What Is the IASB? Explaining IFRS and Global Standards

The International Accounting Standards Board (IASB) is an independent, private-sector organization that develops and promotes a single set of global accounting rules known as International Financial Reporting Standards (IFRS). Its mission is to foster transparency and efficiency in financial markets by creating a common language for financial reporting, making company statements understandable and comparable across international borders.

Governance and Organizational Structure

The IASB is part of a three-tier governance structure designed to ensure its independence and public accountability. This structure is headed by the IFRS Foundation, a non-profit corporation that oversees the standard-setting process and secures funding. The Foundation’s Trustees appoint members to the standard-setting boards and provide oversight.

The IFRS Foundation has two standard-setting boards: the IASB and the International Sustainability Standards Board (ISSB). The IASB is responsible for all technical matters related to IFRS Accounting Standards. In 2021, the IFRS Foundation established the ISSB to develop IFRS Sustainability Disclosure Standards, which provide a global baseline of sustainability-related disclosures for capital markets. Both boards have complete responsibility for developing and issuing their respective standards.

A third tier, the Monitoring Board, provides a formal link to public authorities. Comprised of capital market authorities from around the world, the Monitoring Board oversees the Trustees and participates in their nomination process, enhancing the public accountability of the IFRS Foundation.

The Standard-Setting Due Process

The creation of an IFRS Standard follows a transparent and consultative “due process” built on full and fair consultation and accountability. This process is used by both the IASB and the ISSB. All technical discussions occur in public meetings that are broadcast and archived, and all meeting papers are made publicly available.

The process begins with agenda consultation, where the relevant board identifies and prioritizes reporting issues based on investor needs or a five-year review. Once a project is added to the agenda, it enters a research and development phase, which may involve establishing a working group. The board may then publish a discussion paper to explain the issue and solicit early feedback.

A mandatory step is publishing an Exposure Draft, which presents the board’s proposal for a new or amended standard. This draft is released for public comment for a set period. During this time, the board engages in outreach to gather evidence and views from stakeholders.

After the comment period closes, the board redeliberates the proposals, considering all feedback received. This may lead to revisions or a re-exposure of the proposal. Once deliberations are complete and the final standard is approved by a vote, it is issued. A few years after a new standard is implemented, a Post-implementation Review is conducted to assess if it is functioning as intended.

Understanding IFRS Standards

The output of the IASB’s work is a set of IFRS Accounting Standards that are principles-based, rather than rules-based. This means the standards provide broad principles and require professional judgment in applying them to the economic substance of transactions. This approach contrasts with more prescriptive systems that attempt to provide specific guidance for every scenario.

IFRS Accounting Standards cover a wide range of areas, such as how companies should report revenue, account for leases, or value financial instruments. For example, IFRS 15, ‘Revenue from Contracts with Customers,’ establishes a framework for recognizing revenue. Recognizing that the full suite of standards can be complex, the IASB also developed the IFRS for SMEs Accounting Standard, a version tailored for small and medium-sized enterprises.

Global Adoption and US GAAP Comparison

The work of the IASB has achieved significant global reach, with IFRS Accounting Standards being required or permitted for publicly listed companies in over 140 jurisdictions. This widespread adoption includes the European Union and many countries in Asia, Africa, and South America, making IFRS the predominant set of standards used globally.

In the United States, however, companies use a different set of standards known as U.S. Generally Accepted Accounting Principles (GAAP). U.S. GAAP is developed and maintained by the Financial Accounting Standards Board (FASB), a separate, independent body. While the IASB and FASB have worked for years on projects to converge their standards, significant differences remain.

A primary conceptual difference is that IFRS is considered principles-based, while U.S. GAAP is more rules-based, often providing more detailed and industry-specific guidance. This can lead to different accounting outcomes. For instance, U.S. GAAP permits the use of the Last-In, First-Out (LIFO) method for inventory valuation, which is prohibited under IFRS. Another difference lies in the treatment of inventory write-downs; IFRS allows for the reversal of a previous write-down if the market value recovers, whereas U.S. GAAP forbids such reversals.