IFRS in brief

All listed Co’s in European Union needs to comply with them since 2005

Fundamental Principles
Going concern

Objective of these standards – it to provide information on

– financial position                        Balance sheet
– financial performance             Profit and Loss account

which is useful to a wide range of users like share holders, debt holders ,employees and Government etc.

Characteristics of financial statements prepared using IFRS
Understand ability                                       Easy to understand
Relevance                                                          Relevant information provided
Reliability                                                          People can trust the information provided
Comparability                                                 Information provided is comparable year to year ie.                                                                                        with the last year’s accounts and compare it with                                                                                             accounts of similiar companies.

Complete set of financial statements include :
Balance sheet
Profit and loss account
Statement of change in equity
Notes to accounts

IAS 7 : Cash flow statement
Three sections :
Operating. – tax

Cash includes any instrument maturing in next 3 months.

IAS 8: Accounting policies , errors and estimates

Accounting policies and errors – retro perspective
Estimates – prospective

IAS 10 : Events after balance sheet date

Conditions Adjustment
Both Favorable or Unfavorable Exists Yes
Not existed No but disclose

Dividends proposed/declared after 31March – no adjustment.

Only exception – Going Concern.

IAS 12 : Income tax
Temporary timing difference – recognized at the rates expected to be paid.
Not discounted.

IAS 17 : leases
Finance lease – risks and rewards
Examples – full  economic life of the asset, lease payments equal to fair value of the assets.

IAS 21 : FX
Functional currency : Primary economic environment

Translation :
During the year – transaction date
Year end :
Fixed assets – historical costs , transaction rate
Current assets – closing rate

Presentation currency usually should be functional currency , but can be other as well but no FX loss is recognized due to translation.

IAS 27 : Consolidated
Financial statements are presented as a Single entity.
No exceptions – different lines of business etc.

IAS 32: Financial instruments : Presentation
Substance over form
Classification made at issue

= Income – all expenses – tax – NCI – Pref dividends
Weighted average no. of shares

IAS 38:  Intangibles
Purchased or self certified

Research cost – expenses
Development cost – capitalized after tech and commercial feasibility established.

IFRS 2 : Inventories

Lower of cost of net realizable value
FIFO/Weighted Average ok
LIFO not ok

IFRS 5 : Held for Sale
Disclosed separately
No deprecation
Lower of fair value or carrying value
Fair value = sale value

Note : fair value can be two things
1 Sale value
2 Discounted future cash flows – value in use.

IFRS 7 : financial instruments disclosure
Enable users to understand:
Nature and extent of risks
How the entity manages the risks

IFRS 8 : Operating Segments
Threshold.  10 %
75% of entity’s revenue , products ,services ,geographies, assets.
must be included in reported segments.
Major external customers >10%

Hierarchy of guidance
IASB standards
Others – other standard setters, accounting literature, industry practice.


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