What is IFRS?
A plain-English guide to IFRS: what it is, who sets it, IFRS vs GAAP, and how it applies in New Zealand.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- IFRS is a set of global accounting rules that make financial reports consistent, comparable and credible across countries.
- The rules are set by the International Accounting Standards Board (IASB), part of the IFRS Foundation.
- IFRS is principles-based and flexible, while GAAP is rules-based and more rigid. The United States uses GAAP.
- New Zealand applies its own version, NZ IFRS, issued by the External Reporting Board (XRB). Most very small companies use simpler reporting instead.
What is IFRS?
IFRS (International Financial Reporting Standards) are a set of global accounting rules for how financial information is gathered and presented in financial reports. They exist so your numbers stay consistent, comparable and credible anywhere in the world.
The standards set out how to record and report things like revenue, costs and assets. When two businesses in different countries both follow IFRS, an investor or lender can read their financial reporting and compare it on a like-for-like basis.
Who sets and maintains IFRS?
One independent body writes and updates the standards, which keeps them consistent worldwide. Knowing who sets the rules also tells you where the authoritative guidance comes from.
IFRS is set by the International Accounting Standards Board (IASB), which sits within the IFRS Foundation. The IASB replaced the International Accounting Standards Committee (IASC) in 2001, and IFRS succeeded the earlier International Accounting Standards (IAS) that the IASC had issued.
IFRS vs GAAP
People often ask how IFRS differs from the other main framework. The short answer is that they take different approaches to setting the rules.
IFRS is principles-based, so it sets broad principles and allows more flexibility in how you apply them. GAAP (Generally Accepted Accounting Principles) is rules-based and more rigid, with detailed rules for specific situations. The United States uses GAAP, while most other countries follow IFRS or a local equivalent.
What IFRS covers
IFRS spans the main areas of accounting you deal with day to day, including revenue recognition, income taxes, fixed assets, inventories and record keeping. It also sets out the four core financial statements a business prepares.
Those four statements give a rounded picture of your finances:
- Balance sheet (statement of financial position): what you own and owe at a point in time
- Income statement: your revenue, expenses and profit over a period
- Statement of changes in equity: how the owners’ stake in the business has moved
- Cash flow statement: the cash coming into and going out of your business
Why IFRS matters
A shared set of rules makes financial information easier to trust and compare. That matters whether you are seeking funding or trading across borders.
The main benefits are comparability, so results can be measured against other businesses, and transparency, so stakeholders can see how the numbers were reached. Consistent reporting can also make it easier to access investment and credit, and it supports cross-border trade and expansion.
Is IFRS used in New Zealand?
Yes. New Zealand applies NZ IFRS, the New Zealand equivalents to IFRS.
These standards are issued by the External Reporting Board (XRB), with the standards developed by the New Zealand Accounting Standards Board. For-profit entities are grouped into reporting tiers, and Tier 1 and Tier 2 for-profit entities apply NZ IFRS. A Tier 1 entity that complies with NZ IFRS also complies with IFRS.
Most very small companies are not required to prepare general-purpose financial reports under full NZ IFRS, so simpler reporting often applies. If you are unsure which tier fits your business, check with your accountant or the XRB.
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FAQs on IFRS
Here are answers to some frequently asked questions about IFRS.
What does IFRS stand for?
IFRS stands for International Financial Reporting Standards. They are global accounting rules that shape how businesses prepare and present their financial reports.
Who uses IFRS?
More than 140 countries require or permit IFRS, mainly for listed and larger companies. In New Zealand, Tier 1 and Tier 2 for-profit entities use NZ IFRS.
What is the difference between IFRS and GAAP?
IFRS is principles-based and gives more room for judgement, while GAAP is rules-based and more prescriptive. The United States relies on GAAP rather than IFRS.
Is IFRS mandatory in New Zealand?
NZ IFRS is mandatory for Tier 1 and Tier 2 for-profit entities. Most very small companies can use simpler reporting instead of full NZ IFRS.
Who issues IFRS?
The International Accounting Standards Board (IASB) issues IFRS as part of the IFRS Foundation. In New Zealand, the External Reporting Board issues the local NZ IFRS equivalents.
Related terms
Learn more about IFRS
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.