In an increasingly interconnected world, international business transactions have become the norm rather than the exception. A universal financial reporting framework becomes imperative as companies expand their operations globally.
International Financial Reporting Standards (IFRS) have become the bedrock of global accounting practices, promoting openness, uniformity, and responsibility in financial reporting worldwide. With this in mind, let’s delve into the meaning of International Financial Reporting Standards to enhance our comprehension.
What is International Financial Reporting Standards, or IFRS?
IFRS stands for a universally embraced set of accounting principles employed by companies for financial reporting. Crafted by the International Accounting Standards Board (IASB), IFRS establishes a standardized framework, ensuring uniformity, comparability, and clarity in financial statements. Unlike local accounting standards, IFRS enables businesses to showcase their financial data globally, making it accessible and comprehensible for investors, regulators, and stakeholders spanning various nations.
International Financial Reporting Standards IFRS emphasizes principles-based accounting, focusing on the substance of transactions rather than their legal form. This principles-based approach provides companies with flexibility while maintaining the rigor and accuracy of financial reporting. Adopted by numerous countries worldwide, IFRS enhances the quality of financial information, promotes global economic stability, and facilitates cross-border investments and business activities.
What is International Accounting Standards Board?
The IASB is a global, autonomous entity formulating International Financial Reporting Standards (IFRS). Founded in 2001, its core aim is to establish a unified, top-tier collection of accounting standards applicable globally. Operating under the oversight of the International Financial Reporting Standards Foundation (IFRS Foundation), the IASB partners with national accounting standard-setters and regulatory entities across the globe. Its mission is to guarantee coherence and comparability in financial reporting, fostering openness and confidence in the international financial arena.
List of International Financial Reporting Standards (IFRS)
IFRS 1 – First-time Adoption of International Financial Reporting Standards
IFRS 2 – Share-based Payment
IFRS 3 – Business Combinations
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
IFRS 9 – Financial Instruments
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint Arrangements
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 13 – Fair Value Measurement
IFRS 14 – Regulatory Deferral Accounts (only applicable to entities within the scope of IFRS 14)
IFRS 15 – Revenue from Contracts with Customers
IFRS 16 – Leases
IFRS 17 – Insurance Contracts (effective for annual periods beginning on or after January 1, 2023)
IFRS 18 – Revenue (replaced by IFRS 15 for annual periods beginning on or after January 1, 2018)
IFRS 19 – Employee Benefits
IFRS 20 – Accounting for Government Grants and Disclosure of Government Assistance
IFRS 21 – The Effects of Changes in Foreign Exchange Rates
IFRS 22 – Business Combinations (only applicable in situations involving common control)
IFRS 23 – Uncertainty over Income Tax Treatments
IFRS 24 – Related Party Disclosures
IFRS 25 – Income Taxes (only applicable in cases where an entity applies IFRS 17 Insurance Contracts)
IFRS 26 – Accounting and Reporting by Retirement Benefit Plans (only applicable to retirement benefit plans)
IFRS 27 – Separate Financial Statements
IFRS 28 – Investments in Associates and Joint Ventures
IFRS 29 – Financial Reporting in Hyperinflationary Economies
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
IAS 41-Agriculture
Components of Financial Statements Under IFRS
Here are the key components of financial statements under IFRS, presented in a detailed point format:
1. Balance Sheet
Assets: This category comprises tangible assets like property and equipment, intangible assets such as patents and copyrights, and financial resources like cash and investments.
Liabilities: The section covers short-term obligations, like debts and payables, as well as long-term commitments, including loans and bonds.
Equity: This represents shareholders’ ownership in the organization, including common shares, retained earnings, and additional paid-in capital.
2. Income Statement (Statement of Profit and Loss)
Revenue: Total sales and other income generated from the core business activities.
Expenses: Includes cost of goods sold, operating expenses, interest, and taxes.
Profit/Loss Before Tax: Revenue minus all expenses, excluding taxes.
Profit/Loss After Tax: The final net income after deducting taxes.
3. Statement of Comprehensive Income
Net Income: Includes profits and losses from normal business activities.
Other Comprehensive Income (OCI): Items that bypass the income statement (e.g., unrealized gains or losses on investments, foreign currency translation adjustments).
Total Comprehensive Income: Net income + OCI, providing a broader view of a company’s economic performance.
4. Statement of Changes in Equity
Opening Balance of Equity: Equity at the beginning of the reporting period.
Share Issuances/Buybacks: Changes in equity due to issuing or repurchasing shares.
Dividends Paid: Cash or stock dividends distributed to shareholders.
Net Income for the Period: Profit or loss for the reporting period.
Other Comprehensive Income: OCI items impacting equity.
Closing Balance of Equity: Equity at the end of the reporting period.
5. Cash Flow Statement
Operating Activities: Cash flows from primary business operations, including customer receipts and supplier payments.
Investing Activities: Cash flows from purchasing and selling investments and long-term assets.
Financing Activities: Cash flows from issuing or repaying debt, issuing or buying back shares, and paying dividends.
Net Increase/Decrease in Cash: Change in cash and cash equivalents during the reporting period.
6. Notes to Financial Statements
Significant Accounting Policies: Details on the methods and principles applied in financial reporting.
Contingent Liabilities: Potential liabilities that may arise from past events, disclosed with their potential impact.
Segment Reporting: Information about business segments and geographical areas in which the company operates.
Subsequent Events: Events occurring after the reporting period but before the financial statements are issued.
The Bottom Line
The Concept of international financial reporting standards is a testament to global collaboration’s power in shaping the financial landscape. By fostering transparency, comparability, and accountability, IFRS has transformed financial reporting into a powerful tool that drives economic growth, attracts investments, and promotes responsible corporate behavior.
As the global economy continues to evolve, the ongoing commitment to refining and harmonizing IFRS will be essential, ensuring a stable and transparent financial environment for businesses and investors worldwide.