What is IFRS? International Financial Reporting Standards explained

Published Thursday 23 July 2026

Table of contents

• Key takeaways
• What are International Financial Reporting Standards (IFRS)?
• History and evolution of IFRS
• Who uses IFRS?
• IFRS reporting requirements
• IFRS vs GAAP: key differences
• Why IFRS matters for your business
• Help simplify your financial reporting with Xero
• FAQs on IFRS

Key takeaways

• IFRS are a set of global accounting standards that tell organizations how to record and report financial transactions
• More than 140 countries and jurisdictions require or permit IFRS for public company reporting
• The US does not use IFRS; public companies follow Generally Accepted Accounting Principles (GAAP) instead
• IFRS takes a principles-based approach, while GAAP is more rules-based, leading to differences in areas like inventory valuation and revenue recognition
• If your business works with international suppliers or clients, understanding IFRS helps you read their financial statements and compare performance across borders

What are International Financial Reporting Standards (IFRS)?

International Financial Reporting Standards (IFRS) are a set of accounting rules that provide a common language for how companies prepare and present their financial statements. The goal is to make financial reporting consistent, transparent, and comparable across different countries.

IFRS covers how you recognize revenue, value assets, record liabilities, and disclose financial information. By following 1 shared framework, businesses in different jurisdictions produce financial statements that investors, lenders, and regulators can compare side by side.

The International Accounting Standards Board (IASB), an independent body based in London, develops and maintains IFRS. The IASB operates under the IFRS Foundation, a not-for-profit organization that oversees the standard-setting process. The board consults with stakeholders worldwide before issuing or updating any standard.

IFRS applies primarily to publicly listed companies, though many jurisdictions also allow or require private companies to use it. For small and medium-sized businesses, the IASB publishes a simplified version called IFRS for SMEs, which reduces the reporting burden while keeping the core principles intact.

History and evolution of IFRS

IFRS didn't appear overnight. The standards grew out of decades of work to harmonize accounting practices across borders.

The story begins in 1973, when 16 countries formed the International Accounting Standards Committee (IASC). The IASC issued a series of International Accounting Standards (IAS), many of which are still in use today under the IFRS umbrella. These early standards laid the groundwork for a single global accounting language.

In 2001, the IASC was replaced by the International Accounting Standards Board (IASB), which took over responsibility for setting international standards. The IASB began issuing new standards under the IFRS label while continuing to maintain the existing IAS standards.

A major turning point came in 2005, when the European Union (EU) required all publicly listed companies in its member states to report under IFRS. That mandate brought thousands of companies onto a single framework and encouraged other regions to follow. Today, more than 140 jurisdictions require or permit IFRS, making it the most widely used set of accounting standards in the world.

Who uses IFRS?

IFRS has become the dominant accounting framework across most of the world. Understanding where it applies helps you navigate financial reports from international partners and competitors.

According to the IFRS Foundation, 169 jurisdictions now require or permit IFRS for publicly listed companies. Major adopters include the EU, Canada, Australia, South Korea, India, and Brazil. In these regions, public companies must prepare their consolidated financial statements under IFRS.

The US is a notable exception. Public companies in the US follow Generally Accepted Accounting Principles (GAAP), issued by the Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC) has explored convergence with IFRS over the years but hasn't mandated a switch. Foreign private issuers listed on US exchanges can, however, file IFRS-based statements with the SEC.

China is another exception. While Chinese Accounting Standards for Business Enterprises (ASBE) are largely converged with IFRS, China maintains its own framework and hasn't adopted IFRS directly. Japan permits IFRS for listed companies but doesn't require it.

IFRS reporting requirements

IFRS sets out what a complete set of financial statements must include. If you're reviewing reports from an IFRS-compliant company, here's what you'll typically see.

