What is IFRS? Who uses it and how it is organised

What IFRS is

IFRS (International Financial Reporting Standards, now formally called IFRS Accounting Standards) is the set of accounting rules issued by the International Accounting Standards Board that tells companies how to recognise, measure, present and disclose transactions in their financial statements. It matters because more than 140 jurisdictions require it for all or most listed companies and financial institutions, so investors can compare accounts across borders.

IFRS governs general purpose financial statements: the balance sheet, income statement, cash flow statement, statement of changes in equity and the notes. It does not set tax rules, prescribe a chart of accounts or tell you how to run a ledger. Two businesses can keep very different books and still both produce IFRS statements, because the standards judge the output, not the bookkeeping method.

The label IFRS is used loosely for the whole body of literature: the older International Accounting Standards (IAS 1 to IAS 41, issued by the predecessor committee between 1973 and 2001 and still in force unless replaced), the IFRS standards numbered from IFRS 1 onwards, and the interpretations issued as IFRIC and SIC. The sustainability standards IFRS S1 and IFRS S2 are a separate family and are not part of the accounting standards.

Who writes IFRS: the IFRS Foundation, the IASB and the ISSB

The IFRS Foundation is a not-for-profit organisation that works in the public interest. Its trustees oversee two standard-setting boards and are themselves accountable to a Monitoring Board of capital market authorities. The International Accounting Standards Board (IASB) writes the accounting standards. The IFRS Interpretations Committee answers application questions, either by issuing an interpretation or by publishing an agenda decision that explains how existing requirements apply. The International Sustainability Standards Board (ISSB), created in 2021, writes the sustainability disclosure standards.

New requirements go through public due process: research, often a discussion paper, then an exposure draft open for comment, redeliberation and a final standard with an effective date usually eighteen months or more after issue. Several years after a major standard takes effect the IASB runs a post-implementation review. It concluded in 2024 that IFRS 15 and the impairment requirements of IFRS 9 are working as intended, and reached the same overall view on IFRS 16 in July 2026.

The IASB has no legal power of its own. A standard becomes binding only when a jurisdiction adopts it into law or regulation, and compliance is policed by national securities regulators and audit oversight bodies, not by the IFRS Foundation.

Who must use IFRS: Europe, the UK, Canada and the Gulf

Because the legal force of IFRS comes from each jurisdiction, the question is always which law applies to your entity and to which set of accounts. The main markets for this guide, as of September 2026:

• European Union: Regulation (EC) No 1606/2002, the IAS Regulation, requires companies whose securities are admitted to trading on an EU regulated market to prepare their consolidated accounts under EU-endorsed IFRS for financial years starting on or after 1 January 2005. Member states may extend IFRS to individual accounts and unlisted companies; many keep national GAAP, such as the German HGB, for single-entity statutory accounts.
• EU endorsement: a new standard applies in the EU only after the European Commission adopts it, on advice from EFRAG. IFRS 18, issued in April 2024, was adopted by the EU in February 2026 with the same 1 January 2027 effective date.
• United Kingdom: since 1 January 2021 new standards apply only once the UK Endorsement Board adopts them into UK-adopted international accounting standards. Listed groups use them; most other companies use FRS 102.
• Canada: IFRS forms Part I of the CPA Canada Handbook, Accounting, and is required for publicly accountable enterprises for fiscal years beginning on or after 1 January 2011. Private enterprises may choose ASPE (Part II), not-for-profit organisations ASNPO (Part III).
• Saudi Arabia: companies apply IFRS as endorsed in the Kingdom by SOCPA, which adds some disclosures and separate pronouncements for matters IFRS does not cover, such as zakat. Publicly accountable entities use full IFRS; others may use full IFRS or the IFRS for SMEs Accounting Standard as endorsed.
• United Arab Emirates: there is no UAE national GAAP. Company law requires international accounting standards and the exchanges require IFRS, so IFRS is the framework in practice, with IPSAS used by some government bodies.
• United States: domestic companies use US GAAP, but the SEC accepts IFRS as issued by the IASB from foreign private issuers without a reconciliation.

Full IFRS, IFRS for SMEs and IFRS 19: choosing the right version

Full IFRS means every standard with all of its disclosures. The IFRS for SMEs Accounting Standard is a separate, self-contained standard for entities without public accountability that publish general purpose statements for outside users. It removes options, simplifies recognition and measurement and cuts disclosures sharply. Its third edition was issued in February 2025 and is effective for periods beginning on or after 1 January 2027, with earlier application permitted; it adds a simplified revenue model based on IFRS 15 among other updates. The EU has not endorsed it for statutory accounts, and the UK standard FRS 102 is derived from it.

