostly, but not exactly. Many jurisdictions adopt the standards through a local process, so a company might report under "IFRS as adopted by the European Union" or "UK-adopted international accounting standards". These versions are almost identical to the IASB's standards, but there can be timing differences while a new standard waits for local approval. Some countries go further and maintain their own standards built on IFRS, such as India's Ind AS. See who uses IFRS and who uses US GAAP.

Where should you start?

Read how to read an accounting standard, then follow the study roadmap. If you already know US GAAP, go straight to IFRS vs US GAAP: the key differences.

This guide is general information. It is not tax or legal advice for your situation.