What is IFRS? A guide to International Financial Reporting Standards

Published Thursday 23 July 2026

Table of contents

• What are International Financial Reporting Standards (IFRS)?
• Who created IFRS?
• Why is IFRS important for businesses?
• Who uses IFRS?
• IFRS in Australia
• Key IFRS reporting requirements
• The difference between IFRS and GAAP
• IFRS for small businesses
• Simplify your financial reporting with Xero
• FAQs on IFRS

Key takeaways

• International Financial Reporting Standards (IFRS) are a set of accounting rules published by the International Accounting Standards Board (IASB) and used in more than 168 jurisdictions worldwide
• Australia adopted IFRS-aligned standards in 2005 through the Australian Accounting Standards Board (AASB), meaning Australian businesses follow standards closely based on IFRS
• IFRS differs from US Generally Accepted Accounting Principles (GAAP) in several ways, including its principles-based approach and the prohibition of last in, first out (LIFO) inventory accounting
• A simplified version of IFRS exists for small and medium-sized entities, reducing the reporting burden for businesses that don't have public accountability

What are International Financial Reporting Standards (IFRS)?

International Financial Reporting Standards (IFRS) are a globally recognised set of accounting rules that guide how businesses prepare and present their financial statements. They provide a common framework so that financial information is consistent, transparent, and comparable across borders.

IFRS covers how you recognise revenue, value assets, report liabilities, and disclose financial information. By following a single set of standards, businesses make it easier for investors, regulators, and other stakeholders to understand and compare financial performance regardless of where a company operates.

Before IFRS, countries relied on their own national accounting standards. This made it difficult to compare the financial health of companies in different markets. IFRS replaced many of those national standards with a unified approach, starting in 2001 when the International Accounting Standards Board (IASB) took over from its predecessor body.

Who created IFRS?

IFRS was developed by the IASB, an independent standard-setting body based in London. The IASB is overseen by the IFRS Foundation, a not-for-profit organisation responsible for governance and funding.

The IASB replaced the International Accounting Standards Committee (IASC) in 2001. The IASC had been publishing international accounting standards (IAS) since 1973. When the IASB took over, it adopted the existing IAS standards and began issuing new ones under the IFRS name.

Today, the IASB works with national regulators, accounting bodies, and stakeholders around the world to update and refine the standards. This collaborative process helps ensure that IFRS stays relevant as business practices and global markets evolve.

Why is IFRS important for businesses?

IFRS gives businesses a consistent way to report their financial position, making it simpler for stakeholders to assess performance and make informed decisions. If your business operates internationally or deals with overseas investors, using IFRS-aligned standards helps build trust and credibility.

A shared set of reporting rules also reduces the cost and complexity of preparing multiple sets of accounts for different jurisdictions. Instead of translating between national standards, you can present one set of financial statements that meets widely accepted requirements.

For small businesses in Australia, understanding IFRS matters because the local standards issued by the AASB are closely aligned with IFRS. Knowing the principles behind these standards helps you stay compliant and have more productive conversations with your accountant or bookkeeper.

Who uses IFRS?

More than 168 jurisdictions around the world require or permit the use of IFRS for financial reporting. This includes major economies across Europe, Asia, South America, Africa, and Oceania.

Notable adopters include the European Union, the United Kingdom, Canada, and Australia. Some countries have adopted IFRS directly, while others have developed national standards that are substantially aligned with IFRS.

The United States is a significant exception. US-listed companies follow Generally Accepted Accounting Principles (GAAP) set by the Financial Accounting Standards Board (FASB), though the Securities and Exchange Commission has explored convergence with IFRS over the years.

IFRS in Australia

Australia was one of the first countries to adopt IFRS-aligned standards. In 2005, the AASB introduced Australian Accounting Standards that are substantially based on IFRS, making Australia an early leader in global accounting harmonisation.

The AASB is the independent body responsible for developing and maintaining accounting standards in Australia. It adapts IFRS standards for the local context by adding Australian-specific paragraphs where needed, while keeping the core requirements consistent with the international framework.

For Australian businesses, this means your financial statements are prepared under standards that align with IFRS. If you're reporting under the Corporations Act 2001 or other regulatory requirements, you're already working within an IFRS-based framework. This alignment can be particularly helpful if you're looking to attract overseas investment or expand into international markets.

