International Financial Standardization

Tuesday, June 22, 2010

International Financial Reporting Standards (IFRS) & the Small Business Owner/Manager

Most small business owners in the United States struggle with mandatory government reporting requirements. In listening to our clients I hear a consensus that the reports and payments to local, state, and federal governments can be daunting without hiring an on-staff or outsourced accountant. For our clients who do business globally, there is often one more layer of regulation added to their requirements. It is safe to say that the U.S. Generally Accepted Accounting Principles (GAAP) and IRS requirements differ from those of other countries, therefore creating a need for separate reporting standards. To add potential confusion, not all countries have their own GAAP.

The International Accounting Standards Board (IASB) was born of that need. In 2009 the IASB published “IFRS for small and medium-sized entities”. The IFRS presents a global standard recognition and measurement of a company’s financial position. At this time, not all small business owners are required to adopt IFRS, particularly if no international revenue stream exists. As more businesses expand their operations worldwide, however, they create the need to adopt the consistent standards that ultimately streamline their reporting on a multi-national basis. A secondary goal of IFRS is to simply provide an alternative to those countries with their own GAAP.

As anyone who has a global operation can attest, the term “small and medium-sized entity” has different meanings in different areas of the world. IFRS begins by defining a small and medium-sized entity (SME) as one that “does not have public accountability and publish general purpose financial statements”. In other words, it excludes publicly traded entities and those acting as a fiduciary as their main line of business.
If you are a small-business owner who produces accounting reporting for his/her own management purposes, general tax authorities, and/or credit lenders, then you may consider IFRS as an alternative. If you have a global operation or revenue stream, I recommend you standardize your reporting and simplify your bookkeeping and accounting operations.
If you are interested in learning more, you can go to the International Accounting Standards Board website at www.iasb.com or contact me through our company’s website at www.intlbk.com. Look for my upcoming blog Simplifying IFRS for SMEs for the Small Business Owner/Manager.