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What are the different financial reporting standards and frameworks?

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Financial reporting standards and frameworks are the rules and principles that guide how businesses prepare and present their financial statements. They are essential for ensuring the quality, reliability, and comparability of financial information across different industries, markets, and countries. In this article, you will learn about the different types of financial reporting standards and frameworks, their benefits and challenges, and how they affect business reporting.

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Joel Musoko Kayembe, FMVA?

Driving Financial Excellence | MBA Candidate at the University of London | FMVA?, ACCA CertIFR, IMA FP&A?, IFRS…

1 International Standards

One of the most widely used and recognized financial reporting standards is the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB). IFRS aims to provide a common global language for financial reporting, and is adopted by more than 140 countries, including the European Union, Australia, Canada, and Japan. IFRS covers various aspects of financial reporting, such as recognition, measurement, presentation, and disclosure of financial transactions and events. IFRS also allows some flexibility and judgment in applying the standards, depending on the context and nature of the business.

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Joel Musoko Kayembe, FMVA?

Driving Financial Excellence | MBA Candidate at the University of London | FMVA?, ACCA CertIFR, IMA FP&A?, IFRS, SYSCOHADA, GCEC| ????????????????????: Telco, FMCG, Fintech, Towerco
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International standards serve as fundamental guidelines governing the utilization of elements within financial statements. These standards offer guidance across 4 key domains: presentation, recognition, measurement, and disclosure. Despite the assertion that standards provide clear direction, experienced professionals in accounting often encounter challenges in interpreting certain IFRS or US GAAP standards. However, among the indispensable tools available, the conceptual framework (particularly the 2018 iteration for IFRS) stands out. This framework is specifically designed to facilitate a comprehensive understanding of how to navigate and decipher the intricacies of standards, fostering a deeper grasp of their structure and application.

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2 US Standards

Another major financial reporting standard is the US Generally Accepted Accounting Principles (US GAAP), developed by the Financial Accounting Standards Board (FASB). US GAAP is the official accounting standard for public companies in the United States, and is also followed by some private companies and non-profit organizations. US GAAP is based on a set of rules and guidelines that specify how to record and report financial activities and results. US GAAP is more detailed and prescriptive than IFRS, and often requires more disclosures and documentation.

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3 Other Standards

Besides IFRS and US GAAP, there are other financial reporting standards and frameworks that are used by specific countries, regions, or sectors. For example, the UK GAAP is a set of accounting standards that applies to companies in the United Kingdom, and is similar to IFRS but with some differences and exemptions. The International Public Sector Accounting Standards (IPSAS) are a set of accounting standards that are designed for public sector entities, such as governments, agencies, and institutions. The Global Reporting Initiative (GRI) is a framework that helps organizations report on their environmental, social, and governance (ESG) performance and impacts.

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4 Benefits and Challenges

The benefits of having financial reporting standards and frameworks are that they can enhance the transparency, consistency, and comparability of financial information, which can improve the decision-making and accountability of various stakeholders, such as investors, regulators, managers, and auditors. They can also facilitate the cross-border trade and investment, and reduce the costs and risks of financial reporting. However, there are also some challenges and limitations of financial reporting standards and frameworks, such as the complexity, diversity, and dynamism of the business environment, the need for professional judgment and interpretation, the potential for manipulation and fraud, and the lack of harmonization and convergence among different standards and frameworks.

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Joel Musoko Kayembe, FMVA?

Driving Financial Excellence | MBA Candidate at the University of London | FMVA?, ACCA CertIFR, IMA FP&A?, IFRS, SYSCOHADA, GCEC| ????????????????????: Telco, FMCG, Fintech, Towerco
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Standards guides in an harmonized answers the main questions in accounting. 1. How do I present a specific transaction in the financial statements ? 2. How to recognize the transaction ? 3. How to measure the transaction ? 4. Is there a requirement for the disclosure? Presentation and disclosure lies in how information is showcased versus what is detailed or revealed in the financial statements.

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5 Business Reporting Implications

The different financial reporting standards and frameworks have significant implications for business reporting, as they affect how businesses measure and communicate their financial performance and position, as well as their risks and opportunities. Businesses need to be aware of the financial reporting standards and frameworks that apply to them, and how they differ from others, especially if they operate in multiple jurisdictions or sectors. Businesses also need to keep up with the changes and updates of the financial reporting standards and frameworks, and ensure that they comply with the requirements and expectations of their stakeholders. Additionally, businesses need to leverage the financial reporting standards and frameworks as tools to enhance their financial reporting quality and value, and to support their strategic and operational goals.

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6 Future Trends

The financial reporting standards and frameworks are constantly evolving and adapting to the changing needs and demands of the business world and society. Some of the future trends and developments that may affect the financial reporting standards and frameworks are the increasing use of technology and data, the growing importance of sustainability and social responsibility, the emergence of new business models and transactions, and the ongoing efforts to achieve greater convergence and alignment among different standards and frameworks. These trends and developments will pose both opportunities and challenges for businesses and stakeholders, and will require them to be proactive, innovative, and collaborative in their financial reporting practices.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Muhammad Fahad FCCA

Manager Finance @ Lafana Holding Co. | ACCA, SOCPA
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Interestingly, there are other reporting frameworks as well: -IFRS for SMEs is a simplified version of full IFRS designed for small and medium-sized entities. -China has its own set of accounting standards, known as Chinese Accounting Standards (CAS), which are gradually converging with IFRS. -Japan follows its own set of accounting principles , known as JGAAP. However, there is increasing convergence with IFRS. -Indian Accounting Standards (Ind AS): These standards are applicable to certain companies in India. -In Canada, private enterprises often follow the Accounting Standards for Private Enterprises(ASPE). -Islamic Accounting Standards developed by (AAOIFI), IFAS provides accounting standards for Islamic financial institutions.

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What are the different financial reporting standards and frameworks?

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1 International Standards

2 US Standards

3 Other Standards

4 Benefits and Challenges

5 Business Reporting Implications

6 Future Trends

7 Here’s what else to consider

Business Reporting

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