Accounting Standards Explained

What are accounting standards?

Accounting standards are rules and guidelines that specify the manner in which financial transactions and other economic events are to be recognised and recorded as accounting transactions and reported in financial statements.

Accounting standards are the principal source of GAAP[1] (generally accepted accounting principles).

Standard-setting bodies regarding accounting standards

The International Accounting Standards Committee (IASC)

The International Accounting Standards Committee (IASC) was founded in 1973 ‘through an agreement made by professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland, and the United States of America,’ according to Deloitte (a well-known professional services company).

The first chairman of the IASC was sir Henry Benson from the United Kingdom, serving from 1973 to 1976.

Between its founding in 1973 and its dissolution in 2001, the IASC issued 41 International Accounting Standards (IASs).

The International Accounting Standards Board (IASB)

The International Accounting Standards Board (IASB) was founded in 2001 to replace and succeed the IASC.

The IASB is the standard-setting body of the IFRS Foundation, describing itself as ‘a not-for-profit, public interest organisation established to develop a single set of high quality, understandable, enforceable and globally accepted accounting standards – IFRS Standards – and to promote and facilitate adoption of the standards.’

IFRS stands for International Financial Reporting Standards.

Since 2001, the International Accounting Standards Board (IASB) endorsed the IASs issued by the IASC, amended, replaced, and reissued some of them, where it considered it appropriate.

As of date (April 2025), the IASB issued 41 International Financial Reporting Standards (IFRSs).

The International Accounting Standards Board (IASB) focuses on international accounting standards in order to improve the transparency of financial reporting in all countries.

Members of the IASB are required to develop and issue international accounting standards, keeping accounting practices transparent and consistent across all companies.

The Financial Reporting Standards Council (FRSC) in South Africa

The Financial Reporting Standards Council (FRSC) was formed in October 2011 with reference to section 203 of the Companies Act (act 71 of 2008) in which the Minister (‘the member of the Cabinet responsible for companies’) is obliged to establish a council known as the FRSC. (The Minister involved is the Minister of Trade and Industry.)

Before the FRSC, the Accounting Practices Board (APB) issued accounting standards for use by South African companies.

According to section 204 of the Companies Act, the FRSC has the following responsibilities concerning accounting standards. The FRSC must:

• ‘receive and consider any relevant information relating to the reliability of and compliance with financial reporting standards and adapt international reporting standards for local circumstances;
• advise the Minister on matters relating to financial reporting standards; and
• consult with the Minister on the making of regulations establishing financial reporting standards.’

International accounting standards

The international accounting standards can respectively be found in the IFRS (International Financial Reporting Standard) list and the IAS (International Accounting Standard) list.

IFRSs (International Financial Reporting Standards)

The current list for IFRSs issued are as follows:

Source: Deloitte

Each IFRS has a history in which new developments and amendments are explained.

Concise of each of the 17 IFRS, based on information from Deloitte:

IFRS 1 – Describes the procedures an entity must observe when it embraces IFRSs for the first time as foundation for compiling its financial statements to be released to stakeholders such as shareholders and lenders. Financial statements in this regard, are referred to as general purpose financial statements.

IFRS 2 – Dictates that an entity has to report share-based payment transactions, including transactions with employees or other parties to be settled in cash, equity instruments, or other assets of the entity. Examples included in the scope of IFRS 2 are employee share purchase plans, employee share ownership plans, and share appreciation rights.

IFRS 3 – Requires that the ‘acquisition method’ be used when an acquisition or merger occurs between companies. Generally, the ‘acquisition method’ requires that assets and liabilities involved in a business combination to be measured at their fair value prices at the acquisition or merger date.

IFRS 4 – Applies to all insurance contracts (reinsurance contracts included) that an entity issues and to reinsurance contracts that it holds. An insurance contract refers to a contract under which the insurer accepts considerable risk from the policyholder by agreeing to compensate the policyholder if a specified future incident negatively affects the policyholder.

