What is IFRS and why it was created
International Financial Reporting Standards (IFRS) are universal rules by which companies from different countries compile financial statements. These rules help make reports understandable and comparable for investors, banks, partners and potential counterparties, regardless of which country they work in.
IFRS was invented to solve a simple problem: in different countries there are different accounting rules, and it is difficult to compare the reporting of companies with each other.
For example, revenue and profit in Russian and German reporting can be taken into account differently. Therefore, since the creation of IFRS, more than 140 countries have officially used the international standard.
What are the differences between IFRS and the Russian Accounting Standards (RAS)
IFRS does not have a unified form with strict line numbering, as in RAS. Companies themselves form the structure of the report, following the principles of disclosure.
In Russia, the preparation of financial statements is regulated by one key document - the Federal Law No. 402-FZ, the Order of the Ministry of Finance No. 66n, which approved the forms of financial statements.
IFRS has dozens of standards. Each is responsible for its own plot: revenue, rent, taxes, stocks, leasing, financial instruments. This makes IFRS reporting more flexible and closer to the real economy of the company.
Who in Russia needs to report under IFRS
- Public companies are organizations whose securities are traded on exchanges.
- Subsidiaries of foreign holdings are required to report under IFRS to the parent company.
- Companies issuing bonds and attracting borrowed financing.
- Large holdings - for internal analysis, interaction with banks and preparation for IPO.
Despite external sanctions, reporting according to international standards remains relevant. Reports under IFRS may be requested by:
- investors and counterparties from China actively working with Russian enterprises;
- EAEU countries using IFRS for mutual recognition of reporting;
- countries with which economic cooperation has intensified: Brazil, India, Argentina, Turkey, UAE, Vietnam, etc.
Composition of IFRS statements
Reporting according to international standards includes four forms:
- Statement of Financial Position. Shows what the company owns (assets), how much it owes (liabilities) and what capital it has.
- Statement of Comprehensive Income. Shows revenue, expenses, profit and other income.
- Cash Flow Statement. Reflects where the money comes from and where it goes, is the main indicator of the company's health.
- Statement of Changes in Equity. Shows how equity has changed over the year due to earnings, dividends and revaluations.
Express methods of IFRS financial statements analysis
To get an overview of the financial condition of the company, it is enough to consider several key indicators, and identify negative and positive factors.
- Revenue and net profit show the company's income and profitability. When analyzing, it is also worth paying attention to the trend of 2-3 years. If the indicators are growing, this is a good sign.
- Current liquidity ratio shows whether the company is able to cover its current liabilities. If the current liquidity ratio is higher than 1, it is a sign that the company can manage its short-term liabilities.
- Debt ratio indicates dependence on borrowed funds. The lower the ratio, the better: the company is less dependent on external funds.
- Cash flow from operating activities reflects whether a company is able to generate cash from its core operations without relying on loans. A positive flow shows that the organization earns from its core activities.
During the analysis of key indicators, negative and positive factors in the company's activities should be identified. This method will help you quickly assess the financial condition of the company.
The negative factors may include:
- high debt burden (debt ratio)
- negative operating cash flow
- low liquidity
Positive factors include:
• revenue growth
• stable profitability indicators
• positive operating cash flow
• stable profitability indicators
• positive operating cash flow
If negative factors are dominant, it is necessary to refuse to cooperate or conduct prepayment transactions.
Using this express technique, you can get an initial picture of the financial condition of a foreign counterparty in a few minutes.
Globas capabilities in financial analysis
In Globas, financial statements under IFRS standards are available for a wide range of foreign companies. This makes it possible to assess the financial stability and solvency of foreign counterparties with a high degree of reliability.
Globas offers advanced analysis capabilities:
- identification of signs of temporary insolvency
- calculation of key financial indicators
- broad analysis of all forms of financial reporting, including IFRS reporting
Such tools are especially in demand when conducting foreign economic activity and choosing reliable partners abroad.
Verification of foreign counterparties can be performed in two formats:
- online - with access to basic information from official sources
- offline - with the possibility of obtaining an extended expert report
The offline report may additionally provide information about related persons, court and enforcement proceedings in the Russian Federation, the availability of Russian certificates and declarations, as well as verification for inclusion in the sanctions lists of the Russian Federation, USA, EU, Great Britain and other countries.
