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INTERNATIONAL FINANCIAL

REPORTING STANDARDs
Gagandeep
Kaur (127)
Rakhi Rani
(128)
INTRODUCTION

International inan!ial Reporting


"tandard#(IR") are designed as a common
global language for business afairs 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


diferent national accounting standards.
$I"TOR% O IR"
IF! began as an attempt to harmoni"e accounting across the #uropean
$nion but the value of harmoni"ation quic%ly made the concept
attractive around the world. They are sometimes still called by the
original name ofInternational &!!ounting "tandard#(I&!). I&!
were issued between '()* and +,,' by the -oard of the
International &ccounting !tandards .ommittee(I&!.).
/n ' &pril +,,'0 the newInternational &ccounting !tandards -oard
(I&!-) too% over from the I&!. the responsibility for setting
International &ccounting !tandards. 1uring its 2rst meeting the new
-oard adopted e3isting I&! and !tanding Interpretations .ommittee
standards (!I.s). The I&!- has continued to develop standards calling
the new standardsInternational inan!ial Reporting "tandard#.
'&TUR'" O IR"

air pre#entation and !o(plian!e )ith IR"*


Fair presentation requires the faithful representation of the efects of
the transactions0 other events and conditions in accordance with the
de2nitions and recognition criteria for assets0 liabilities0 income and
e3penses set out in the Framewor% of IF!.

Going !on!ern*
Financial statements are present on a going concern basis unless
management either intends to liquidate the entity or to cease trading0
or has no realistic alternative but to do so.

&!!rual +a#i# o, a!!ounting*


&n entity shall recogni"e items as assets0 liabilities0 equity0 income
and e3penses when they satisfy the de2nition and recognition criteria
for those elements in the Framewor% of IF!

-aterialit. *
#very 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.

Co(parati/e in,or(ation*
IF! requires entities to present comparative information in respect of
the preceding period for all amounts reported in the current period4s
2nancial statements. In addition comparative information shall also be
provided for narrative and descriptive information if it is relevant to
understanding the current period4s 2nancial statements.

Con#i#ten!. o, pre#entation*
IF! requires that the presentation and classi2cation of items in the
2nancial statements is retained from one period to the ne3t unless.
&D0&NT&G'" O IR"

Greater Co(para+ilit.
.ompanies that use the same standards to prepare their
2nancial statements can be compared to each other more
accurately.

-ore le1i+ilit.
IF! uses a principles5based0 rather than rules5based0
philosophy. & principles5based philosophy means that the
goal of each standard is to arrive at a reasonable valuation
and that there are many ways to get there. This gives
companies the freedom to adapt IF! to their particular
situation0 which leads to more easily read and useful
statements.

-ore Rele/an!e
The new IF! re6ects on economic substance more than legal form. This helps the
companies and other sta%eholders to have true and fair view of the companies7
transactions. The way IF! re6ects to gains and losses in a timely manner puts
IF! in a more reliable and credible position than the 8&&9 in terms of reporting
standards.

2etter a!!e## to ,oreign !apital (arket# and in/e#t(ent#


&s thousands of companies in #urope and other :oining countries across the world
has already created a huge base for IF! adoption0 it also improves the
companies to access to 2nancial mar%ets by having the 2nancial statements
prepared under one reporting standards.

