All listed Co’s in European Union needs to comply with them since 2005
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 :
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
|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.
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
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
IAS 33: EPS
= 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
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
Others – other standard setters, accounting literature, industry practice.