Financial reporting standards at a glance

For financial reporting, several key standards come into play. These standards address key aspects of financial reporting, from revenue and leases to asset impairment, ensuring compliance and consistency in financial statements worldwide.

IFRS 17

IFRS 17 sets standards for insurance contract accounting. The standard ensures transparency and comparability in recognizing, measuring, and presenting insurance contracts within financial statements.

IFRS 16

IFRS 16 addresses lease accounting by providing comprehensive guidelines that require companies to recognize lease-related right-of-use-assets and lease liabilities directly on the balance sheet.


  • Covered by Envoria

IFRS 15

FRS 15 focuses on revenue from customer contracts. It provides the principles for revenue recognition based on fulfilling performance obligations in contracts with customers, enhancing transparency in financial statements.

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IFRS 9

IFRS 9 covers financial instruments. This standard focuses on classifying and measuring financial assets and liabilities, addressing impairment and hedging requirements to reduce risk.


IAS 36

IAS 36 relates to the impairment of assets. It ensures that assets are not carried at more than their recoverable amount, helping maintain accurate asset valuation in financial reports.

ASC 842 (US GAAP)

ASC 842 is the lease accounting standard under U.S. GAAP that requires organizations to recognize most leases on their balance sheets. It mandates the recognition of a right-of-use asset and a lease liability for both operating and finance leases.

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ASC 606 (US GAAP)

ASC 606 focuses on revenue recognition under U.S. GAAP. It sets out revenue recognition guidelines in the U.S., consistent with IFRS 15, based on performance obligations and transaction amounts.

HGB

HGB refers to the German Commercial Code. It lays the foundation for financial reporting in Germany, detailing requirements for balance sheets, profit, and loss accounts under German law.

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"The purpose of financial reporting is to provide useful information to those making economic decisions."

Financial Accounting Standards Board (FASB)

Which companies must carry out financial reporting?

All companies (corporations) that meet certain size criteria (e.g., in terms of revenue, balance sheet total, or number of employees) are legally required to prepare financial reports and publish them in compliance with relevant national or international financial reporting standards. This includes, in particular:

  • Public limited companies (PLCs)
  • Limited liability companies (LLCs), depending on size and
    legal jurisdiction
  • Capital market-oriented companies
  • Companies in regulated industries (e.g., banks, insurance
    companies)
Envoria financial reporting required by companies

Local GAAP vs. Multi-GAAP Accounting

Companies operating internationally often face the challenge of aligning their financial reporting with multiple reporting standards. The concepts of Local GAAP Accounting and Multi-GAAP Accounting provide the flexibility needed to comply with both national and international financial reporting requirements.

Local GAAP Accounting


Adaptation to national standards

Local GAAP Accounting involves adapting accounting processes to meet the specific financial reporting standards and regulations of a country, such as US GAAP (United States), HGB (Germany), or other local frameworks that govern financial reporting and compliance.

Benefits of Local GAAP Accounting

  • Ensures full compliance with country-specific regulations
  • Increases transparency for local investors and stakeholders
  • Reduces legal risks by meeting national reporting standards

Use case

Local GAAP Accounting is especially important for companies focusing on meeting local market requirements and national reporting standards.

Multi-GAAP Accounting


Parallel reporting across multiple standards

Multi-GAAP Accounting enables financial reporting under multiple standards simultaneously, such as IFRS, ASC 842, and local GAAP. This approach allows companies to comply with both global and local reporting requirements, providing flexibility in financial reporting across regions.

Benefits of Multi-GAAP Accounting

  • Simultaneous compliance with global and local reporting requirements
  • Efficient and flexible reporting across different regions
  • Customized financial reports for both international and local markets

Use case

Multi-GAAP Accounting is ideal for globally operating companies that must adhere to both local and international accounting standards.

Key challenges in lease accounting

The application of lease accounting standards is complex and presents several challenges. In this section, we highlight typical pitfalls and common mistakes that companies should avoid when accounting for leases.

Incorrect classification of lease contracts

A common mistake in lease accounting is the misclassification of lease contracts, which can lead to obligations being inaccurately or incompletely recorded.

Inadequate documentation of lease terms

Accurate accounting requires complete and precise documentation of all relevant lease contract terms. Without this, the lease evaluation becomes imprecise.

Incorrect calculation of lease liabilities

Accurate calculation of lease liabilities requires a detailed analysis of lease terms and interest rates. Inaccurate calculations result in incorrect balance sheet reporting.

Difficulty adapting to new standards

Companies often struggle to adjust existing processes to meet the requirements of new or updated standards such as IFRS 16 or ASC 842. A training and adaptation program can help to ensure compliance and accurate lease accounting.