What is IFRS? A guide for UK small businesses

Published Thursday 23 July 2026

Table of contents

• What is IFRS?
• Who sets IFRS standards?
• Where are IFRS used, and do UK businesses need to follow them?
• What financial statements does IFRS cover?
• IFRS vs UK GAAP: what's the difference?
• Benefits of following IFRS
• What IFRS means for your small business
• Keep your financial reporting simple with Xero
• FAQs on IFRS

Key takeaways

• IFRS stands for International Financial Reporting Standards, a common set of accounting rules that make financial reports consistent, comparable and transparent across borders.
• The International Accounting Standards Board (IASB) creates and maintains IFRS, and more than 140 jurisdictions require them for most or all listed companies.
• UK-registered listed companies report using UK-adopted international accounting standards, while most private UK companies use UK GAAP, so most small businesses won't need full IFRS.
• IFRS is principles-based, giving more room for judgement, whereas UK GAAP is more rules-based.

What is IFRS?

If you've come across IFRS in your accounts or when reading about a larger company, you might wonder what it actually means. Here's a plain answer before the detail.

IFRS stands for International Financial Reporting Standards. It's a set of accounting rules for how information is gathered and presented in financial reports, so that businesses around the world prepare their accounts in a consistent, comparable and transparent way.

Because everyone follows the same rules, an investor or lender in one country can read the accounts of a company in another and understand them the same way. That shared language is the whole point of the standards, and it sits at the heart of good financial reporting.

Who sets IFRS standards?

IFRS doesn't come from any single government. It's set by an independent global body, which is part of why so many countries trust and use it.

The standards are created and maintained by the International Accounting Standards Board (IASB), which is part of the IFRS Foundation. The IASB develops each standard, consults widely and updates the rules as business and reporting needs change.

IFRS replaced the older International Accounting Standards (IAS) from 2001, when the IASB took over standard setting. Some IAS standards are still in use and sit alongside the newer IFRS ones, all under the same IFRS umbrella. You can read more about the wider framework in this guide to international accounting standards.

Where are IFRS used, and do UK businesses need to follow them?

The short answer is that IFRS is used very widely, but whether you personally need to follow it depends on your type of business. Here's how it breaks down.

IFRS is required in more than 140 jurisdictions for most or all publicly listed companies, which makes it the most widely used set of accounting standards in the world. The United States is a notable exception and uses its own system instead.

In the UK, since 1 January 2021, UK-registered listed companies must report using UK-adopted international accounting standards, endorsed by the UK Endorsement Board (UKEB). These are closely aligned with IFRS as issued by the IASB.

Most private UK companies use UK GAAP instead, which is maintained by the Financial Reporting Council (FRC). The main standard is FRS 102, and the smallest micro-entities can use FRS 105. Most small businesses won't need full IFRS, so it's worth checking with your accountant which framework applies to you.

What financial statements does IFRS cover?

IFRS sets out how a company should prepare its main financial reports. It covers four core financial statements that together give a full picture of a business's finances.

• Statement of financial position, also known as the balance sheet, which shows what a business owns and owes
• Statement of comprehensive income, often called the profit and loss, which shows income and expenses over a period
• Statement of changes in equity, which shows how the owners' stake in the business has moved
• Statement of cash flows, which shows the cash coming in and going out

These are the same core reports many businesses already prepare, and it helps to understand each one. You can learn more in these guides to the balance sheet and to financial statements.

IFRS vs UK GAAP: what's the difference?

If you run a business in the UK, this is often the comparison that matters most. The two frameworks aim to do the same job but take a different approach.

IFRS is principles-based, which means it sets broad principles and leaves more room for professional judgement about how to apply them. UK GAAP, and the US GAAP used in the United States, tend to be more rules-based, with more detailed and specific requirements to follow.

For many UK companies, the practical alternative to IFRS is UK GAAP, specifically FRS 102. It's designed to be simpler and more proportionate for private companies than full IFRS, while still producing clear, reliable accounts.

Benefits of following IFRS

IFRS exists to make financial information easier to trust and compare. For businesses that use it, that brings a few clear advantages.

• Comparability across borders, so investors and lenders can weigh up companies in different countries on the same basis
• Transparency, because a consistent set of rules makes accounts clearer and harder to misread
• Easier access to investment, since global investors are more comfortable backing businesses whose reporting they recognise

Even if you don't use full IFRS, these are the same qualities that make any set of accounts more useful to the people who read them.

What IFRS means for your small business

You might be relieved to hear that IFRS usually isn't something a small UK business needs to worry about directly. Here's what it means for you in practice.

Most small businesses report under UK GAAP rather than full IFRS, and micro-entities have even simpler options. Unless you're a listed company or you have specific investor or group requirements, you're unlikely to need IFRS, but your accountant can confirm what's right for you.

Whichever framework applies, the habits behind good reporting are the same: keep accurate records, stay consistent, and know where your numbers come from. Building that discipline early makes it far easier to understand your accounts and to answer questions from lenders or investors, and it starts with learning how to read a balance sheet.

Keep your financial reporting simple with Xero

Whether you report under UK GAAP or work towards IFRS with your accountant, the foundation is the same: clean, consistent, up-to-date records. Getting that right takes the guesswork out of your accounts and makes every conversation with an accountant or lender easier.

Xero helps you keep your records organised in one place, so your financial information stays accurate and ready when you need it, and you can try it out when you get one month free.

FAQs on IFRS

Here are answers to some frequently asked questions about IFRS to help clear up the most common points.

What does IFRS stand for?

IFRS stands for International Financial Reporting Standards. They're a globally used set of accounting rules for preparing and presenting financial reports.

Who has to follow IFRS in the UK?

UK-registered listed companies must report using UK-adopted international accounting standards. Most private companies use UK GAAP instead.

Is IFRS a legal requirement?

For UK listed companies, reporting under UK-adopted international accounting standards is a legal requirement. For most private companies it isn't, as they can report under UK GAAP.

What's the difference between IFRS and UK GAAP?

IFRS is principles-based and leaves more room for judgement, while UK GAAP is more rules-based. Many UK private companies use FRS 102, a UK GAAP standard, as a simpler alternative.