A complete set of IFRS financial statements includes 4 core reports:

• Statement of financial position (balance sheet): shows assets, liabilities, and equity at a specific date
• Statement of comprehensive income: covers revenue, expenses, and profit or loss over a reporting period, plus other comprehensive income items like foreign currency adjustments
• Statement of changes in equity: tracks how shareholders' equity moved during the period, including dividends, share issues, and retained earnings
• Statement of cash flows: breaks down cash inflows and outflows into operating, investing, and financing activities

Beyond these 4 statements, IFRS requires companies to disclose their significant accounting policies and provide detailed notes. These notes explain the judgments, estimates, and assumptions behind the numbers. They also cover risk exposures, segment information, and related-party transactions.

IFRS vs GAAP: key differences

If you're a US business owner comparing your financial statements with those of an international partner, the differences between IFRS and GAAP are worth understanding. Both frameworks aim for accurate financial reporting, but they take different approaches.

The most fundamental difference is philosophy. IFRS is principles-based, meaning it provides broad guidelines and relies on professional judgment to apply them. GAAP is more rules-based, with detailed prescriptive guidance for specific situations. This means IFRS financial statements may look different from GAAP statements even when the underlying transactions are similar.

Here are some of the key areas where the 2 frameworks diverge:

• Inventory valuation: IFRS bans the last-in, first-out (LIFO) method, while GAAP permits it; both allow first-in, first-out (FIFO) and weighted average cost
• Revenue recognition: both frameworks now use similar 5-step models, but differences remain in how you apply them to specific industries and contract types
• Asset valuation: IFRS allows you to revalue property, plant, and equipment upward to fair value; GAAP generally requires you to carry these assets at historical cost less depreciation
• Development costs: IFRS requires you to capitalize development costs once specific criteria are met; GAAP typically expenses all research and development costs as incurred
• Impairment reversal: IFRS permits you to reverse impairment losses on most assets if conditions improve; GAAP prohibits reversals for assets held for use

These differences can affect reported profits, asset values, and key financial ratios. When you're comparing financial statements across borders, keep in mind which framework each company follows.

Why IFRS matters for your business

Even though the US uses GAAP, IFRS can still affect your day-to-day business decisions. Here's how global accounting standards connect to your operations.

If you import goods or services from international suppliers, their financial health is reported under IFRS. Knowing how to read IFRS financial statements helps you assess whether a supplier is financially stable before you commit to a long-term contract.

The same applies if you sell to international clients. Customers in IFRS jurisdictions may request financial information from you in a format they can compare with their own records. Understanding the differences between GAAP and IFRS helps you respond to those requests confidently.

Cross-border investment is another area where IFRS knowledge pays off. If you're exploring partnerships, joint ventures, or acquisitions outside the US, you'll encounter IFRS-based financials. Being able to compare those statements with your own GAAP-based reports gives you a clearer picture of the opportunity.

Help simplify your financial reporting with Xero

Whether you're tracking expenses, reconciling bank transactions, or preparing reports for tax season, accurate financial reporting starts with organized books. Xero's cloud accounting software helps you stay on top of your finances with automated bank feeds, real-time dashboards, and reporting tools built for small businesses. Get one month free.

FAQs on IFRS

Here are answers to frequently asked questions about IFRS.

What does IFRS stand for?

IFRS stands for International Financial Reporting Standards. These are a set of global accounting rules that govern how companies prepare and present their financial statements.

Who created IFRS?

The International Accounting Standards Board (IASB), based in London, develops and maintains IFRS. The IASB took over from the International Accounting Standards Committee (IASC), which began issuing international standards in 1973.

Does the US use IFRS?

No, US public companies follow Generally Accepted Accounting Principles (GAAP) set by the Financial Accounting Standards Board (FASB). However, foreign companies listed on US exchanges can file IFRS-based financial statements with the SEC.

What is the main difference between IFRS and GAAP?

IFRS is principles-based, giving companies broad guidelines and room for professional judgment. GAAP is more rules-based, with detailed prescriptive requirements for specific transactions and industries.

How many countries use IFRS?

According to the IFRS Foundation, 169 jurisdictions require or permit IFRS for public company financial reporting. Major adopters include the EU, Canada, Australia, and India.