Key IFRS reporting requirements

IFRS sets out the financial statements that businesses need to prepare. If your business reports under IFRS-aligned standards, you'll typically need to produce the following.

• Statement of financial position (balance sheet): shows your assets, liabilities, and equity at a specific date
• Statement of comprehensive income: reports your revenue, expenses, and profit or loss over a reporting period
• Statement of changes in equity: tracks movements in your equity, including retained earnings and capital contributions
• Statement of cash flows: details cash coming in and going out, grouped by operating, investing, and financing activities
• Notes to the financial statements: provide additional detail and explanations that support the figures in the main statements

These requirements help ensure that anyone reading your financial reports gets a complete and accurate picture of your business's financial health.

The difference between IFRS and GAAP

IFRS and US GAAP are the 2 most widely used accounting frameworks in the world. While they share the same goal of producing reliable financial information, they differ in several important ways.

IFRS takes a principles-based approach, giving businesses more flexibility in how they apply the standards to their specific circumstances. GAAP is more rules-based, with detailed guidance for a wide range of scenarios. This means GAAP standards tend to be longer and more prescriptive.

One key difference is in inventory accounting. IFRS does not allow the LIFO method for valuing inventory, while GAAP permits it. IFRS requires businesses to use either first in, first out (FIFO) or the weighted average cost method.

Revenue recognition also differs. IFRS uses a single 5-step model (IFRS 15) for recognising revenue from contracts with customers. GAAP has similar principles under ASC 606, but the detailed application guidance can produce different outcomes in specific industries.

IFRS for small businesses

The IASB has published a separate standard called IFRS for Small and Medium-sized Entities (IFRS for SMEs). This simplified version is designed for businesses that don't have public accountability and don't need to follow the full set of IFRS standards.

IFRS for SMEs reduces the number of standards you need to follow and simplifies many of the recognition, measurement, and disclosure requirements. For example, it allows simplified accounting for financial instruments and reduces the volume of disclosures in notes to the financial statements.

In Australia, the AASB has developed its own simplified reporting framework for smaller entities. If you're a small business that doesn't need to prepare general-purpose financial statements, you may be eligible for reduced reporting requirements. Your accountant or bookkeeper can help you work out which framework applies to your business.

Simplify your financial reporting with Xero

Understanding IFRS and financial reporting standards is one part of running a compliant, well-organised business. Putting those standards into practice is another. Xero's cloud-based accounting software helps you stay on top of your finances with real-time reporting, automated bank reconciliation, and easy collaboration with your accountant or bookkeeper.

With Xero, you can generate financial reports including profit and loss statements, balance sheets, and cash flow summaries. You'll have the data you need to help you stay across your reporting obligations and make more informed decisions about your business. Get one month free.

FAQs on IFRS

Here are some frequently asked questions about IFRS and how they apply to businesses in Australia.

What does IFRS stand for?

IFRS stands for International Financial Reporting Standards. These are a set of accounting rules published by the IASB that provide a common framework for preparing financial statements across different countries.

Is IFRS mandatory in Australia?

Australia uses accounting standards issued by the AASB, which are substantially aligned with IFRS. If your business is required to prepare general-purpose financial statements under the Corporations Act 2001, you'll follow these IFRS-based standards.

What is the difference between IFRS and GAAP?

IFRS is principles-based and used in more than 168 jurisdictions, while US GAAP is rules-based and primarily used in the United States. Key differences include inventory valuation methods and the level of prescriptive guidance provided.

How many IFRS standards are there?

There are currently 17 IFRS standards (IFRS 1 through IFRS 17) and 26 older International Accounting Standards (IAS) that remain in effect. The IASB also publishes related interpretations and a separate standard for SMEs.

Why is IFRS important for small businesses?

Even if your small business doesn't report directly under full IFRS, Australian accounting standards are based on IFRS principles. Understanding these standards helps you produce accurate financial reports, stay compliant, and communicate clearly with investors, lenders, and your accountant. The IASB also offers a simplified IFRS for SMEs standard with reduced requirements. You can learn more about sustainability reporting standards as they evolve alongside IFRS.