I(pro/ed !on#i#ten!. and tran#paren!. o, 3nan!ial reporting


This factor can also be mentioned as one of the crucial advantages of converting to
IF! as it ma%es the #$ member countries to be consistent not only on
macroeconomic aspects0 but also on 2nancial reporting which improves
relationship between investors and companies among member countries.
&DO4TION O IR"
IF! are used in many parts of the world0 including the
#uropean $nion0India0;ong <ong0 &ustralia0
=alaysia0 9a%istan08.. countries0ussia0.hile
!outh &frica0!ingaporeandTur%ey0 but not in the
$nited !tates.
&s of &ugust +,,>0 more than ''* countries around
the world0 including all of #urope0 currently require or
permit IF! reporting and >? require IF! reporting
for all domestic0 listed companies0 according to the
$.!. !ecurities and #3change .ommission.
Title Date issued Effective Date
IFRS 1 First-time Adoption of International
Financial Reporting Standards
24 ov 2!!" !1 #ul 2!!$
IFRS 2 S%are-&ased 'a(ment 1$ Fe& 2!!4 !1 #an 2!!)
IFRS * +usiness ,om&inations 1! #an 2!!" !1 #ul 2!!$
IFRS 4 Insurance ,ontracts *1 -ar 2!!4 !1 #an 2!!)
IFRS ) on-current Assets .eld for Sale and
Discontinued /perations
*1 -ar 2!!4 !1 #an 2!!)
IFRS 0 E1ploration for and Evaluation of -ineral
Resources
!$ Dec 2!!4 !1 #an 2!!0
IFRS 2 Financial Instruments3 Disclosures 1" Aug 2!!) !1 #an 2!!2
IFRS " /perating Segments *! ov 2!!0 !1 #an 2!!$
IFRS $ Financial Instruments 24 #ul 2!14 !1 #an 2!1"
IFRS 1! ,onsolidated Financial Statements 12 -a( 2!11 !1 #an 2!1*
IFRS 11 #oint Arrangements 12 -a( 2!11 !1 #an 2!1*
IFRS 12 Disclosure of Interests in /t%er Entities 12 -a( 2!11 !1 #an 2!1*
IFRS 1* Fair 4alue -easurement 12 -a( 2!11 !1 #an 2!1*
IFRS 14 Regulator( Deferral Accounts *! #an 2!14 !1 #an 2!10
IFRS 1) Revenue from ,ontracts 5it% ,ustomers 2" -a( 2!14 !1 #an 2!12
IR" 1 ir#t5ti(e &doption o,
International inan!ial Reporting
"tandard#

The ob:ective of this IF! is to ensure that an entity7s 2rst


IF! 2nancial statements0 and its interim 2nancial reports
for part of the period covered by those 2nancial statements0
contain high quality information that@

(a) is transparent for users and comparable over all periods


presented

(b) provides a suitable starting point for accounting in


accordance with International Financial eporting !tandards
(IF!s)

(c) can be generated at a cost that does not e3ceed the


bene2ts.
IR" 2 "hare5+a#ed 4a.(ent

The ob:ective of this IF! is to specify the


2nancial reporting by an entity when it
underta%es a share5based payment
transaction.

In particular0 it requires an entity to re6ect in


its pro2t or loss and 2nancial position the
efects of share5based payment transactions0
including e3penses associated with
transactions in which share options are
granted to employees.
IR" 6 2u#ine##
Co(+ination#

The ob:ective of the IF! is to enhance the relevance0 reliability and


comparability of the information that a reporting entity provides in its
2nancial statements about a business combination and its efects. It
does that by establishing principles and requirements for how an
acquirer@

(a) recognises and measures in its 2nancial statements the


identi2able assets acquired0 the liabilities assumed and any non5
controlling interest in the acquiree

(b) recognises and measures the goodwill acquired in the business


combination or a gain from a bargain purchase

(c) determines what information to disclose to enable users of the


2nancial statements to evaluate the nature and 2nancial efects of
the business combination.
IR" 7 In#uran!e Contra!t#

The ob:ective of this IF! is to specify the 2nancial


reporting for insurance contracts by any entity that issues
such contracts (described in this IF! as an insurer) until
the Board completes the second phase of its project on
insurance contracts.
In particular0 this IF! requires@

(a) limited improvements to accounting by insurers for


insurance contracts.

(b) disclosure that identi2es and e3plains the amounts in


an insurer7s 2nancial statements arising from insurance
contracts and helps users of those 2nancial statements
understand the amount0 timing and uncertainty of future
cash 6ows from insurance contracts.
IR" 8 Non5!urrent &##et# $eld ,or
#ale and Di#!ontinued Operation#

The ob:ective of this IF! is to specify the accounting for assets


held for sale0 and the presentation and disclosure of discontinued
operations.
In particular0 the IF! requires@

(a) assets that meet the criteria to be classi2ed as held for sale to
be measured at the lower of carrying amount and fair value less
costs to sell0 and depreciation on such assets to ceaseA

(b) an asset classi2ed as held for sale and the assets and liabilities
included within a disposal group classi2ed as held for sale to be
presented separately in the statement of 2nancial positionA

(c) the results of discontinued operations to be presented


separately in the statement of comprehensive income.
IR" 9 '1ploration ,or and '/aluation
o, -ineral Re#our!e#

The ob:ective of this IF! is to specify the 2nancial reporting


for the e3ploration for and evaluation of mineral resources.

