IFRS
International Financial Reporting
Standards (IFRS)
International Financial Reporting Standards (IFRS)
are designed as a common global language for business
affairs so that company accounts are understandable and
comparable across international boundaries.
They are a consequence of growing international
shareholding and trade and are particularly important for
companies that have dealings in several countries.
They are progressively replacing the many different
national accounting standards.
The rules to be followed by accountants to maintain
books of accounts which is comparable, understandable,
reliable and relevant as per the users internal or external.
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IFRSs – Approach followed
IFRSs are principle-based standards.
The principle-based standards have distinct
advantage that the transactions can not be
manipulated easily to achieve a particular
accounting.
The Financial Accounting Standards Board
(FASB), USA, is having a convergence
project with the IASB and is broadly
adopting the principle-based approach
instead of rule-based approach. 3
IFRSs – Approach followed (contd. …)
Substance Over Form
IFRSs lay down treatments based on the
economic substance of various events and
transactions rather than their legal form.
The application of this approach may result into
events and transactions being presented in a
manner different from their legal form.
To illustrate, as per IAS 32, preference shares
that provide for mandatory redemption by the
issuer are presented as a liability.
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Non-financial Disclosures
As per the IASB Framework for the Preparation
and Presentation of Financial Statements, the
objective of financial statements is to provide
information that is useful to a wide range of users
in making economic decisions.
The Framework recognises financial statements
do not provide all the information required for
decisions.
To achieve, the objective the financial reports
may include additional information in the form of
non-financial disclosures.
Contd. …
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Non-financial Disclosures (contd. …)
Such disclosures are usually contained
in Management Report.
To deal with the aspect, the IASB is
developing a separate IFRS on
Management Commentary.
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Challenges of IFRSs
Economic Environment
Some IFRSs require fair value approach to be
followed, examples include:
IAS 39, Financial Instruments: Recognition and
Measurement
IAS 41, Agriculture
The markets of many economies such as India normally
do not have adequate depth and breadth for reliable
determination of fair values.
With a view to provide further guidance on the use of fair
value approach, the IASB is developing a document.
Till date, no viable solution of objective fair value
measures is available.
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Convergence with IFRSs: Indian
Perspective
Indian Accounting Standards (ASs) are
formulated on the basis of the IFRSs.
While formulating ASs, the endeavor of the
ICAI remains to converge with the IFRSs.
The ICAI has till date issued 29 ASs
corresponding to IFRSs.
Some recent ASs, issued by the ICAI, are
totally at par with the corresponding IFRSs,
e.g., the Standards on ‘Impairment of
Assets’ and ‘Construction Contracts’. 8
IFRSs: Indian perspective (contd. …)
While formulating Indian Accounting
Standards, changes from the corresponding
IAS/ IFRS are made only in those cases
where these are unavoidable considering:
Legal and/ or regulatory framework prevailing in
the country.
To reduce or eliminate the alternatives so as to
ensure comparability.
State of economic environment in the country
Level of preparedness of various interest groups
involved in implementing the accounting
standards.
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