The standards of IFRS (International Financial Reporting Standards), also known in Spanish as NIIF (Normas Internacionales de Información Financiera), are accounting standards used by companies around the world.
These standards are issued by the International Accounting Standards Board (Consejo de Normas Internacionales de Contabilidad, in Spanish) and, as a whole, they seek that the information presented in the financial statements is internationally harmonized and allows transparency and comparability.
In the specific case of IFRS 1, this standard establishes the principles or bases for submitting the financial statements of a company. These are the guidelines that help to define how to prepare and submit financial reports.
That is, IFRS 1 serves as a guide, especially for companies that are making the transition from a different accounting system to international standards.
Thus, it is easier for an entity, starting from its first financial statements according to IFRS and also in its interim financial reports, to have the following characteristics for its accounting documents:
- A clear starting point for accounting with IFRS
- Obtaining costs which do not exceed its benefits.
So, IFRS 1 helps to understand the standards, the methodology, and the adjustments that appear in each of the financial statements. In addition to making them comparable for all periods.
In the past, the adoption of the IFRS standards used to create a particular problem, which was the increased costs of the transition to standards, costs that could exceed the benefits reported by the financial reports themselves. This is related to a key principle that revolves around the transition to the regulations of IFRS:
IFRS adoption should be carried out in a comprehensive manner and applied retroactively as a whole to the first financial statements that an entity will submit in accordance with these standards.
That is, when adopting IFRS, it is important to consider that the standards must be applied in the financial statements retrospectively, as well as keep in mind that there are interim financial statements, which is helpful to plan the objectives of the transition to IFRS.
For example, if IFRS are adopted for the financial statements of an organization in 2023, the corresponding period in 2022 should comply with the same regulations.
Hence the relevance of IFRS 1, since it is a standard which lightens the burden and reduces the costs of the transition and the implementation of these regulations.