Clarity: The First Principle of International Financial Reporting Standards (Part 1 of 4)
In conversations with individual accountants, I am discovering an initial reluctance to accept the change to IFRS, which relies more on the accountant’s judgment. IFRS requires that financial statements be prepared using four basic principles: clarity, relevance, reliability, and comparability.
The principle of clarity requires that financial statements be easy to read and easy to understand. IFRS guidelines allow substantial discretion in deciding what information will be included and how it will be presented in the financial statements. The final decision rests with the accountant. IFRS simply requires that the result be a true and fair presentation of the company’s financial position, its financial performance, and its cash flow. But this is not as easy as it sounds.
To achieve clarity accountants should choose simplicity over complexity. You have to remember that the readers of these financial statements might not necessarily have an accounting background. The financial position of the company should be clear to anyone reading the statements. This is the real challenge of IFRS.