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Major Benefits Offered by the IFRS
Many people who are accustomed to US/Canada GAAP are still unsure of the benefits offered by the International Financial Reporting Standards (IFRS). Since over 100 countries now use the IFRS the obvious benefit is international compatibility. There are many that believe that sticking to GAAP is akin to “sticking your head in the sand”.
As the US moves toward the IFRS, with an expected adoption in 2014, many business owners are questioning the necessity of the adoption of IFRS over GAAP. Make no mistake, GAAP is an excellent standard and is recognized the world over for that fact. However, as the global market changes the need for IFRS becomes apparent.
Economical and Investment Benefits Offered by Early Adoption of the IFRS
Assuming the US goes ahead with its speculated adoption of the IFRS in 2014 there are substantial benefits offered to the “early adopters”. Remember, the International Financial Reporting Standards primarily apply to public companies. Chances are that most business owners won’t even realize the impact of, or be effected by IFRS.
For companies that are effected, early adoption of the IFRS offers them a couple of benefits:
- More time to transition to IFRS - Like anything that is rushed, moving to IFRS from GAAP just before the deadline is sure to cause headaches. Early adoption will ensure that any complications are ironed out before they could become a serious issue.
- Entrance to the global IFRS community - Companies looking to attract international investors or reporting their financial details on an international level will see particular benefit to moving to the IFRS.
- Internal consistency for companies with international affiliates or subsidiaries - Right now a company that has offices in the US, Canada, other countries may use three different reporting standards (U.S. GAAP, Canadian GAAP, and IFRS). Transitioning to the IFRS will enable consistency in financial reporting, potentially decreasing costs associated with financial reporting as adoption becomes widespread.
Other Benefits Offered by the IFRS
While a time-efficient transition to the IFRS is ideal, it is unlikely to happen so easily due to the sheer scope of the transition from GAAP to IFRS. Moving to the IFRS is an undertaking in and of itself, but it comes with significant advantages (many of which have already been discussed on this website).
Specifically, along with the benefits of early adoption listed above, the international financial reporting standards offer advantages in other areas:
- Potential reduction in costs - Expenses associated with operations, financial reporting, financial auditing, and even training may be reduced due to the IFRS. For an international company, moving to a standardized reporting standard like the IFRS offers significant savings in costs associated with its accounting department alone, let alone related departments and programs.
- Unified business transactions - By enabling everyone to speak the same language, the IFRS facilitates international business transactions. This makes investing on an international level easier and less costly.
- Expanded access to capital - Learning to speak the language of the international financial community offers potential lenders and creditors an easier opportunity to compare and review financial reporting. Since the majority of the international community uses IFRS this will serve to ensure that no potential investors are excluded due to unfamiliarity with U.S. GAAP.
Ultimately, the most substantial benefits of the IFRS are the long-term cost savings it facilitates.