IRFS 4 – Insurance contracts, will be replaced by IRFS 17 from 1 January 2025.

IRFS 5 – Describes how to record and report non-current assets held for sale. Generally, assets held for sale are:

• not depreciated,
• calculated at the lower of carrying value and fair value less costs to sell, and
• reported separately in the statement of financial position (balance sheet).

IRFS 6 – Allows entities that adopt this standard for the first time, to use accounting policies for exploration and evaluation assets that were applied prior adopting IFRSs. Exploration for and evaluation of mineral resources, implies the exploration for mineral resources, such as minerals, oil, and natural gas, after the entity has been granted legal rights to explore in a certain area.

IRFS 7 – Requires that an entity discloses information concerning the significance of financial instruments to the entity. In addition, the nature and extent of risks, qualitatively as well as quantitatively, emerging from those financial instruments, are to be disclosed.

IRFS 8 – Specifies that certain classes of entities (specifically those with publicly traded securities) have to disclose information about the following:

• their operating segments,
• their products and services,
• their major customers, and
• the geographical areas in which they operate.

An operating segment is defined in IRFS 8 as a component of an entity:

• that engages in business activities from which it may earn revenues and incur expenses,
• for which discrete financial information is available, and
• whose operating results are reviewed regularly by the entity’s chief operating decision maker in order to decide about resources to be allocated to the segment.

IRFS 9 replaced IAS (International Accounting Standards) 39 – Financial Instruments: Recognition and Measurement. IRFS 9 comprises requirements for recognition and measurement, impairment, derecognition and general hedge accounting.

IRFS 10 – Describes the requirements and principles for the preparation and presentation of consolidated financial statements for entities that control one or more other entities.

IRFS 11 – Indicates the accounting that entities, that jointly control an arrangement, are required to apply. IRFS 11 defines joint arrangement and joint control as follows:

• Joint arrangement – ‘An arrangement of which two or more parties have joint control.’
• Joint control – ‘The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.’

IRFS 12 – Requires the disclosure of information regarding an entity’s interests in:

• joint arrangements,
• subsidiaries,
• associates, and
• unconsolidated ‘structured entities.’

The objective of this IFRS is that users of financial statements are enabled to evaluate:

• the nature of, with the associated risks, its interests in other entities, and
• the effects of those interests on its financial position, financial performance, and cash flows.

IRFS 13 – Aims to define fair value, lays out a framework to measure fair value, and requires disclosures concerning fair value measurements.

IRFS 14 – Specifies the financial reporting requirements for regulatory deferral account balances (also referred to as regulatory assets and regulatory liabilities) that arise when an entity provides goods or services at a price or rate that is subject to rate regulation.

IRFS 15 – Specifies how an entity shall report useful information in its financial statements about cash flows arising from a contract with a customer, as well as the following aspects of revenue:

• nature,
• amount,
• timing, and
• uncertainty.

IRFS 15 replaced IAS 11 – Construction contracts – and IAS 18 – Revenue – on 1 January 2018.

IRFS 16 – Describes how leases are to be recognised, measured, presented, and disclosed, ensuring that lessees and lessors provide relevant information that reliably represents the transactions mentioned above.

IRFS 16 replaced IAS 17 – Accounting for leases – as from 1 January 2019.

IRFS 17 – Stipulates that the recognition, measurement, presentation, and disclosure of insurance contracts are executed in such a manner that the relevant information provided, faithfully represents the insurance contracts.

The reliable information provided will enable users of financial statements to determine the effect that insurance contracts have on an entity’s financial position, financial performance, and cash flows.

IRFS 17 will replace IRFS 4 – Insurance contracts, from 1 January 2025.

