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IFRS BY ICAI Introduction of the concepts of IFRS

IFRS BY ICAI Introduction of the concepts of IFRS: International Financial Reporting Standards (IFRS) are designed as 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. |San Francisco IFRS, with the exception of IAS 29 Financial Reporting in Hyper inflationary Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorised in terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorised in terms of the units of constant purchasing power paradigm.

IFRS began as an attempt to harmonise accounting across the European Union but the value of harmonisation quickly made the concept attractive around the world. However, it has been debated whether or not defector harmonisation 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”.

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IFRS BY ICAI Introduction of the concepts of IFRS

IFRS BY ICAI Introduction of the concepts of IFRS

IFRS BY ICAI Introduction of the concepts of IFRS

The IFRS Foundation and the IASB were established in 2001 in order to develop a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles. The below highlights some notable developments since then.

IFRS BY ICAI Introduction of the concepts of IFRS

Objective of financial statements

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:

  1. Assets.
  2. liabilities.
  3. Equity.
  4. Income and expenses, including gains and losses.
  5. Contributions by and distributions to owners in their capacity as owners.
  6. 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.

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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).
    1. 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.
    2. an IFRS standard requires a change in presentation.
    3. 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.

IFRS BY ICAI Introduction of the concepts of IFRS

Qualitative characteristics of financial information

Fundamental qualitative characteristics of financial information include:

  • Relevance
  • Faithful representation

Enhancing qualitative characteristics include:

  • Comparability
  • Verifiability
  • Timeliness
  • Understand ability

IFRS BY ICAI Introduction of the concepts of IFRS

Elements of financial statements

The elements of financial statements includes :

  1. Asset
  2. Liability
  3. Equity
  4. Revenue
  5. Expenses etc.

IFRS BY ICAI Introduction of the concepts of IFRS

Recognition of elements of financial statements

An item is recognised in the financial statements when:

  • it is probable future economic benefit will flow to or from an entity.
  • the resource can be reliably measured

IFRS BY ICAI Introduction of the concepts of IFRS

Requirements

IFRS financial statements consist of (IAS1.8)

  • a Statement of Financial Position
  • a Statement of Comprehensive Income separate statements comprising an Income Statement and separately a Statement of Comprehensive Income, which reconciles Profit or Loss on the Income statement to total comprehensive income
  • a Statement of Changes in Equity (SOCE)
  • a Cash Flow Statement or Statement of Cash Flows
  • notes, including a summary of the significant accounting policies

IFRS BY ICAI Introduction of the concepts of IFRS

Adoption

IFRS are used in many parts of the world, including the South Korea, European Union, India, Hong Kong, Australia, Malaysia, Pakistan, GCC countries, Russia, Chile, Philippines, South Africa, Singapore and Turkey, but not in the United States. Please refer to Price water house Coopers’ “IFRS by country” publication for a detailed explanation of the level of IFRS adoption per country.140 Jurisdiction profiles are available online.

IFRS BY ICAI Issues in relation to IFRS information’s

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