International Accounting Principles and Standards
International Accounting Standards (IAS) are older accounting standards that were replaced in 2001 by International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), an independent international standard-setting body based in London.
Understanding International Accounting Standards (IAS)
International Accounting Standards (IAS) were the first international accounting standards that were issued by the International Accounting Standards Committee (IASC), formed in 1973. The goal then, as it remains today, was to make it easier to compare businesses around the world, increase transparency and trust in financial reporting, and foster global trade and investment.
Globally comparable accounting standards promote transparency, accountability, and efficiency in financial markets around the world. This enables investors and other market participants to make informed economic decisions about investment opportunities and risks, and improves capital allocation. Universal standards also significantly reduce reporting and regulatory costs, especially for companies with international operations and subsidiaries in multiple countries.
- International Accounting Standards were replaced in 2001 by International Financial Reporting Standards (IFRS)
- Currently, the U.S., Japan, and China are the only major capital markets without an IFRS mandate
- The U.S. accounting standards body has been collaborating with the Financial Accounting Standards Board since 2002 to improve and converge American accounting principles (GAAP) and IFRS
Moving Toward New Global Accounting Standards
There has been significant progress towards developing a single set of high-quality global accounting standards since the IASC was replaced by the IASB. IFRS have been adopted by the European Union, leaving the U.S., Japan (where voluntary adoption is allowed), and China (which says it is working towards IFRS) as the only major capital markets without an IFRS mandate. As of 2018, 144 jurisdictions require the use of IFRS for all or most publicly listed companies and a further 12 jurisdictions permit its use.
Globally comparable accounting standards promote transparency, accountability, and efficiency in financial markets around the world.
The U.S. is exploring adopting international accounting standards. Since 2002, America’s accounting-standards body, the Financial Accounting Standards Board (FASB) and the IASB have been collaborating on a project to improve and converge U.S. generally accepted accounting principles (GAAP) and IFRS. However, while the FASB and IASB have issued norms together, the convergence process is taking much longer than was expected—in part because of the complexity of implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Securities and Exchange Commission (SEC), which regulates U.S. securities markets, has long supported high-quality global accounting standards in principle and continues to do so. In the meantime, because U.S. investors and companies routinely invest trillions of dollars abroad, fully understanding the similarities and differences between U.S. GAAP and IFRS is crucial. One conceptual difference: IFRS is thought to be a more principles-based accounting system, while GAAP is more rules-based.