International financial reporting standards (IFRS) represent the evolving accounting rules and standards international companies use when managing financial data. IFRS requirements are the individual rules or standards a company must follow for certain financial activities. A simplistic breakdown for IFRS requirements is the separation of standards into income statement and balance sheet activities. For example, these items can include revenue, employee costs, income taxes, and inventory for income statement items — acquisition accounting; property, plant, and equipment (PPE); inventory; and receivables belong on the balance sheet. Other items fall under other IFRS rules or standards.
A financial statement is typically the backbone of an accounting system regardless of it following domestic or international accounting standards. The common statements under IFRS requirements include the income statement or statement of comprehensive income, balance sheet, statement of changes in equity, and the statement of cash flows. Preparation methods must follow specific guidelines in IFRS, though some variations may be possible. Each item that is reflected on these statements must follow IFRS requirements. Once a company selects a specific preparation method, it must use this method continuously in order to maintain a trend for future use.
Individual IFRS requirements are really quite detailed to review and understand; here, a basic generalization of the requirements follows. Revenue measurements must be at fair value when reported by a company; the matching principle applies here. Employee costs are recognizable once an individual completes service to a company for a specific task. Taxes are a liability shown on the balance sheet until paid; the related tax expense must be on the income statement for each month the company earns a profit or loss. Inventory costs follow the lower-cost-or-market principle for recognizing the cost of goods sold that reduces a company’s revenues for a given period.
On the balance sheet, IFRS requirements allow only the use of the purchase method for acquisition accounting and business combinations. When acquired, assets — both tangible and intangible — must follow fair value accounting requirements. PPE assets must go into a company’s accounting books at historical cost, which is fairly standard for accounting practices. Depreciation for fixed assets and amortization for intangible assets are also a part of these requirements. Inventory accounting must follow the same standards as applied to the income statement; receivables accounting under IFRS requirements must follow historical cost principles and then be written off or have an adjustment made when any individual receivable becomes impaired or uncollectible.