IFRS - financial statements according to international law
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Comparing companies internationally
The IFRS were formed as it became more important for companies to maintain a way of internationally comparing their economic activity in an increasingly global world. Before then, all companies had to abide by their national laws when forming their financial statements. For example, Germany stayed within the framework of the German Commercial Code when creating balance sheets and income statements. However, in order to compare themselves with international competitors, companies had to follow complicated procedures to convert foreign financial statements into their own form. In order to get rid of this process, the International Accounting Standards Board adopted the IFRS. All companies that formed their financial statements in accordance with the IFRS could now easily compare themselves with international competitors.
IFRS reporting standards are not for everyone
Upon adopting the IFRS, the European Parliament decided not to make these international guidelines obligatory for all companies, but to leave that decision up to the countries. Long story short, not all companies have to form financial statements in accordance with the IFRS. In these cases, the German Commercial Code remains mandatory, but companies can still opt to create additional statements in line with the IFRS. For corporations, the decision regarding IFRS obligation has to do with whether or not the corporation is publicly traded. Corporations oriented in the capital market are obligated to prepare a final statement in accordance with the IFRS, while other corporations may choose to do this. If a German corporation produces a statement in line with the IFRS, then a German Commercial Code bound statement is no longer necessary.
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