Global economies become more interconnected by the day, especially with increasing cross-border transactions and the flow of international capital. As a result, standard-setting bodies and regulatory authorities have developed and enforced international reporting standards and frameworks that companies must adhere to.
These international financial reporting standards and frameworks provide relevant parties with a shared language to accomplish financial and tax-related reporting obligations, paving the way for the stability and security of the global financial system.
Reporting organisations …
- Obtain fundamental information that can set a clear image of the organisation’s financial health and aid in creating well-informed operational and financial decisions
- Ensure compliance with a clear set of standards to follow
- Improve transparency to foster credibility and trust with stakeholders and regulatory bodies
Stakeholders, potential investors and creditors …
- Acquire accurate information that can be assessed in a single standard
- Gain comprehensive information necessary for making meaningful and timely financial (e.g., investment and credit approval) decisions
This article provides an overview of some of the most adapted financial and tax-related reporting frameworks in the global market.
The most common financial reporting standards and frameworks
International Financial Reporting Standards (“IFRS”)
The IFRS, issued by the International Accounting Standards Board (“IASB”), is a set of accounting standards that lay out a consistent framework for preparing and presenting an organisation’s financial statements. The IFRS and the GAAP are the two primary accounting standards used worldwide.
In applying the IFRS, global financial market players are expected to reflect the following aspects:
- Transparency – facilitate international comparability and quality of financial information
- Accountability – promote the sharing of information between providers of capital, regulators and organisations
- Efficiency – assist investors in identifying opportunities and risks and lowering reporting costs for businesses
The IFRS is currently required in 147 jurisdictions for all or most domestic publicly listed companies and financial institutions and is permitted for use in 12 jurisdictions. Moreover, a simplification of the IFRS, known as the “IFRS for SMEs Accounting Standard”, is required or permitted for small and medium-sized enterprises in 86 global jurisdictions.
View the relevant IFRS Accounting Standards for each participating jurisdiction here.
Generally Accepted Accounting Principles (“GAAP”)
The GAAP, issued by the Financial Accounting Standards Board (“FASB”) and the Governmental Accounting Standards Board (“GASB”), is mainly used in the United States. Like the IFRS, GAAP is a set of accounting rules, requirements and practices aimed at standardising the reporting of financial information of companies across industries.
The table below shows some similarities and differences between the IFRS and GAAP.
| IFRS | GAAP | |
|---|---|---|
| Documents to include in the financial statements | – Balance sheet – Income statement – Changes in equity – Cash flow statement | – Balance sheet – Income statement – Statement of comprehensive income – Changes in equity – Cash flow statement |
| Balance sheet | Format is from least liquid to most liquid. | Format is from most liquid to least liquid. |
| Intangible assets | Valued on the basis of future economic benefits. | Valued at fair value. |
| Asset revaluation | Allows a broader scope of assets for revaluation, such as plant, property and equipment (“PPE”), inventories, intangible assets and investments in marketable securities. | Only allows the revaluation of the fair market value for marketable securities. |
| Liabilities | Does not make classifications between current and non-current liabilities. | Classifies liabilities into current and non-current. |
| Inventory accounting method | Does not allow last in, first out (“LIFO”) method. Inventory must be valued at net realizable value. Inventory write-down reversals are possible (under certain conditions). | Allow first in, first out (“FIFO”), last in, first out (“LIFO”) or weighted average. Inventory must be valued at market value. Does not allow inventory write-down reversals. |
| Classification of expenses in Income Statement | Require documentation of expenses by function or nature. | Does not require to document expenses by function or nature. |
The US GAAP is legally enforced on all companies publicly traded on stock exchanges and indices but can also be used by private companies and government entities. It incorporates ten principles, as follows:
- Principle of Regularity
- Principle of Consistency
- Principle of Sincerity
- Principle of Permanence of Methods
- Principle of Non-Compensation
- Principle of Prudence
- Principle of Continuity
- Principle of Periodicity
- Principle of Materiality
- Principle of Utmost Good Faith
Common Reporting Standard (“CRS”)
The CRS is the Organisation for Economic Co-operation and Development’s (“OECD’s”) global standard for automatic exchange of information (“AEOI”) between participating jurisdictions. It was developed in response to the G20’s request to obtain information from the participating jurisdiction’s financial institutions and facilitate an annual AEOI. There are currently over 120 jurisdictions committed to the implementation of the CRS.
The CRS aims to identify and address tax evasion and fraud and enhance tax transparency, mainly through AEOI. The implementation of the AEOI provides a systematic and periodic transmission of information relating to each reportable account of a reporting financial institution, as follows:
- Account details of each reportable account holder (e.g., name, address, jurisdiction(s) of residence, TIN(s), date and place of birth);
- Account number;
- Name and identifying number of the reporting financial institution; and
- Account balance or value at the end of the reporting period, to name a few.
In addition, financial institutions are obliged to conduct due diligence with their pre-existing and new account holders.
The OECD recently published a 2023 update on the CRS, which brings into scope certain electronic money products and central bank digital currencies. It was published along with the Crypto-Asset Reporting Framework (“CARF”), which provides the groundwork for the AEOI on crypto-assets. The CARF was developed to ensure global tax transparency in the fast-growing crypto-asset market.
Foreign Account Tax Compliance Act (“FATCA”)
The FATCA is a US legislation enacted as part of the Hiring Incentives to Restore Employment Act (“HIRE Act”) to prevent tax evasion on assets held beyond the US territory. It provides the framework for the exchange of information from foreign financial institutions (“FFIs”) and certain non-financial foreign entities to the US Internal Revenue Service (“IRS”).
FFIs may also comply with each jurisdiction’s FATCA Intergovernmental Agreements (“IGAs”). Access the FATCA agreements and understandings by jurisdiction here.
The FATCA requires FFIs to annually report on certain information regarding the financial accounts held by (i) US taxpayers or (ii) foreign entities in which US taxpayers hold a substantial ownership interest. Moreover, such FFIs will be subject to certain identification and due diligence requirements.
In addition, US taxpayers holding foreign financial assets with an aggregate value of more than US$ 50,000 must also report certain information regarding those assets.
How Bolder Group can assist
Now more than ever, it is essential for organisations to keep up with the numerous compliance frameworks in the fast-paced growth and globalisation of markets. This entails being aware of the requirements, procedures and practices imposed on an organisation, which may differ from one entity to another. For companies operating in multiple jurisdictions, effectively and efficiently doing so may be a challenge.
Bolder Group can assist with our bespoke corporate and governance solutions. Our experts can keep and file the books of your entities in accordance with the relevant accounting standards through our accounting services. We also offer comprehensive reporting services to assist you in your due diligence and reporting obligations.
Find your nearest Bolder office and contact our team to learn more about our services.
Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.
Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.
Featured image from Envato.
