IFRS
International Financial Reporting Standards (IFRS) set centralized protocols, to maintain the financial statements consistency, transparency, and comparable around the world. IFRS Standards are vital to the regulators around the world. International Financial Reporting Standards is achieving power throughout the world as a single, logical accounting framework and is positioned to stand, and provide predominant principles.
VJM & Associates LLP have worked broadly under IFRS and our expertise for IFRS is more than just a technical accounting exercise. We understand the needs to be viewed and study them as an important business priority.
Know more about IFRS
International Financial Reporting Standards commonly known as IFRS is a set of international accounting standards that are issued by the International Accounting Standard Board (IASB).
ASB was formed in 2001 under the International Accounting Standards Committee Foundation to develop, approve and regulate IFRS. IASB is an independent and private sector body.
International Financial Reporting Standards (IFRS) are designed as a standard global language for business affairs so that financial statements and books of the accounts of the organisation become understandable and comparable across international boundaries. IFRS specifies set of standards that set forth guidelines and regulations as to how specific types of transactions and various other events are reported in financial statements of a business entity. These standards prescribe how to measure the items of assets, liabilities, income, and expenditure; how to present and report the same in the financial statements; and any other relevant and related disclosure about these items should be made.
With increase in international shareholding and trade and are particularly for companies that have dealings in several countries, need arises that common principles should be used for maintenance of books of accounts so that it can become comparable, understandable, reliable and relevant as per the users internal or external.
Applicability of IFRS in India
IFRS are applicable in India through its converged form by name of Indian Accounting Standards (Ind AS).
Ministry of Corporate Affairs (“MCA”) through its press release dated 2nd January, 2015 notified a list of companies which are required to prepare their financial statements in accordance with Ind AS converged with IFRS other than Insurance Company, Banking Company and NBFC.
Applicability is based on listing status and net worth of the company. Following is the different dates of applicability of Ind AS to Domestic Companies:
Ind AS will also apply to subsidiaries, joint ventures, associates as well as holding companies of the entities covered by the roadmap.
GAAP vs. IFRS: What's the Difference?
GAAP (Generally Accepted Accounting Principles) are the Accounting standards adopted by the United States Security and Exchange Commission.
Whereas, IFRS is a set of international accounting standards, which state how particular types of transactions and other events should be reported in financial statements.
Commonly known primary difference between the two systems is that GAAP is rules-based accounting principles, whereas, IFRS is a principles-based accounting standards.
In the past, cross border transactions were complicated as cross border companies were using their domestic standards for preparation of financial statements. It was not possible to compare and use differently prepared financial statements for decision making purposes and also re-preparation of financial statements as per accounting standards of another country often added cost and complexity. Further, all the stakeholders of such financial statements were at ultimate risk for using it to make economic decisions.
The Financial reporting standards play a major role to bring the financial statement reporting at par globally. Transparency, accountability, and efficiency are the major ingredients that make Financial Reporting Standards. Following are the major reasons for the evolution of Financial Reporting standards:
- These standards inflate the international comparability of financial statements
- Also, the quality of information is more standardized due to the standards
- The decision making capability of participants across the international boundaries are strengthened due to the application of standards
- The information gap between the investors and investee is reduced considerably
- The financial statements that are reported in accordance with the IFRS play a cardinal role for the regulators of the world economy
- The investors throughout the world can easily analyze and identify the opportunities, risks, and threats of any business entity
The conceptual framework regulates and sets the objective, definition, and qualitative characteristics to form the basis for financial reporting. IASB in turn uses these conceptual frameworks to set standards to build consistency across standards and also to set a benchmark for the judgments globally. Therefore, the Conceptual framework specifies fundamental concepts of financial reporting and the same is used to frame the IFRS.
The revised Conceptual Framework for Financial Reporting (Conceptual Framework) issued in March 2018 is effective immediately for the International Accounting Standards Board (Board) and the IFRS Interpretations Committee.
Following fundamental concepts are defined for financial reporting:
- The objective of general purpose financial reporting.
- The qualitative characteristics of useful financial information
- Description of the reporting entity and its boundary;
- Definitions of an asset, a liability, equity, income and expenses and guidance supporting these definitions;
- Criteria for including assets and liabilities in financial statements (recognition) and guidance on when to remove them (derecognition);
- Measurement bases and guidance on when to use them;
- Concepts and guidance on presentation and disclosure; and
- Concepts relating to capital and capital maintenance
Financial statements should possess the following characteristics. Therefore, while framing IFRS, it should be made sure IFRS get Financial statements prepared on the same line.
- Relevance
The information should be relevant in terms of prediction, confirmation, and materiality so as to be useful to the user
- Faithful representation
The financial reporting should be such that it depicts completeness, is neutral and unbiased and is ideally free from error
- Comparable
The information should be such that it can be compared between two entities of the same cadre or between two periods of the same entity
- Verifiable
A depiction of faithful representation in the information provided should be such that even if the total agreement is not achieved yet a consensus be reached between the knowledgeable and independent users
- Timeliness
Decision-makers always need information within time before it reaches expiry
- Understandability
The information should be so characterized, classified and presented that it is concise, clear and understandable to the users
A complete set of financial statements prepared in compliance with the IFRS would ideally comprise of the following:
- A statement of monetary position – more commonly known as ‘Balance sheet’.
