International Financial Reporting Standards (IFRS)

15/04/2020 4 By indiafreenotes

International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company’s financial performance so that company financial statements are understandable and comparable across international boundaries. They are particularly relevant for companies with shares or securities listed on a public stock exchange.

IFRS have replaced many different national accounting standards around the world but have not replaced the separate accounting standards in the United States where US GAAP is applied.

The International Accounting Standards Committee (IASC) was established in June 1973 by accountancy bodies representing ten countries. It devised and published International Accounting Standards (IAS), interpretations and a conceptual framework. These were looked to by many national accounting standard-setters in developing national standards.

In 2001 the International Accounting Standards Board (IASB) replaced the IASC with a remit to bring about convergence between national accounting standards through the development of global 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” (IFRS).

In 2002 the European Union (EU) agreed that, from 1 January 2005, International Financial Reporting Standards would apply for the consolidated accounts of the EU listed companies, bringing about the introduction of IFRS to many large entities. Other countries have since followed the lead of the EU.

Conceptual Framework for Financial Reporting

The Conceptual Framework serves as a tool for the IASB to develop standards. It does not override the requirements of individual IFRSs. Some companies may use the Framework as a reference for selecting their accounting policies in the absence of specific IFRS requirements.

Objective of financial statements

The Conceptual Framework states that the primary purpose of financial information is to be useful to existing and potential investors, lenders and other creditors when making decisions about the financing of the entity and exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources.

Users base their expectations of returns on their assessment of:

  • The amount, timing and uncertainty of future net cash inflows to the entity;
  • Management’s stewardship of the entity’s resources.

Qualitative characteristics of financial information

The Conceptual Framework for Financial Reporting defines the fundamental qualitative characteristics of financial information to be:

  • Relevance; and
  • Faithful representation

The Framework also describes enhancing qualitative characteristics:

  • Comparability
  • Verifiability
  • Timeliness
  • Understandability

Presentation of financial statements

IFRS financial statements consist of:

  • A statement of financial position (balance sheet)
  • A statement of comprehensive income. This may be presented as a single statement or with A separate statement of profit and loss and a statement of other comprehensive income
  • A statement of changes in equity
  • A statement of cash flows
  • Notes, including a summary of the significant accounting policies.

Comparative information is required for the prior reporting period.