Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
com
IFRS is easy
I nternational Financial Reporting Standards (IFRS) are a set of accounting standards developed
with the aim of providing a level-platform to all preparers of financial statements over the globe
with the intention of enabling a single voice to the preparation and presentation of financial
information of various entities to all the stakeholders who provide resources to the entities.
Why do we need IFRS?
Imagine you have a new product that you intend to sell but everyone around you doesn’t
understand your language. How will you be able to convince them to buy your product?
So also, Accounting is widely referred to as the language of business. And as a result of the
unending upsurge in financial transactions all over the world and the increasing rate of cross-
border transactions. You obviously can’t decide to stick to your mother-tongue any longer. If you
want to beat them, you have to join them.
The Roadmap to IFRS
Every field has its roots. Ditto for the IFRS. It all started a long time ago , in the year 1966 when a
group of independent accounting standard-setting bodies came together to form a single body
that will be in charge of setting international standards that will guide preparers of financial
statements all over the world.
The main objective of these international standards is to allow investors, organizations, and
governments to compare financial statements with greater ease.
A brief timeline
1|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
Every innovation has its pros and cons. Suffice it to say that the benefits of IFRS far
outweighs its cost. The necessary recipe is to develop a strong institutional framework for IFRS
adoption. In doing this, a large pool of researches and implementation issues must be conducted
with adequate consideration for investors, firms, industries, money and capital market, national
economy and the global market.
2|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
Changes in Terminology
As a result of the incorporation of the new accounting standards that has supplanted the local
standards of various countries, the following terminologies have changed.
Local Standards IFRS
Balance sheet Statement of Financial Position
Profit or loss account Statement of profit or loss and other
comprehensive Income
Fund flow statement Statement of Cash Flows
For company: Appropriation account Statement of Changes in Equity
For partnership: Appropriation account Statement of Distribution of Income
Debtors Trade Receivables
Creditors Trade Payables
Stock Inventory
Sales Revenue/Turnover
Capital Equity/Net worth
Fixed Assets Non-current assets
Long-term liabilities Non-current liabilities
Net Book value Carrying amount
An auditor and an accountant were walking in the woods when a bear suddenly
“Do you think we can outrun the bear?” The auditor asked.
The accountant replied, “I don’t have to outrun the bear. I only have to outrun you.”
3|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
H aving learnt the genesis of IFRS, let’s delve into the most important part of it –the conceptual
framework and its constituents.
Note: The Conceptual Framework is not an IAS nor IFRS and so does not overrule any individual
IAS/IFRS. In the (rare) cases of conflict between an IAS/IFRS and the Conceptual Framework, the
IAS will prevail. These cases will diminish over time as the Conceptual Framework will be used as
a guide in the production of future Standards. The Conceptual Framework itself will be revised
occasionally depending on the experience of the IASB in its use.
4|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
OBJECTIVES
The objective is to provide financial information about the financial position, performance and
changes in financial position of an entity that is useful to a wide range of users (existing and
potential investors, lenders and other creditors) in making economic decisions about providing
resources to the entity.
QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS
Qualitative characteristics are the attributes that make the information provided in financial
statements useful to users. Their characteristics are classified into two:
Fundamental qualitative characteristics …imagine the foundation of a building
•Relevance: This is the extent to which the information makes the difference in economic
decision taken by present and potential investors and other users of financial statements. It
also relates to the predictive value and the confirmatory value of information.
- Predictive value exists if financial information can be used as an input to processes
employed by users to predict future outcomes.
- Confirmatory value exists if it provides feedback about (confirms or changes) previous
evaluations after stakeholders have made decisions about the entity.
The predictive value and confirmatory value of financial information are interrelated.
5|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
•Reliability: This is the degree of confidence in the financial statement. The reported financial
statement should be verifiable to assure users that it is free from material error and bias and
can be depended on to represent what it purports to represent. This is also called verifiability.
•Comparability: financial statements that facilitate comparison with prior period financial
statements of the same entity and financial statement of other entities in the same industry.
Equity: the residual interest in the assets of the entity after deducting all of its liabilities.
6|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
Expenses: Expenses are decreases in economic benefits during an accounting period in the
form of outflows or depletion of assets or incurrence of liabilities that result in decreases in
equity, other than those distributed to equity participants.
UNDERLYING ASSUMPTIONS
Accrual: Financial statements are prepared based on the accrual basis of accounting. Under
this basis, transactions are recorded when they occur and not as the cash flows take place.
Going concern: Financial statements are prepared on the assumption that an entity is a going
concern and will be in operation for the foreseeable future. Hence it is assumed that the entity
has neither the intention nor the need to liquidate or materially curtail the scale of its
operations.
RECOGNITION OF ELEMENTS OF FINANCIAL STATEMENTS
Recognition is the process of incorporating in the statement of financial position or statement
of comprehensive income an item that meets the definition of an element and satisfies the
criteria for recognition.
Elements (assets, liabilities, equity, income, and expenses) should only be recognized in the
financial statements if
it is probable that any future economic benefit associated with the item will flow to or
from the entity; and
the item has a cost or value that can be measured with reliability.
7|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com
Prepared by adedamolaotun.blogspot.com
IFRS is easy
Realizable (settlement) value. Assets are carried at the amount of cash and cash equivalents
that would be obtained by selling the assets in an orderly disposal. Liabilities are carried at their
settlement values, that is, the undiscounted amount of cash or cash equivalents expected to be
paid to satisfy the liabilities in the normal course of business.
Present value. Assets are carried at the present discounted value of the future net cash inflows
that the item is expected to generate in the normal course of business. Liabilities are carried at
the present discounted value of the future net cash outflows that are expected to be required
to settle the liabilities in the normal course of business.
I hope this material threw more light on the Introduction to the study of Financial Reporting
and the Conceptual Framework.
You can get more topics on Financial Reporting on adedamolaotun.blogspot.com.
You are free to drop your comments as well. You can also get a free update of each IFRS blog by
subscribing with your email on the blog.
Regards,
Adedamola Otun
tnadedamola@gmail.com
8|Page
For questions, comments and enquiries:
Visit adedamolaotun.blogspot.com
Or Email: tnadedamola@gmail.com