IFRS 19 Subsidiaries without Public Accountability: Disclosures, issued in May 2024 and also effective from 1 January 2027, sits between the two. An eligible subsidiary keeps full IFRS recognition and measurement, so its numbers need no conversion for group reporting, but it gives a reduced set of disclosures. A practical way to decide:

• Securities traded on a public market, or holding assets in a fiduciary capacity for a broad group of outsiders (banks, insurers, many funds): publicly accountable, so full IFRS.
• Subsidiary of an IFRS group with no public accountability: full IFRS measurement, and consider IFRS 19 disclosures from 2027.
• Private company in a jurisdiction that offers a choice: IFRS for SMEs, national GAAP such as ASPE or FRS 102, or full IFRS if lenders, investors or a future listing make it worthwhile.
• Planning an initial public offering: move to full IFRS early, because IFRS 1 requires a restated comparative year and an opening balance sheet at the transition date.

The Conceptual Framework: the logic behind every standard

The Conceptual Framework for Financial Reporting, revised in March 2018, is not a standard and never overrides one. The IASB uses it to write standards, and preparers use it when no standard deals with a transaction. It sets the objective of financial reporting as providing information that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Its key building blocks are worth knowing by heart, because standards and auditors argue from them:

• Fundamental qualities: relevance (including materiality) and faithful representation, meaning complete, neutral and free from error.
• Enhancing qualities: comparability, verifiability, timeliness and understandability.
• Prudence: reintroduced in 2018 as the exercise of caution under uncertainty, which supports neutrality rather than permitting hidden reserves.
• Asset: a present economic resource controlled by the entity as a result of past events, where an economic resource is a right that has the potential to produce economic benefits.
• Liability: a present obligation of the entity to transfer an economic resource as a result of past events. Equity is the residual interest after deducting all liabilities.
• Measurement bases: historical cost, or a current value (fair value, value in use for assets or fulfilment value for liabilities, and current cost).
• Going concern: the underlying assumption unless management intends or has no realistic alternative but to liquidate or stop trading.

A map of the main standards

Standards are numbered in the order they were issued, not by topic, so IAS 2 on inventories and IFRS 16 on leases are neighbours in practice but twenty-five years apart on the list. Grouping them by what they govern makes the body of standards easier to navigate:

• Presentation and basis of preparation: IAS 1 (replaced by IFRS 18 from 2027), IAS 7 cash flows, IAS 8 policies, estimates and errors, IAS 10 events after the reporting period, IAS 34 interim reporting.
• Revenue and financial instruments: IFRS 15 revenue, IFRS 9 financial instruments, IAS 32 presentation, IFRS 7 disclosures, IFRS 13 fair value measurement.
• Assets: IAS 2 inventories, IAS 16 property, plant and equipment, IAS 38 intangible assets, IAS 36 impairment, IAS 40 investment property, IFRS 16 leases, IFRS 5 assets held for sale.
• Liabilities and costs: IAS 37 provisions, IAS 19 employee benefits, IAS 12 income taxes, IFRS 2 share-based payment, IAS 23 borrowing costs.
• Groups: IFRS 3 business combinations, IFRS 10 consolidation, IFRS 11 joint arrangements, IAS 28 associates, IFRS 12 disclosures, IAS 27 separate statements.
• Currency and inflation: IAS 21 foreign exchange, IAS 29 hyperinflationary economies.
• Industry standards: IFRS 17 insurance contracts, IAS 41 agriculture, IFRS 6 mineral resources.
• Disclosure-focused and transition standards: IAS 24 related parties, IFRS 8 operating segments, IAS 33 earnings per share, IFRS 1 first-time adoption, IFRS 19 reduced disclosures.

Principles, judgement and accounting policies

IFRS is principles-based. It states an objective and a principle, adds application guidance, and expects preparers to exercise judgement where US GAAP might supply a bright-line rule. The price of that flexibility is documentation: an auditor will ask for the reasoning behind every significant judgement, such as whether a contract contains a lease, whether a customer can direct the use of an asset or which currency is functional.

When no standard applies, IAS 8 sets a hierarchy. Management develops a policy that produces relevant and reliable information, looking first at IFRS requirements dealing with similar issues, then at the definitions and concepts in the Conceptual Framework, and may consider pronouncements of other standard-setters that use a similar framework. IAS 8 also separates three kinds of change: a new accounting policy is applied retrospectively, a revised estimate prospectively, and a prior-period error is corrected by restating comparatives. Our guide on finding and correcting accounting errors works through a restatement.

The notes must explain the judgements with the most significant effect on the amounts recognised and the key sources of estimation uncertainty. Those two disclosures are where readers learn how much of the balance sheet rests on management's view rather than on invoices.

