The present day is an era of free trade and a global economy
The present day is an era of free trade and a global economy. Many of the largest companies worldwide often do some or all of their business overseas in addition to their domestic operations. Companies are therefore dependent on both domestic and foreign capital markets for their financing. Prior to the adoption of what would become international financial reporting standards in the mid 20th century, most countries used their own standards for financial reporting, or followed the standards that countries with large economies used, such GAAP in the United States.1
Following the economic fallout of the second world war, every nation agreed there should be an international standard to facilitate trade and investment. By the 1960s, articles began appearing in North American accounting journals drawing attention to the problems flowing from the lack of international comparability of financial statements.1
IFRS was previously known as the IAS (International Accounting Standard). The IAS was issued between 1973-2000 by IASC (International Accounting Standards Committee). IAS was issued in order to address the global accounting standard so that there would be better financial understanding between companies. On April 1, 2001 IASB (International Accounting Standard Board) replaced the IASC, and took over responsibility to create the international accounting standard, IFRS.
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IFRS operates on the basis that economic activity can be identified with particular units of accountability. This means that the company must separate its activity from the owners and other businesses. This is one of four assumptions that underpin the IFRS. Secondly, it is assumed the company will remain in operation for the foreseeable future. Next, it is assumed that currency is used as a common denominator for economic activity, providing appropriate basic accounting measurements and analysis; this ignores price-level changes such as inflation and deflation because it assumes the unit of measure remains stable, except in the case of dramatic change e.g. hyperinflation. Lastly, the accrual basis assumes transactions in accounts are recorded when the events occur, not when accounts are paid or received.