#3ploration and evaluation e3penditures are e3penditures


incurred by an entity in connection with the e3ploration for
and evaluation of mineral resources before the technical
feasibility and commercial viability of e3tracting a mineral
resource are demonstrable.

#3ploration for and evaluation of mineral resources is the


search for mineral resources0 including minerals0 oil0 natural
gas and similar non5regenerative resources after the entity
has obtained legal rights to e3plore in a speci2c area0 as well
as the determination of the technical feasibility and
commercial viability of e3tracting the mineral resource.
IR" 7 inan!ial In#tru(ent#*
Di#!lo#ure#

The ob:ective of this IF! is to require entities to provide disclosures in


their 2nancial statements that enable users to evaluate@

(a) the signi2cance of 2nancial instruments for the entity7s 2nancial


position and performanceA and

(b) the nature and e3tent of ris%s arising from 2nancial instruments to
which the entity is e3posed during the period and at the end of the
reporting period0 and how the entity manages those ris%s.

The qualitative disclosures describe management7s ob:ectives0 policies and


processes for managing those ris%s. The quantitative disclosures provide
information about the e3tent to which the entity is e3posed to ris%0 based
on information provided internally to the entity7s %ey management
personnel. Together0 these disclosures provide an overview of the entity7s
use of 2nancial instruments and the e3posures to ris%s they create.
IR" 8 Operating "eg(ent#
.ore principleB&n entity shall disclose information to enable users of its 2nancial
statements to evaluate the nature and 2nancial efects of the business activities in
which it engages and the economic environments in which it operates.
This IF! shall apply to@
(a) the separate or individual 2nancial statements of an entity@

(i) whose debt or equity instruments are traded in a public mar%et (a domestic or
foreign stoc% e3change or an over5the5counter mar%et0 including local and regional
mar%ets)0 or

(ii) that 2les0 or is in the process of 2ling0 its 2nancial statements with a securities
commission or other regulatory organisation for the purpose of issuing any class of
instruments in a public mar%etA and
(b) the consolidated 2nancial statements of a group with a parent@

(i) whose debt or equity instruments are traded in a public mar%et (a domestic or
foreign stoc% e3change or an over5the5counter mar%et0 including local and regional
mar%ets)0 or

(ii) that 2les0 or is in the process of 2ling0 the consolidated 2nancial statements
with a securities commission or other
IR" : inan!ial In#tru(ent#

IF! ( introduces a single classi2cation and


measurement model for 2nancial assets0
dependent on both@
The entity7s business model ob:ective for
managing 2nancial assets
The contractual cash 6ow characteristics of
2nancial assets.
IR" 1; Con#olidated inan!ial
"tate(ent#

The ob:ective of this IF! is to establish principles for the


presentation and preparation of consolidated 2nancial statements
when an entity controls one or more other entities. To meet the
ob:ective0 this IF!@

(a) requires an entity (the parent) that controls one or more other
entities (subsidiaries) to present consolidated 2nancial statements

(b) de2nes the principle of control0 and establishes control as the


basis for consolidationA

(c) sets out how to apply the principle of control to identify


whether an investor controls an investee and therefore must
consolidate the investee

(d) sets out the accounting requirements for the preparation of


consolidated 2nancial statements.
IR" 11 <oint &rrange(ent#

The ob:ective of the IF! is to establish principles for


2nancial reporting by entities that have an interest in
arrangements that are controlled :ointly. The IF! requires
a party to a :oint arrangement to determine the type of
:oint arrangement in which it is involved by assessing its
rights and obligations arising from the arrangement.

The IF! is to be applied by all entities that are a party to a


:oint arrangement. & :oint arrangement is an arrangement
of which two or more parties have :oint control.