Worked example: one sale, four standards

Vogel Maschinen GmbH has the euro as its functional currency. On 15 November 2026 it delivers a packaging machine with twelve months of remote support to a customer in the United States for USD 21,000, payable in 60 days. The spot rate is EUR 1 = USD 1.05, so the price is EUR 20,000. Sold separately, the machine would fetch EUR 22,000 and the support EUR 3,000, a total of 25,000. The EUR 5,000 discount is spread in proportion: machine 17,600 (88 percent of 20,000), support 2,400. The export carries no VAT. At 31 December the rate is EUR 1 = USD 1.12.

Each entry below comes from a different standard, and each amount is in euros:

• IFRS 15 at delivery: Dr Trade receivables 20,000 / Cr Revenue 17,600 / Cr Contract liability 2,400.
• IFRS 15 at 31 December, one and a half months of support delivered (2,400 x 1.5 / 12 = 300): Dr Contract liability 300 / Cr Revenue 300.
• IAS 21 at 31 December, the receivable is monetary and is retranslated: USD 21,000 / 1.12 = EUR 18,750. Dr Foreign exchange loss 1,250 / Cr Trade receivables 1,250.
• IFRS 9 at 31 December, lifetime expected credit loss on a current receivable at 0.8 percent: 18,750 x 0.8 percent = 150. Dr Impairment loss on trade receivables 150 / Cr Loss allowance 150.
• IFRS 18 presentation from 2027: revenue of 17,900, the exchange loss of 1,250 and the impairment of 150 all sit in the operating category, because they arise from the company's main business activity.
• Result at 31 December: net receivable 18,600 (18,750 less 150) and a contract liability of 2,100 (2,400 less 300).

Common misconceptions about IFRS

Most confusion about IFRS comes from treating it as a product, a tax code or a fixed template. The points below come up repeatedly with owners, auditors and software buyers:

• No software carries an IFRS certification, because none exists. IFRS compliance is a property of financial statements that management prepares and an auditor opines on; software can only make compliant statements easier or harder to produce.
• IFRS does not determine tax. Taxable profit follows tax law, and the differences create deferred tax under IAS 12. In Saudi Arabia zakat is governed by separate rules.
• EU IFRS and IFRS as issued by the IASB are not always identical. Endorsement can lag the IASB, and the EU still allows a carve-out from IAS 39 hedge accounting for certain portfolio hedges.
• IFRS does not supply a statement template. It sets minimum line items and principles; IFRS 18 adds required categories and subtotals but still leaves the layout to the preparer.
• The rules keep moving. IFRS 18 and IFRS 19 take effect in 2027, and amendments to the classification and measurement requirements of IFRS 9 took effect for periods beginning on or after 1 January 2026.
• The contract liability in the example above is not retranslated at the closing rate, because an obligation to deliver services is a non-monetary item. First-time preparers often retranslate it by mistake.

How Skyline Nexus ERP supports IFRS reporting

IFRS is applied by the preparer rather than certified in software, so what IFRS reporting needs from a system is the ledger structure the statements are built from, and that is what Skyline Nexus ERP provides. Under Fiscal Authority > Chart of Accounts, every account type carries a classification (asset, liability, equity, revenue or expense), a normal balance and three report classifications: P&L Category, Balance Sheet Liquidity (Current or Non-Current) and Cash Flow Activity (Operating, Investing or Financing). Those tags decide where each account lands on the statements, so the current and non-current split becomes a property of the account rather than a spreadsheet step.

Fiscal Authority > Reports produces the Trial Balance, Income Statement, Balance Sheet, Cash Flow and Changes in Equity, and our guide on financial statements and the year-end audit pack walks through each report. The Income Statement and Balance Sheet offer a Compare With option (Previous Period or Previous Year) for comparatives, and journal lines can carry a cost centre and a project while each journal carries a branch, which supports analysis by segment. Accounts hold English and Arabic names, and the Arabic name is shown when the interface is in Arabic. The Skyline Nexus Cash Flow report is a direct analysis of movements on cash and bank accounts, classified by each account type's Cash Flow Activity, which IAS 7 permits; where an indirect reconciliation from profit is also wanted, prepare it alongside in the year-end working papers.

Related guides

This overview is the entry point to the IFRS series. Each guide below takes one standard or framework further, with worked numbers.

• IFRS 15 revenue recognition: the five-step model with bundled contracts and volume rebates.
• IFRS 16 leases: lessee accounting and a full five-year amortisation schedule.
• IFRS 9 expected credit losses: building a provision matrix for trade receivables.
• IAS 21 foreign currency accounting: functional currency, retranslation and translating a foreign operation.
• IFRS 18 presentation and disclosure: the new income statement structure from 2027.
• IFRS vs US GAAP and IFRS vs ASPE in Canada: the frameworks side by side for cross-border and Canadian groups.
• IFRS for SMEs and UK FRS 102 vs IFRS: the lighter frameworks for private companies.
• IFRS and your ERP: what IFRS compliance means for accounting software.