The G20 and other major international organisations, as well as very many governments, business associations, investors and members of the worldwide accountancy profession, support the goal of a single set of high quality, global accounting standards.
Why is this the case?
The World Bank has been a long-term supporter of work to develop a single set of high-quality global accounting standards.
Modern economies rely on cross-border transactions and the free flow of international capital. More than a third of all financial transactions occur across borders, and that number is expected to grow.
Investors seek diversification and investment opportunities across the world, while companies raise capital, undertake transactions or have international operations and subsidiaries in multiple countries.
In the past, such cross-border activities were complicated by different countries maintaining their own sets of national accounting standards. This patchwork of accounting requirements often added cost, complexity and ultimately risk both to companies preparing financial statements and investors and others using those financial statements to make economic decisions.
Applying national accounting standards meant amounts reported in financial statements might be calculated on a different basis. Unpicking this complexity involved studying the minutiae of national accounting standards, because even a small difference in requirements could have a major impact on a company’s reported financial performance and financial position—for example, a company may recognise profits under one set of national accounting standards and losses under another.
IFRS Standards address this challenge by providing a high quality, internationally recognised set of accounting standards that bring transparency, accountability and efficiency to financial markets around the world.
IFRS Standards bring transparency by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.
IFRS Standards strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money. Our Standards provide information that is needed to hold management to account. As a source of globally comparable information, IFRS Standards are also of vital importance to regulators around the world.
And IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. For businesses, the use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs.
Changing to IFRS Standards does not come without cost and effort. The companies reporting will generally need to change at least some of their systems and practices; investors and others using financial statements need to analyse how the information they are receiving has changed; and securities regulators and accounting professionals need to change their procedures.
But academic research and studies by adopting jurisdictions provides overwhelming evidence that the adoption of IFRS Standards has brought net benefits to capital markets.
The documented benefits include a lower cost of capital for some companies and increased investment in jurisdictions adopting IFRS Standards. Some companies also report benefits from being able to use IFRS Standards in their internal reporting, improving their ability to compare operating units in different jurisdictions, reducing the number of different reporting systems and having the flexibility to move staff with IFRS experience around their organisation.
In Japan, where use of IFRS Standards has been voluntary since 2010, a report by the Japanese Financial Services Agency identified business efficiency, enhanced comparability and better communications with international investors as the main reasons why many Japanese companies had chosen to adopt IFRS Standards.
IOSCO recognised the benefits of global Standards when, in the year 2000, it recommended to its members that they allow IFRS Standards to be used on their exchanges for cross-border offerings.
Since that point, IFRS Standards have gone on to become the de facto global language of financial reporting, used extensively across developed, emerging and developing economies.
Our research shows that 144 jurisdictions now require the use of IFRS Standards for all or most publicly listed companies, whilst a further 12 jurisdictions permit its use.
Visit our jurisdictional use of IFRS Standards page for more information on individual jurisdictions.