IASs (international Accounting Standards)

The following IASs are not applicable anymore:

• IAS 3 – Consolidated financial statements – issued in 1976 but superseded in 1989 by IAS 27 and IAS 28.
• IAS 4 – Depreciation accounting – withdrawn in 1999.
• IAS 5 – Information to be disclosed in financial statements – issued in 1976 but superseded by IAS 1, effective from 1 July 1998.
• IAS 6 – Accounting responses to changing prices – superseded by IAS 15, which was withdrawn December 2003.
• IAS 9 – Accounting for research and development activities – superseded by IAS 38 – Intangible assets – effective from 1 July 1999.
• IAS 11 – Construction contracts was replaced by IRFS 15 – Revenue from contracts with customers.
• IAS 13 – Presentation of current assets and current liabilities – effective from 1 July 1998.
• IAS 14 – Segment reporting – issued in August 1997 but replaced by IRFS 8 – Operating segments – effective for annual periods starting 1 January 2009.
• IAS 15 – Information reflecting the effects of changing prices – withdrawn in December 2003, effective from 1 January 2005.
• IAS 17 – Accounting for leases – was originally issued in September 1982 but was superseded by IRFS 16 – Leases – as of 1 January 2019.
• IAS 18 – Revenue for recognition – was originally issued in December 1982 but was replaced by IRFS 15 – Revenue from contracts with customers – on 1 January 2018.
• IAS 22 – Originally issued in November 1983 as – Accounting for business combinations – but was superseded by IRFS 3 – Business combinations – on 31 March 2004.
• IAS 25 – Accounting for investments – superseded by IAS 39 and IAS 40, effective 2001.
• IAS 27 – Was originally issued as – Consolidated financial statements and accounting for investments in subsidiaries – in April 1989. On 12 May 2011, it was replaced with a new IAS 27 – Separate financial statements – and IRFS 10 – Consolidated financial statements – effective from 1 January 2013.
• IAS 28 – Was initially issued in April 1989 as – Accounting for investments in associates – and reissued in December 2003 as – Investments in associates – and eventually superseded by IAS 28 – Investments in associates and joint ventures – and IFRS 12 – Disclosure of interests in other entities on 12 May 2011, with effect from annual periods beginning on or after 1 January 2013.
• IAS 30 – Disclosures in financial statements of banks and similar financial institutions – initially issued in August 1990 and eventually replaced by IFRS 7 – Financial instruments: disclosures – on 18 August 2005, effective from 1 January 2007.
• IAS 31 – Financial reporting of interests in joint ventures – originally issued in December 1990 and superseded by IFRS 11 – Joint arrangements – and IFRS 12 – Disclosure of interests in other entities – on 12 May 2011, effective from 1 January 2013.
• IAS 35 – Discontinuing operations – Issued in June 1998 and superseded by IRFS 5 – Non-current assets held for sale and discontinued operations – effective from 1 January 2005.
• IAS 39 – Financial instruments: recognition and measurement – issued in December 1998 and largely replaced by IFRS 9 – Financial instruments – on 24 July 2014, effective for annual periods on or after 1 January 2018.

List of International Accounting Standards (IASs) still applicable

Source: Deloitte

Notes:

1. IAS 7 was retitled from Cash flow statements to Statement of cash flows on 6 September 2007 and amended on 16 April 2009 and 29 January 2016.
2. IAS 8 – A revised version was issued on 18 December 2008 and it was amended on 31 October 2018.
3. IAS 10 was reissued in December 2003 and retitled from Contingencies and events occurring after the balance sheet date to Events after the reporting period on 6 September 2007.
4. IAS 12 was amended a few times, the last amendment on 12 December 2017.
5. IAS 16 was amended several times, the last amendment on 14 May 2025 which is effective for annual periods starting on or after 1 January 2025. Prior this date, the amendment on 30 June 2014 applies.

Short summaries of the IASs, based on information from Deloitte:

IAS 1 – Prescribes the basis for presentation of general purpose financial statements to ensure comparability with the entity’s financial statements of previous financial periods and with the financial statements of other entities.

An entity is required to compile a complete set of financial statements, comprising the following statements:

• statement of financial position (balance sheet),
• statement of profit or loss and other comprehensive income,
• statement of changes in equity, and
• statement of cash flows.

