Background of International Financial Reporting Standards (IFRS)
Users of financial statements have always demanded transparency in financial reporting and disclosures. However, the willingness and need for better disclosure practices have intensified only in recent times. Globalization has helped Indian Companies raise funds from offshore capital markets. This has required Indian companies, desirous of raising funds, to follow the Generally Accepted Accounting Principles (GAAP) of the investing country. The different disclosure requirements for listing purposes have hindered the free flow of capital. This has also made comparison of financial statements across the globe impossible. An International body called International Organization of Securities Commissions (IOSCO), to harmonize diverse disclosure practices followed in different countries initiated a movement. The capital market regulators have now agreed to accept IFRS (International Financial Reporting Standards) compliant financial statements as admissible for raising capital. This would ease free flow of capital and reduce costs of raising capital in foreign currencies.
Most jurisdictions that report under IFRS, including the EU, mandate the use of IFRS only for the listed companies. However, in INDIA, IFRS would apply to a wider group of entities than their international counterparts. This is primarily because of a large number of private enterprises getting covered under the size criteria based on their turnover and/or their borrowing. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use International Financial Reporting Standards (IFRS).
The policy makers in India have also realized the need to follow IFRS and it is expected that a large number of Indian companies would be required to follow IFRS from 2011. This poses a great challenge to the makers of financial statements and also to the auditors.
Meaning of International Financial Reporting Standards (IFRS)
International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements. IFRS is a principles-based accounting system, meaning it is objective-oriented allowing for more presentation freedom.
Objectives of International Financial Reporting Standards (IFRS)
- to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world’s capital markets and other users make economic decisions;
- to promote the use and rigorous application of those standards; in fulfilling the objectives associated with (1) and (2),
- to take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies.
- to bring about convergence of national accounting standards and International Accounting standards and International Financial Reporting Standards (IFRS) to high quality solutions.
Scope of International Financial Reporting Standards (IFRS)
- IASB Standards are known as International Financial Reporting Standards (IFRS’s).
- All International Accounting Standards (IAS’s) and Interpretations issued by the former IASC and SIC continue to be applicable unless and until they are amended or withdrawn.
- IFRS’s apply to the general-purpose financial statements and other financial reporting by profit-oriented entities — those engaged in commercial, industrial, financial, and similar activities, regardless of their legal form.
- Entities other than profit-oriented business entities may also find IFRSs appropriate.
- General-purpose financial statements are intended to meet the common needs of shareholders, creditors, employees, and the public at large for information about an entity’s financial position, performance, and cash flows.
- Other financial reporting includes information provided outside financial statements that assists in the interpretation of a complete set of financial statements or improves users’ ability to make efficient economic decisions.
- IFRS apply to individual company and consolidated financial statements.
- A complete set of financial statements includes a balance sheet, an income statement, a cash flow statement, a statement showing either all changes in equity or changes in equity other than those arising from investments by and distributions to owners, a summary of accounting policies, and explanatory notes.
- If an IFRS allows both a ‘benchmark’ and an ‘allowed alternative’ treatment, financial statements may be described as conforming to IFRS whichever treatment is followed.
- In developing Standards, IASB intends not to permit choices in accounting treatment. Further, IASB intends to reconsider the choices in existing IASs with a view to reducing the number of those choices.
- The provision of IAS 1 that conformity with IAS requires compliance with every applicable IAS and Interpretation requires compliance with all IFRSs as well.
Pronouncements of International Financial Reporting Standards (IFRS)
|International Financial Reporting Standards (IFRS)|
|IFRS 1||First-time Adoption of International Financial Reporting Standards|
|IFRS 2||Share-based payment|
|IFRS 3||Business Combinations (Revised)|
|IFRS 4||Insurance Contracts|
|IFRS 5||Non-current Assets Held for Sale and Discontinued Operations|
|IFRS 6||Exploration for and Evaluation of Mineral Resources|
|IFRS 7||Financial Instruments: Disclosures|
|IFRS 8||Operating Segments|
|International Accounting Standards (IAS)|
|IAS 1||Presentation of financial statements (Revised)|
|IAS 7||Cash Flow Statements|
|IAS 8||Accounting Policies, Changes in Accounting Estimates and Errors|
|IAS 10||Events after the balance sheet date|
|IAS 11||Construction Contracts|
|IAS 12||Income Taxes|
|IAS 16||Property, Plant and Equipment|
|IAS 19||Employee Benefits|
|IAS 20||Accounting for government Grants and Disclosure of Government Assistance|
|IAS 21||The Effects of Changes in Foreign Currency Rates|
|IAS 23||Borrowing Costs (Revised)|
|IAS 24||Related Party Disclosures|
|IAS 26||Accounting and Reporting by Retirement Benefit Plans|
|IAS 27||Consolidated and Separate Financial Statements (Revised)|
|IAS 28||Investments in Associates|
|IAS 29||Financial Reporting in Hyperinflationary Economies|
|IAS 31||Interests in Joint Ventures|
|IAS 32||Financial Instruments: Presentation|
|IAS 33||Earnings per share|
|IAS 34||Interim Financial Reporting|
|IAS 36||Impairment of Assets|
|IAS 37||Provisions, Contingent Liabilities and Contingent Assets|
|IAS 38||Intangible Assets|
|IAS 39||Financial Instruments: Recognition and Measurement|
|IAS 40||Investment Property|
|International Financial Reporting Interpretation Committee (IFRIC)|
|IFRIC 1||Changes in Existing Decommissioning, Restoration and Similar Liabilities|
|IFRIC 2||Members Shares in Co-operative Entities and Similar Instruments|
|IFRIC 4||Determining whether an Arrangement contains a Lease|
|IFRIC 5||Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds|
|IFRIC 6||Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment|
|IFRIC 7||Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies|
|IFRIC 8||Scope of IFRS 2|
|IFRIC 9||Reassessment of Embedded Derivatives|
|IFRIC 10||Interim Financial Reporting and Impairment|
|IFRIC 11||IFRS 2 – Group and Treasury Share Transactions|
|IFRIC 12||Service Concession Arrangements|
|IFRIC 13||Customer Loyalty Programmes|
|IFRIC 14||IAS 19 – The Limit on a defined Benefit Asset, Minimum Funding Requirements and their Interaction|
|IFRIC 15||Agreements for the Construction of Real Estate|
|IFRIC 16||Hedges of a Net Investment in a Foreign Operation|
|IFRIC 17||Distributors of Non-cash Assets to Owners|
|IFRIC 18||Transfers of assets from customers|
|Standard Interpretation Committee (SIC)|
|SIC 7||Introduction of the Euro|
|SIC 10||Government Assistance – No specific Relation to operating activities|
|SIC 12||Consolidation- Special Purpose Entities|
|SIC 13||Jointly Controlled Entities – Non-Monetary Contributions by Ventures|
|SIC 15||Operating Leases – Incentives|
|SIC 21||Income Taxes – Recovery of Revalued Non-Depreciable Assets|
|SIC 25||Income Taxes – Changes in the Tax Status of an Entity or its Shareholders|
|SIC 27||Evaluating the Substance of transactions Involving the Legal Form of a Lease|
|SIC 29||Disclosure – Service Concession Arrangements|
|SIC 31||Revenue – Barter Transactions Involving Advertising Services|
|SIC 32||Intangible Assets – Web Site Costs|