“If you learn only methods, you’ll be tied to your methods, but if you learn principles you can devise your own methods.”
Ralph Waldo Emerson
Every field has its own language which forms the basics of understanding its jargons. So also is the seemingly dreadful IFRS.
A long time ago, in the year 1966. A group of independent accounting standard-setting bodies came together to form a single body that will be in charge of setting international standards that will guide preparers of financial statements all over the world.
The idea was simple:
“Company A is a parent company which operates in France. Its subsidiary company is located in Nigeria. France has her local standards for preparing financial statements. Nigeria also has hers. As a result, both companies will have to prepare two separate accounts using different measures stated by their local standard-setting body. At the end of the year, Company A will be obliged to consolidate its accounts with that of its subsidiary operating in Nigeria. This causes problems as each element on both financial statements has been prepared using different measures. How then do we add x plus y to make 2x?”
It is evident that a consensus has to be reached. This is one of the major factors that generated the urgent need for a standard that will enable COMPARABILITY. These standards are referred to as the International Financial Reporting Standards –IFRS for short.
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