Every business needs to follow an accounting method that follows specific predefined standards. These accounting standards help the management of a company in measuring the performance of a company. The administration has to choose from the various types of accounting standards, but in general, there are two main types of accounting standards that are most commonly used in the world.
- IFRS – International Financial Reporting Standard
- GAAP – Generally Accepted Accounting Principles
However, most of the countries, including the United Arab Emirates, use the International Financial Reporting Standards (IFRS) because these are comparatively less complicated and allows for a higher degree of comparability between businesses.
IFRS: What is it?
International Financial Reporting Standards or IFRS is an accounting framework that is recognized internationally. IFRS is a method to collect, organize and report all the financial information of a company so that it can be easily understood by an accountant and analysed when required. The IFRS help in understanding the financial information of the company and to make an informed financial decision for the investors and business operators.
The IFRS was issued by the International Accounting Standards Board to understand and compare the financial statement of a company efficiently. Each country had a different way of interpreting and analysing the financial data of the business. IFRS was an attempt to consolidate the various methods of analysis so that there is a single method to understand and compare the companies all across the globe.
Benefits of IFRS
There are many benefits of using IFRS, especially to international businesses. Some of the advantages which IFRS has to offer are:
- The IFRS provides timely and more accurate financial statement information. The information provided by this reporting standard will be more comfortable to understand, and the management will be able to plan the future of the business.
- IFRS offers a degree of transparency and clarity to all the business transactions. This helps the business to attract more investors and avail more investment opportunities all over the world. The business is also able to raise more capital from foreign markets by creating a sense of confidence in the minds of international investors.
- IFRS allows easy comprehensibility of the financial data of a business no matter where it is located. With the ease of comparison between two or more businesses located anywhere in the world, it is very easy for investors to make an informed decision.
- If every country will follow one centralized authoritative body, it will be very easy to streamline all the various business processes and will also help create a central authority on business matters.
The mentioned benefits are only some of the advantages which attract businesses to use IFRS. Business in UAE requires to use IFRS as the accounting standards. Thus if you are looking to start a business in the UAE, then your business must follow International Financial Reporting Standards.
There may also be a case wherein a business is already established in a different country that does not employ International Financial Reporting Standards. Ins such cases the branch of the company must change to accounting standard and shift to IFRS.
There are certain aspects of the business for which the IFRS has set compulsory Rules. These requirements include:
Cash Flow Statement
The cash flow statement will provide a snapshot of all the various transactions of the business and will also help the management and the investors to get a better picture of the flow of cash in the business.
Profit and Loss Account
Also known as the statement of Comprehensive Income. It can also include a separate statement for other income of the business.
A business using IFRS will report the components of the balance sheet in a different way than a business that will use GAAP or any other accounting standard.
Statement of Changes in Equity
This is the statement of retained earnings and provides a record of a change in the revenue of a company in a given financial period. Along with the preparation of the documents as mentioned above, a company must also provide a summary of its accounting policies. If the company is a branch company, the parent company must create a separate account for all its subsidiary companies.
It is very important that your business employs a suitable accounting standard or it will have to face problems in the future in the UAE. JAXA Chartered Accountants can assist you in preparing all your financial records of the company according to IFRS and will also provide services relating to Accounting, Auditing, VAT-related services, Payroll service and many more. For more details on the services provided by JAXA Chartered Accountants, Contact Us. We will be happy to help.