IFRS Accounting for assets and liabilities
IFRS Accounting for assets and liabilities: In order for a liability to be recognized in the financial statements, it must meet the following definition provided by the framework:
- A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits (IASB Framework).
As is clear from the above definition, the commitment must be a present one, emerging from past occasions. If there should be an occurrence of a bank advance for example, the past occasion would be the receipt of credit chief. The commitment to pay off the credit would be available from the day the substance gets the advance vital (i.e. at the point when a committing occasion happens). On the other hand, a risk may not be perceived in reckoning of a future commitment such a bank advance anticipated that would be taken in two year’s chance.
IFRS Accounting for assets and liabilities :Explanition
The commitment to exchange monetary advantages may not exclusively be a lawful one. Risk in regard of a valuable commitment may likewise be perceived where a substance, on the premise of its past practices, has a made a substantial desire in the brains of the concerned people that it will satisfy such commitments later on. For instance, if an oil investigation organization has a past routine with regards to reestablishing oil fix locales after they are disassembled notwithstanding no legitimate commitment to do as such, and it publicizes itself as a domain amicable association, at that point this offers ascend to a productive obligation and should along these lines be perceived in the money related proclamations of the organization. This is on account of a legitimate desire has been made that the organization will reestablish oil fix locales later on.
IFRS Accounting for assets and liabilities: Details abut IFRS
The International Financial Reporting Standards, usually called the IFRS Standards,are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant as per the users internal or external. IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the units of constant purchasing power paradigm.
IFRS began as an attempt to harmonize accounting across the European Union but the value of harmonization quickly made the concept attractive around the world. However, it has been debated whether or not de facto harmonization has occurred. Standards that were issued by IASC (the predecessor of IASB) are still within use today and go by the name International Accounting Standards (IAS), while standards issued by IASB are called IFRS. IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new International Accounting Standards Board (IASB) took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards “International Financial Reporting Standards”.
IFRS Accounting for assets and liabilities :OBJECTIVE
Financial statements are a structured representation of the financial positions and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management’s stewardship of the resources entrusted to it.
To meet this objective, financial statements provide information about an entity’s:
- Income and expenses, including gains and losses;
- Contributions by and distributions to owners in their capacity as owners; and
- Cash flows.
This information, along with other information in the notes, assists users of financial statements in predicting the entity’s future cash flows and, in particular, their timing and certainty.
The following are the general features in IFRS:
- Fair presentation and compliance with IFRS: Fair presentation requires the faithful representation of the effects of the transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework of IFRS.
- Going concern: Financial statements are present on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
- Accrual basis of accounting: An entity shall recognise items as assets, liabilities, equity, income and expenses when they satisfy the definition and recognition criteria for those elements in the Framework of IFRS.
- Materiality and aggregation: Every material class of similar items has to be presented separately. Items that are of a dissimilar nature or function shall be presented separately unless they are immaterial.
- Offsetting: Offsetting is generally forbidden in IFRS.However certain standards require offsetting when specific conditions are satisfied (such as in case of the accounting for defined benefit liabilities in IAS 19 and the net presentation of deferred tax liabilities and deferred tax assets in IAS 12).
- Frequency of reporting: IFRS requires that at least annually a complete set of financial statements is presented.However listed companies generally also publish interim financial statements (for which the accounting is fully IFRS compliant)for which the presentation is in accordance with IAS 34 Interim Financing Reporting.
- Comparative information: IFRS requires entities to present comparative information in respect of the preceding period for all amounts reported in the current period’s financial statements. In addition comparative information shall also be provided for narrative and descriptive information if it is relevant to understanding the current period’s financial statements.The standard IAS 1 also requires an additional statement of financial position (also called a third balance sheet) when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. This for example occurred with the adoption of the revised standard IAS 19 (as of 1 January 2013) or when the new consolidation standards IFRS 10-11-12 were adopted (as of 1 January 2013 or 2014 for companies in the European Union).
- Consistency of presentation: IFRS requires that the presentation and classification of items in the financial statements is retained from one period to the next unless:
- it is apparent, following a significant change in the nature of the entity’s operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in IAS 8; or
- an IFRS standard requires a change in presentation.
IFRS Accounting for assets and liabilities
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