In this post, we explain the difference between IFRS EU, IFRS International and IFRS UK. These are terms that are often used in practice in conjunction with IFRS of which the exact meaning and the precise difference is not always clear.
International Financial Reporting Standards (IFRS INT)
IFRS International refers to the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). IFRS standards are a set of accounting rules that determine how transactions and other accounting events are required to be reported in financial statements. This is a collection of global financial reporting standards that aim to improve the comparability and transparency of financial information across jurisdictions. IFRS International (abbreviated to IFRS INT) is used by more than 140 countries around the world, including Canada, Australia, Japan and India.
IFRS EU
IFRS EU refers to IFRS as adopted by the European Union (EU). In July 2002, the European Parliament adopted Regulation No. 1606/2002, which required listed companies to prepare their consolidated financial statements under IFRS EU by 2005.
Regulation No. 1606/2002 established, among other things, rules for the endorsement mechanism for the adoption of IFRS standards. Indeed, the European Commission (the Commission) believed that an endorsement mechanism was necessary to provide the necessary public oversight over these accounting standards.Furthermore, the Commission believed that it was not politically or legally appropriate to unconditionally and irrevocably delegate the setting of financial reporting standards for financial statements to a private organization (in this case, the IASB) over which the Commission had no control. Moreover, the endorsement mechanism is responsible for examining whether standards issued by the IASB meet the relevant criteria of EU public policy.
The role of the endorsement mechanism is not to restate or replace IFRS, but to oversee the adoption of new standards and interpretations, intervening only if they contain material weaknesses or the standards have failed to meet characteristics that apply specifically to the EU economic or legal environment.
The endorsement mechanism means that up to six months can elapse between the publication of a standard by the IASB and its endorsement by the EU. In some cases, the EU can also amend or reject a standard if it does not meet certain criteria. For example, the EU approved IFRS 9 Financial Instruments only in 2016, while it had been issued by the IASB in 2014.
IFRS UK
IFRS UK refers to the IFRS as adopted by the United Kingdom (UK). These are the same as IFRS EU until the 31st of December 2020, which is when the United Kingdom formally left the EU and its regulatory framework.
As of the 1st of January 2021 onwards, the United Kingdom has its own independent endorsement process for adopting new or amended standards. This means that in the future theremay be differences between IFRS UK and IFRS EU, depending on how the UK Endorsement Board reviews and approves each standard. For example, the UK has already adopted two amendments that had not yet been adopted by the EU as of January 2021: “Interest Rate Benchmark Reform-Phase 2” and the “Extension of the Temporary Exemption from Applying IFRS 9.”
The main implication of these differences is that companies must check which set of standards they must or may use, depending on their jurisdiction. For example, U.K.companies listed on a regulated market in the U.K. must use IFRS UK for accounting periods beginning on or after the 1st of January 2021, while U.K. companies listed on a regulated market in the European Economic Area may have to use both IFRS UK and IFRS International to meet the reporting requirements of each jurisdiction. Similarly, companies originating from the European Economic Area with a presence in the UK may have to use both IFRS EU and IFRS UK for their respective financial statements.