The IF! de2nes :oint control as the contractually agreed


sharing of control of an arrangement0 which e3ists only
when decisions about the relevant activities require the
unanimous consent of the parties sharing control.
IR" 12 Di#!lo#ure o, Intere#t#
in Other 'ntitie#
&pplied by entities that have an interest in@ "u+#idiarie#= >oint
arrange(ent#? a##o!iate#= and un!on#olidated #tru!tured
entitie#@
IF! '+ does not apply to@

9ost5employment bene2t plans or other long5term employee


bene2t plans to which I&! '( #mployee -ene2ts applies

!eparate 2nancial statements0 where I&! +) !eparate Financial


!tatements applies

Interests accounted for in accordance with IF! ( Financial


Instruments0 e3cept for Interests in an associate or :oint venture
measured at fair value as required by I&! +> Investments in
&ssociates and Coint Dentures.
IR" 16 air 0alue
-ea#ure(ent
This IF! @
(a) de2nes fair valueA
(b) sets out in a single IF! a framewor% for measuring fair
value
(c) requires disclosures about fair value measurements.
The IF! applies to IF!s that require or permit fair value
measurements or disclosures about fair value
measurements
IR" 17 Regulator. De,erral
&!!ount#
&n entity within the scope of IF! 'E is able to ma%e a voluntary
irrevocable election in its 2rst annual IF! 2nancial statements
whether or not to recognise regulatory deferral balances in
accordance with IF! 'E.
&n entity that has elected to apply IF! 'E in its 2rst annual IF!
2nancial statements0 continues to apply the recognition0
measurement0 impairment and derecognition requirements in
accordance with its previous 8&&9 to all it# regulator. de,erral
a!!ount +alan!e#@
.hanges are only permitted if they result in the 2nancial statements
being either@
=ore relevant and no less reliable0 or
=ore reliable and no less relevant.
IR" 18 Re/enue ,ro(
Contra!t# )ith Cu#to(er#
&pplies to all contracts with customers0 e3cept@
Fease contracts (refer to I&! '))
Insurance contracts (refer to IF! E)
Financial instruments and other contractual
rights or obligations (refer to IF! (GI&! *(0
IF! ',0 IF! ''0 I&! +)0 and I&! +>)
.ertain non5monetary e3changes.
Ai(itation#

Not Glo+all. &!!epted


The $nited !tates has not yet adopted International Financial eporting
!tandards and other countries continue to hold out as well. This ma%es
accounting by foreign5based companies that do business in &merica diHcult
as they often have to prepare 2nancial statements using IF! and another
set using &merican 8enerally &ccepted &ccounting 9rinciples.

-anipulation
There is a downside to the 6e3ibility that IF! allows@ companies can utili"e
only the methods they wish to0 allowing the 2nancial statements to show
only desired results. This can lead to revenue or pro2t manipulation0 can be
used to hide 2nancial problems in the company and can even encourage
fraud.

Co#t*
& small company would be impacted by a country4s adoption of IF! in the
same way a larger one would. ;owever0 small businesses do not have as
many resources at their disposal to implement the changes and train staf.
IR" B India O/er/ie)

The I.&I has announced that IF! will be


mandatory in India for2nancial statementsfor
the periods beginning on or after ' &pril +,'+0
but this plan has been failed and IF!GII15&!
(.onverged IF!) are still not applicable. There
was a roadmap as given in ne1t #lide but still
Indian companies are following old Indian 8&&9.

eserve -an% of Indiahas stated that 2nancial


statements of ban%s need to be IF!5compliant
for periods beginning on or after ' &pril +,''.
The I.&I has also stated that IF! will be applied to companies above II ',,,
crore(II ', billion) from &pril +,''. 9hase wise applicability details for
diferent companies in India@
9hase '@ /pening balance sheet as at ' &pril +,''
i. .ompanies which are part of I!# Inde3 J Iifty ?,
ii. .ompanies which are part of -!# Inde3 J !ense3 *,
iii. .ompanies whose shares or other securities are listed on a stoc% e3change
outside India
iv. .ompanies0 whether listed or not0 having net worth of more than II ',,,
crore (II ', billion)
9hase +@ /pening balance sheet as at ' &pril +,'+

.ompanies not covered in phase ' and having net worth e3ceeding II ?,,
crore (II ? billion)
9hase *@ /pening balance sheet as at ' &pril +,'E

Fisted companies not covered in the earlier phases K If the 2nancial year of a
company commences at a date other than ' &pril0 then it shall prepare its
opening balance sheet at the commencement of immediately following
2nancial year.