WHAT IS IFRS

IFRS

Accounting mythology:

Every civilization has ancient stories called myths handed over from generation to generation. They were approved by Kings and the Priests that revolve around gods and goddesses who have super human powers. It usually contains answers to questions like creation of universe and of man. History tells the facts of people. Myths tell the personality of the people. By studying myths, we can learn about how a culture lived and expressed themselves.

Persian King Thamurath fought against demons. Demons pleaded for their lives and in return they taught the king how to write 30 different scripts including Persian, Western, Chinese, and Arabetc., showing how the letters were formed and pronounced.

In Mesopotamia, Nabu is the god of wisdom and writing. He wrote the destiny of every human being on tablets as pronounced by Gods.

In Egypt, God Thoth is a divine record-keeper and god of writing. He questions the soul upon death about their deeds in their life. Their heart will be weighed against a feather of Maat (goddess of truth).

In India, Yama is the god of justice and his accountant is Chitra Gupt. Chitra Gupt keeps track of every action of individuals classifying it into Good and Evil. Yama decides the fate of the soul based on this record. More Good deeds gets a reservation to heaven, else hell.

The underlying fact is: God loves accounting. In all these civilizations, one common thread exists: Record keeping, Writing and Godliness.

The word “Accounting” comes from the Latin word “Computare” which means compute or calculate. Today the word “account” denotes “an oral or written description of particular events or situation” and “answer concerning one’s conduct, duties, etc.”An accountant prepares a report for a period or for a particular date: “an oral or written description of particular events or situation”

An accountant is responsible to the business for which he is reporting and to his owner who has entrusted the assets to this person: “answer concerning one’s conduct, duties, etc.”The accounting profession has been in existence for ages. It is evident from the ancient stories we have around and from the languages.

There are many accounting standards in the world, with each country using a version of their own generally accepted accounting principles, also known as GAAP. These allow firms to report their financial statements in accordance to the GAAP that applies to them. The complication lies within whether the firm does business in multiple countries. How can investors then deal with multiple standards, which ones are accurate, and how can corporations be compared based upon their financials? The answer to these questions lies within the adoption of the International Financial Reporting Standards, or IFRS, which is being developed and supported by the International Accounting Standards Board (IASB).

It is believed that IFRS, when adopted worldwide, will benefit investors and other users of financial statements by reducing the cost of investments and increasing the quality of the information provided. Additionally, investors will be more willing to provide financing with greater transparency among different firms' financial statements. Furthermore, multinational corporations serve to benefit the most from only needing to report to a single standard and, hence, can save money and enhance comparability.

 

Introduction to IFRS

IFRS is an acronym for International Financial Reporting Standards and covers full set of principles and rules on reporting of various items, transactions or situations in the financial statements. Often they are referred to as “principles based” standards because they describe principles rather than dictate rigid accounting rules for treatment of certain items.

 

IFRS comprise the following components:

• The Conceptual Framework for the Financial Reporting

The Framework states the basic principles for IFRS and hence it’s a “must-read” document. It discusses objective of financial statements, underlying assumptions used in IFRS, qualitative characteristics of financial statements, elements of financial statements, recognition of elements of financial statements, measurement of elements of financial statements and concepts of capital and maintenance.

 

International Accounting Standards (IAS) and International Financial Reporting Standards

(IFRS)

Both IAS and IFRS are standards themselves that prescribe rules or accounting treatments for various individual items or elements of financial statements. IASs are the standards issued before 2001 and IFRSs are the standards issued after 2001. There used to be 41 standards named IAS 1, IAS 2, etc., however, several of them were superseded, replaced or just withdrawn. This app gives only those standards which are valid as at June 30, 2015.

 

What is the difference between IFRS & IAS? - International Accounting Standards Committee (IASC) was responsible for developing International Accounting Standards (IAS) before 2001. IASC was renamed as The International Accounting Standards Board (IASB) in 2001. Consequently the standards issued thereafter are known as IFRS. Therefore all the standards issued after 2001 are IFRS. The previous IAS are still valid but are being gradually superseded by new IFRS.

 

Standing Interpretations Committee (SIC) and Interpretations originated from the International

IFRS Interpretations Committee is the committee which makes interpretations on both IAS and IFRS issues. Standing Interpretations Committee (SIC) was the committee which made interpretations on IAS. IFRS Interpretations Committee replaced the former Standing Interpretations Committee (SIC) in March 2002. Interpretations of IFRS Interpretations Committee are known as IFRIC while the Interpretations of the Standing Interpretations Committee (SIC) were known as SIC.

 

What are the advantages of IFRS? - Global application of IFRS will make the comparison of financial statements easier for foreign investors which is advantageous for companies to attract investors.

Who Sets IFRS?

Primary standard setting body is the International Accounting Standards Board (IASB) with 15 full-time members based in London, UK. IASB’s goal is to develop and publish IFRS including IFRS for SME (small and medium enterprises). IASB also approves interpretations of IFRSs developed by IFRS Interpretation Committee.

The process of standard setting is as open and transparent as possible – all meetings of IASB are public and webcast on the net. Literally everyone interested can register to IASB’s official webpage www.ifrs.org and submit his own comments to drafts of new standards. This way, everyone can influence the process of standard setting.

IASB has also an interpretative body called IFRS Interpretations Committee (formerly IFRIC). This committee is responsible to review and solve certain accounting issues arising from IFRSs currently in place and provide guidance on those issues. In other words, committee issues interpretations called IFRICs (before 2001 SICs). Each IFRIC must then be approved by IASB. IFRS Interpretations Committee has 14 voting members drawn from different countries and professional backgrounds.

Both IASB and IFRS Interpretations Committee are selected, financed and supervised by the IFRS Foundation (formerly called IASC Foundation) who is independent, not-for-profit private sector organization working on public interest. Except for standard setting goal, its supporting goals are also:

• development of XBRL taxonomy to promote the electronic use, exchange and comparability of financial data prepared in line with IFRS
• development of training material for the IFRS for SMEs together with organizing conferences and workshops about IFRS
• protection and promotion of IFRS brand and support of global convergence of accounting standards and rules
• Day-to-day management and support for the organization, including development of relationships, promoting the work of organization, etc.

 

IFRS is used in more than 120 countries including the European Union, India, Australia, Malaysia, Pakistan, Russia, South Africa and Japan. However USA has not yet adopted IFRS.