IFRS – What is IFRS?, Accounting principles and applicability of IFRS
What is IFRS? – Statements of International Accounting Standards issued by the Board of the International Accounting Standards Committee (IASC) (1973-2001) are designated as International Accounting Standards (IAS). However, the International Accounting Standards Board (IASB) announced in April 2001 that its Accounting Standards would be designated as ‘International Financial Reporting Standards’ (IFRS). IASB publishes its Standards in a series of pronouncements called International Financial Reporting Standards (IFRS). It also adopted the body of Standards issued by the Board of the IASC. Those pronouncements continue to be designated as IAS. Presently, there are 25 IAS and 16 IFRS, 13 IFRIC Interpretations and 5 SIC Interpretations (after considering IAS that have been withdrawn and replaced or superseded.)
In Simple Words – IFRS refers to International Financial Reporting Standards. These are the accounting standard that are developed by IASB. These are designed as a common global language for the affairs of the business such that they are understandable and comparable world-wide.
More about IFRS
As the economy develops, it is exposed to International environment and commercial transactions. There is a need to lay down standard principles of accounting for making the financial statements comparable and bring them closure to the substance of transaction.‘IFRS’ which stands for International Financial Reporting Standards, are these principle based standards that focus on substance over form.
International Financial Reporting Standards broadly includes Reporting Standards, Accounting Standards and Interpretations on Accounting and Reporting, apart from Conceptual framework and Preface to International Financial Reporting Standards.
Accounting principles and applicability of IFRS
The IASB has the authority to set IFRSs and to approve interpretations of those standards.
IFRSs are intended to be applied by profit-orientated entities. These entities’ financial statements give information about performance, position and cash flow that is useful to a range of users in making financial decisions. These users include shareholders, creditors, employees and the general public.A complete set of financial statements includes:
- A balance sheet.
- A statement of comprehensive income.
- A cash flow statement.
- A statement of changes in equity.
- A description of accounting policies.
- Notes to the financial statements.
The concepts underlying accounting practices under IFRSs are set out in the IASB’s ‘Conceptual Framework for Financial Reporting’ issued in September 2010 (the Framework). The Conceptual Framework covers:
- Objectives of general purpose financial reporting, including information about a reporting entity’s economic resources and claims.
- The reporting entity (in the process of being updated).
- ualitative characteristics of useful financial information (that is, of relevance and faithful representation), and the enhancing qualitative characteristics of comparability, verifiability, timeliness and understandability.
- The remaining text of the 1989 Framework (in the process of being updated), which includes:
- Underlying assumption, the going concern convention.
- Elements of financial statements, including financial position (assets, liabilities and equity) and performance (income and expenses).
- Recognition of elements, including probability of future benefit, reliability of measurement and recognition of assets, liabilities, income and expenses.
- Measurement of elements, including a discussion on historical cost and its alternatives.
- Concepts of capital and its maintenance.
The IASB issued an exposure draft on a revised Framework in May 2015 and it aims to publish the final revised Framework in 2017. In the exposure draft, the IASB focused on those areas that caused problems in practice or that needed updating to reflect concepts developed by the IASB in other projects. These include:
- Definition of assets, liabilities, income and expenses;
- Recognition and derecognition of assets and liabilities;
- The distinction between equity and liabilities;
- Profit or loss and other comprehensive income (OCI);
- Providing information regarding management’s stewardship and re-introducing the concept of prudence;
- Presentation and disclosure; and
- Fundamental concepts (including business model, unit of account, going concern and capital maintenance).