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IFRS Standards

Raghvendra Sonker

| Updated: May 31, 2022 | Category: Financial Reporting

IFRS Standards

International Financial Reporting Standard lists are the guiding rules set for maintaining records and financial affairs of a business entity. IRFS Standards are a significant part of International Accounting Standards; due to their worldwide acceptance, countries often adopt these practices for business transactions and company’s management. IFRS Standards can be modified as per jurisdictional circumstances when it is adopted. The International Accounting Standards Board prepares International Financial Reporting Standards.

WHY IT IS REQUIRED?

When the same accounting standards and principles are followed in making financial statements, this mitigates the comparability process of financial statements of multiple business organisations. IFRS Standards aim to establish a common accounting language; this uniformity to certain practices will ensure the same accounting methods for companies around the world.

MERITS:

  • Improves quality of financial reports.
  • Aims to make financial statements coherent, consistent and comparable across the world.
  • Ensures the investor’s confidence.
  • Enhances transparency and fair accounting methods.
  • Open doors to raise funds internationally.
  • Reduces the multiplicity of Financial Statements.

LIST OF IFRS STANDARDS

IFRS 1 First-time Adoption of International Financial Reporting Standards

For preparing General Purpose Financial Statements, procedures are laid down for whenever a new entity adopts the IFRS Standards.

IFRS 2 Share-based Payment

It mandates entity to recognise the share-based transactions, including equity instruments, sale/purchase of shares, and cash settlements in their financial statements. The transaction also includes individual and group share transactions. These transactions can help in determining the fair value.

IFRS 3 Business Combinations

It outlines the principles and requirements for how an acquirer in a business combination (ex. mergers and acquisitions) recognises assets acquired and liabilities assumed, goodwill acquired in the business combination, and acquisition costs and determines what information to disclose to enable users of the financial statements for evaluation.

IFRS 4 Insurance Contracts

It outlines the financial reporting of insurance contracts of that entity issues. This standard provides a temporary exemption from the requirements of other IFRS Standards (not all). Financial guarantee contracts are outside the scope of IFRS 4 unless explicitly mentioned.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

It prescribes the accounting for the separate presentation of non-current assets, an asset classified as held for sale, liabilities, and discontinued operations in the statement.

IFRS 6 Exploration for and Evaluation of Mineral Resources

it prescribes the financial reporting of the exploration expenses, evaluation of mineral resources, and information related to the plan’s technical feasibility and commercial viability.

IFRS 7 Financial Instruments: Disclosures

It requires disclosure of information to the primary users of the financial statements to evaluate the significance of financial instruments to an entity, nature, and extent of risks arising from those financial instruments, financial position, and financial performance in qualitative and quantitative terms.

IFRS 8 Operating Segments

It requires an entity whose debt or equity securities are publicly traded to disclose its financial statements to its users to evaluate the nature and financial effects of different business activities in which it engages & different economic environments in which it operates. It states how an entity should report information about its operating segments in annual financial statements and interim financial reports.

IFRS 9 Financial Instruments

This standard provides the requirements for recognition and measurement of financial instruments, including impairment (expected credit losses), derecognition, and general hedge accounting. Financial assets are classified to manage the asset and the asset’s contractual cash flow. All kinds of derivatives fall under the scope of IFRS 9.

IFRS 10 Consolidated Financial Statements

This Standard sets out the criteria for determining whether an entity (a parent company) controls one or more business entities (subsidiaries). If yes, then that entity has to prepare a consolidated financial statement. It also sets out the principles for determining whether an investor controls an investee.

IFRS 11 Joint Arrangements

This standard lays principles for financial reporting by entities that have an interest in arrangements that are controlled jointly. (ex. Joint Ventures). A joint arrangement is when two or more parties have joint control over a mutually agreed contract.

IFRS 12 Disclosure of Interests in Other Entities

It requires an entity to disclose information (consolidated) to its users related to financial statements for evaluating the nature, risks, financial position, and financial performance of their subsidiaries, joint arrangements, associates, structured entities, and investment entities.

IFRS 13 Fair Value Measurement

IFRS 13 defines fair value, provides a framework for measuring fair value, and requires disclosures about fair value measurements.  This standard defines ‘fair value’ based on an exit price and uses different levels in the fair value hierarchy which provide market-driven fair value. Different valuation techniques can be applied for receiving the maximum output.

IFRS 14 Regulatory Deferral Accounts

It permits a first-time adopter of International Finance Reporting Standards to continue to account for regulatory deferral account balances in its IFRS financial statements following its previous GAAP[1] (Generally Accepted Accounting Principles) when it adopts IFRS Standards.

IFRS 15 Revenue from Contracts with Customers

This standard applies only to revenue from a contract with a customer. It elucidates when and how to disclose the relevant information of the contracts, nature, amount, timing, and uncertainty of revenue & cash flows from a contract with a customer. The five-step procedure must be followed under this standard to recognise the revenue from all contracts with customers.

IFRS 16 Leases

A lessee has to recognise the details of a leased asset and lease obligation for all leases. It requires a lessee to recognise assets & liabilities for all leases with a term of more than 12 months unless the underlying asset is of low value. The lessee has to recognise the right to use the underlying leased asset and the liability to make timely payments.

IFRS 17 Insurance Contracts

It lays principles for recognising, measuring, presenting, and disclosing insurances issued. The involved entity must characterise the portfolios of insurance contracts. This standard is applicable for annual periods beginning on or after 1 January 2023, including the amendments issued in June 2020.

CONCLUSION

IFRS Standards practices are being followed by many developed and developing counties as respective countries want their domestic businesses to perform at par with standards followed by multi-international companies and can have potential investing advantages. They are significantly relevant for companies who want to raise funds from the public. Due to the flexible nature of IFRS Standards; they are able to provide a safety net to the businesses at unfortunate times and ensure to sustain the ever-changing markets. International markets are more accessible with the emergence of new standards, unlike traditional methods of account principles which are limited in their scope. Therefore the implication of standardisation will largely benefit the enterprises and boost the economic growth.

Read Our Article: A Detailed Overview of IFRS 1

Raghvendra Sonker

Raghvendra Sonker has completed his Graduation from Gujarat National Law University. He has a keen interest in legal drafting, writing articles, and research papers. His core interest areas are Banking and Financial Issues.

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