IAS 2 – Describes how to account for inventories. Inventories include finished goods, work in process, and raw materials.

IAS 7 – Stipulates that an entity is required to present a statement of cash flows as an integral part of its primary financial statements. Cash flows are categorised into three types of activities:

• operating activities,
• investing activities, and
• financing activities.

IAS 8 – Applies in selecting and applying accounting policies, accounting in estimates, and presenting corrections of previous accounting period errors. Accounting policies are the specific principles and procedures applied by an entity in preparing its financial statements.

IAS 10 – Describes requirements for when events after the end of the reporting period should be adjusted in the financial statements.

IAS 12 – Prescribes the so-called ‘comprehensive balance sheet method’ of accounting for income taxes, recognising both the current tax consequences of transactions as well as the future tax consequences.

IAS 16 – Explains how property, plant, and equipment are to be recorded and reported in accounting. The basic issues are the recognition of assets, the calculation of their carrying amounts, and the depreciation charges and impairment losses to be recognised related to the assets.

IAS 19 – Outlines the requirements in accounting to record and report employee benefits such as:

• short-term benefits (salaries, wages, and annual leave),
• post-employment benefits (retirement benefits),
• other long-term benefits (long service leave), and
• termination benefits.

IAS 20 – Specifies the requirements for the accounting and disclosure of government grants and other forms of government assistance. IAS 20 does not apply to government assistance that is granted in the form of benefits in calculating taxable income and government grants covered by IAS 41 –

IAS 21 – Prescribes how to record foreign currency transactions and foreign operations in financial statements and how to translate financial statements into a presentation currency, also called reporting currency, which is the currency in which an entity presents its financial statements.

IAS 23 – Describes how to treat borrowing costs in accounting. Borrowing costs comprise, inter alia, interest on bank overdrafts and loans and finance charges on finance leases.

IAS 24 – Requires disclosures about transactions and outstanding balances with the related parties of an entity. Various classes of related parties are defined in IAS 24. For example, a person or a close member of that person’s family is considered a related party if that person:

• has control or joint control over the reporting entity, or
• has considerable influence over the reporting entity.

IAS 26 – Specifies the measurement of various line items and disclosure principles for the preparation of the financial statements of retirement benefit plans.

IAS 27 – Indicates the standards ‘to be applied in accounting for investments in subsidiaries, jointly ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements.’

IAS 28 – Describes the requirements to apply the equity method when accounting for investments in associates and joint ventures.

IAS 29 – Establishes specific standards for entities reporting in the currency of a hyperinflationary economy, still providing meaningful financial information.

IAS 32 – Outlines the requirements for the presentation of financial instruments, particularly concerning the classification of financial instruments into categories of financial assets, financial liabilities, and equity instruments.

IAS 33 – Sets out how to calculate both basic earnings per share (EPS) and diluted EPS.

IAS 34 – Details the minimum content of an interim financial report, expressing the principles for recognition and measurement in financial statements submitted for an interim period.

IAS 36 – Regulates that an entity’s assets are carried at no more than their recoverable amount and defining how the recoverable amount (the greater of an asset’s fair value less costs of disposal, or its value in use) is calculated.

IAS 37 – Ensures ‘that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets.’ In addition, IAS 37 makes sure that enough information is disclosed in the notes to the financial statements, enabling users to comprehend the nature, timing, and amount of the provisions, contingent liabilities, and contingent assets.

IAS 38 – Prescribes how intangible assets, that are not specifically covered in another IFRS, are to be treated in accounting. IAS 39 stipulates that an entity is allowed to recognise an intangible asset only if certain criteria are met.

IAS 40 – Applies to the accounting for property (land and/or buildings), kept to earn rentals or for appreciation of capital (or both).

IAS 41 – Sets out the standards of accounting for agricultural activity, which is ‘the transformation of biological assets (living plants and animals) into agricultural produce (harvested product of the entity’s biological assets).’

[1] See the article, ‘Accounting Principles Explained for Dummies’, for a detailed explanation of GAAP.