- A statement of profit and loss for the year.
- A statement of changes in equity – this can include a reconciliation between amounts shown at the start and at the end of the year.
- A statement of cash flows for the period
- Notes to the financial statements – including a summary of accounting policies followed and other explanatory information
The financial statements would sometimes also include a statement of the financial position of an earlier period in the following scenarios:
- When an entity applies an accounting policy retrospectively;
- When an entity retrospectively restated an item in its financial statements; or
- When an entity reclassifies an item in its financial statements.
Elements of Financial Statements
- An entity controls a resource which is due to some past event and is assured to derive future economic benefits. This resource is an asset to the entity and the same is put up in the financial statement only when it has a cost or a value that can be measured.
While opposite to asset, liability is said to be a present obligation arising due to some past events and is expected to adhere to some future economic outflow. Also, liability is put up in financial statement only if it has some cost or measurable value
Income is recognized in Financial statements when a future economic benefit which results in an increase in an asset or decrease in liability can be measured effectively. Thus increase in asset or decrease in liability goes parallel with income recognition.
Similarly, expense is recognized in the Financial statement when there is a decrease in economic benefit due to an increase in liability or decrease in assets. Again this should be measurable. And there has to be a corresponding increase in liability or decrease in assets with an expense.
Equity can be said to be a residual interest of assets after deducting all the liabilities. The items of equity are share capital, retained earnings or retained losses, revaluation gain, or dividend payment.
The key difference between GAAP vs IFRS
- GAAP for accounts to be listed in the order of liquidity—or how quickly and easily they can be converted to cash. The items are arranged in descending order (most liquid to least liquid): current assets, non-current assets, current liabilities, non-current liabilities, and owners’ equity.
- Under IFRS, the order is reversed (least liquid to most liquid): non-current assets, current assets, owners’ equity, non-current liabilities, and current liabilities.
GAAP and IFRS handle this ensuing rise in value differently. The rules of GAAP do not allow for an asset’s value to be written back up after it’s been impaired. IFRS standards, however, permit that certain assets can be revaluated up to their original cost and adjusted for depreciation.
Weighted average looks at the weighted average cost of items remaining in inventory at the time of an associated sale, which yields a figure that can then be used to value ending inventory and the related cost of goods sold.
· GAAP andIFRS contrast in how they handle inventory valuation, too. Three methods thatcompanies use to value inventory are FIFO (First in First Out), LIFO (Last inFirst Out), and weighted inventory.
· FIFOstands for First in First Out. This inventory valuation method follows thenatural flow of inventory, assuming that the first items in inventory are thefirst sold.
· LIFO, orLast in First Out, takes the opposite approach of FIFO. Under this method, thelast items to arrive in inventory are assumed to be the first sold.
In the US, under GAAP, all these approaches to inventory valuation are permitted, while IFRS allows for the FIFO and weighted average methods to be used, but not LIFO.
Chartered accountants expert in IFRS plays an important role in the adoption and implementation process of IFRS in Indian entities. Following are the areas where we at VJM & Associates LLP helps in the convergence of IFRS:
- Implementation of IFRS or Ind As by proper training and academic course to the company and its employees.
- Alignment of existing books of accounts and business reporting with requirements of IFRS.
- Minimize the risk of disruption while the business is in a transition period
- Diligently assisting in renegotiating contracts and management compensation plans
- Fair value measurement forms a base in the valuation of elements of Financial statements, wherein we come into the picture for proper and effective valuation as per the specified requirements
- Treatment of tax liabilities as a result of convergence to IFRS
- Adoption of a new set of standards and preparing the new set of financial statements in aligning with the same
Actuarial valuation services are one more area where we hold expertise and knowledge
Testimonials
What our clients say about us
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Frequently asked Questions
IFRS stands for International Financial Reporting Standards. It is issued by IASB and is a set of standards issued preparation and reporting of financial statements applicable in all over the world to become more transparent, consistent and comparable
Generally Accepted Accounting Principles commonly known as GAAP are accounting procedures and guidelines used and applicable in United states of America (USA), Whereas IFRS are principles for the preparation of financial statements applicable at global level and adopted by 110 countries. At technical level, both standard holds various differences in presentation and accounting treatment.
As per the updated list in 2019, there are 17 IFRS and 29 International Accounting standards
The most important objective of IFRS is to evolve a globally enforceable and acceptable single and high-quality understandable accounting language in the form of standards which has a basis of clear articulate principles
IFRS is mandatory for almost all domestic public entities. That implies the listed companies have to adopt IFRS. Unlisted companies having a threshold limit of the net worth of Rs 250 crores and above have to adopt IFRS. Certain exemptions are given to some listed companies.
IFRS is so designed that accountability, efficiency, and transparency would be adjective to financial markets across the international borders. Consistency to accounting practices, language and statements is the biggest principle of IFRS
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