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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.

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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.

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:

  1. The objective of general purpose financial reporting.
  2. The qualitative characteristics of useful financial information
  3. Description of the reporting entity and its boundary;
  4. Definitions of an asset, a liability, equity, income and expenses and guidance supporting these definitions;
  5. Criteria for including assets and liabilities in financial statements (recognition) and guidance on when to remove them (derecognition);
  6. Measurement bases and guidance on when to use them;
  7. Concepts and guidance on presentation and disclosure; and
  8. 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:

  1. A statement of monetary position – more commonly known as ‘Balance sheet’.
  2. A statement of profit and loss for the year.
  3. A statement of changes in equity – this can include a reconciliation between amounts shown at the start and at the end of the year.
  4. A statement of cash flows for the period
  5. 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: –

  1. When an entity applies an accounting policy retrospectively;
  2. When an entity retrospectively restated an item in its financial statements; or
  3. When an entity reclassifies an item in its financial statements.

Elements of Financial Statements

Assets, Liability, Income, expenditure and recognition form the elements of financial statements. A brief description of the same about each element is discussed below:

  • 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.