IFRS Accounting EXPLAINED in Simple Terms — Transcript

Full transcript

1. 0:00Hey everyone, welcome back to accounting
2. 0:02basics.
3. 0:04Today we're diving into IFRS accounting.
4. 0:08What it is, why it matters, and how it
5. 0:11affects businesses around the world.
6. 0:14If you've ever scratched your head over
7. 0:16balance sheets, profit statements, or
8. 0:18wondered what fair value really means,
9. 0:22this video is for you.
10. 0:24So grab your coffee and let's get
11. 0:26started.
12. 0:28Imagine this.
13. 0:30You're an investor looking at two
14. 0:32companies in different countries.
15. 0:34One, let's say in Germany, and one maybe
16. 0:36in Brazil.
17. 0:38They're in the same industry and both
18. 0:40look profitable,
19. 0:42but their financial statements are like
20. 0:43apples and oranges.
21. 0:45How do you compare them fairly?
22. 0:48That's exactly the problem IFRS
23. 0:51is trying to solve.
24. 0:53It's the universal language of
25. 0:56accounting.
26. 0:57And if you want to understand how global
27. 0:59business works, you need to know the
28. 1:02basics.
29. 1:03Let's start with the obvious. What does
30. 1:06IFRS even mean?
31. 1:09IFRS stands for International Financial
32. 1:12Reporting Standards.
33. 1:14These are a set of accounting rules and
34. 1:16guidelines developed by the
35. 1:17International Accounting Standards
36. 1:19Board, or the IASB,
37. 1:22which is a nonprofit based in London.
38. 1:26The goal was to create transparent,
39. 1:28comparable, and consistent financial
40. 1:31statements across the globe.
41. 1:34Instead of each country having its own
42. 1:36unique accounting system, IFRS allows
43. 1:39investors, regulators, and businesses to
44. 1:42speak the same language.
45. 1:45Over 140 countries currently require or
46. 1:49permit IFRS,
47. 1:51including the UK, the EU, Australia, and
48. 1:55much of Asia and South America.
49. 1:58The big exception?
50. 1:59The United States, which still uses US
51. 2:02GAAP.
52. 2:04More on that in another video.
53. 2:07All right, so how does IFRS work in
54. 2:10practice?
55. 2:11Let's look at five core principles you
56. 2:14need to understand.
57. 2:16One, accrual basis.
58. 2:19IFRS uses accrual accounting,
59. 2:22which means revenues and expenses are
60. 2:24recorded when they are earned or
61. 2:26incurred, not when cash changes hands.
62. 2:30This gives a more accurate picture of a
63. 2:32company's financial health.
64. 2:35Two, going concern.
65. 2:38This assumes the company will continue
66. 2:40operating into the foreseeable future.
67. 2:43Unless there's evidence to the contrary,
68. 2:45you don't assume the business is
69. 2:47shutting down.
70. 2:49Three, consistency.
71. 2:52Companies should apply the same
72. 2:54accounting policies year after year,
73. 2:57unless a change is justified.
74. 2:59This helps with comparability over time.
75. 3:03Four,
76. 3:04prudence.
77. 3:06IFRS encourages caution.
78. 3:09Don't overstate assets or income, and
79. 3:12don't underestimate liabilities.
80. 3:14If there's uncertainty, choose the less
81. 3:17optimistic outcome.
82. 3:19And five, fair presentation.
83. 3:23Financial statements should give a true
84. 3:25and fair view of a company's financial
85. 3:27position, performance, and cash flows.
86. 3:31These principles are the foundation of
87. 3:33everything in IFRS.
88. 3:36Under IFRS, companies are required to
89. 3:39produce four key financial statements.
90. 3:43First, the statement of financial
91. 3:45position.
92. 3:46This is your balance sheet. It shows
93. 3:48assets, liabilities, and equity at a
94. 3:51specific point in time.
95. 3:54Second, a statement of profit or loss
96. 3:57and other comprehensive income.
97. 3:59A fancy way of saying income statement.
98. 4:02It shows revenue, expenses, and profits.
99. 4:06Thirdly, a statement of changes in
100. 4:08equity.
101. 4:10This shows movement in owner's equity
102. 4:12over the given period.
103. 4:14And four, statement of cash flows.
104. 4:18This tracks cash inflows and outflows
105. 4:20from operating, investing, and financing
106. 4:23activities.
107. 4:25These give the stakeholders a 360°
108. 4:28view of how the company is really doing.
109. 4:31A common question is,
110. 4:33how is IFRS different from GAAP, which
111. 4:37is generally accepted accounting
112. 4:39principles?
113. 4:41Here are three quick differences.
114. 4:43Rules versus principles.
115. 4:46GAAP, or GAAP we'll call it, is more
116. 4:50rule-based, while IFRS is
117. 4:53principle-based,
118. 4:54giving companies more judgement in how
119. 4:57they apply standards.
120. 4:59Inventory.
121. 5:01IFRS doesn't allow LIFO, which is last
122. 5:04in, first out, as an inventory method.
123. 5:08GAAP does.
124. 5:10Development costs.
125. 5:12Under IFRS, certain development costs
126. 5:15can be capitalized.
127. 5:17GAAP is stricter and usually expenses
128. 5:20them.
129. 5:21Each has its pros and cons, but IFRS is
130. 5:24generally seen as more flexible and
131. 5:26globally minded.
132. 5:29So, why should you care about IFRS?
133. 5:33If you're a student, it's part of most
134. 5:35accounting, finance, and MBA programs.
135. 5:38If you're an investor, understanding
136. 5:41IFRS helps you analyze international
137. 5:43companies.
138. 5:45If you work in finance or audit, it's
139. 5:48essential knowledge, especially if you
140. 5:50work with global clients.
141. 5:53And if you're a business owner expanding
142. 5:55internationally,
143. 5:57adopting IFRS can improve your
144. 5:59credibility and access to global
145. 6:02capital.
146. 6:04In a global economy, knowing IFRS is
147. 6:07like having a universal passport for
148. 6:09business.
149. 6:11And that's a wrap on the basics of IFRS
150. 6:14accounting. We covered what it is, the
151. 6:16key principles, the main financial
152. 6:18statements, and how it stacks up against
153. 6:20GAAP.
154. 6:22Let me know in the comments, do you
155. 6:23prefer IFRS or GAAP? Or are you just
156. 6:26trying to survive your accounting class?
157. 6:29If this video helped you, hit that like
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160. 6:34future videos. Thanks for watching, and
161. 6:37I'll see you in the next one.