International Financial Reporting Standards(IFRS)- Concept, Meaning and Assumptions

Hello Friends today we learn about International Financial Reporting Standards(IFRS)  The international Accounting Standards Committee (IASC) found in 1973 which is replaced by International Accounting Standards Board (IASB) in the year 2001 which now issues International Financial Reporting Standards (IFRS). The objective behind setting up the IASC and later IASB was to develop accounting standards that would be acceptable worldwide to produce and present financial information based on similar accounting standards and improve financial reporting internationally.

Meaning of International Financial Reporting Standards(IFRS)

International Financial Reporting Standards(IFRS) are the set of Accounting Standards developed by International Accounting Standards Board (IASB) in the year 2001. IFRS are referred to as principles-based accounting standards because standards issued by IASB are based on sound and clearly stated principles. IFRS states businesses to report their financial results and position with the objective of providing a common accounting language to increase understandability and transparency in their presentation of financial information.

International Financial Reporting Standards(IFRS)  refer to an International Accounting Standards set of guidelines which states how business transactions and other activities are reported in financial statements. The International Accounting Standards Board (IASB) issues IFRS, and they shows how Accountants must report and maintain their accounts. International Financial Reporting Standards were established to share a mutual accounting language, by which accounts and businesses can be understandable from company to company, and also country to country.

IFRS Assumptions

International Financial Reporting Standards(IFRS) are the set of Accounting Standards which states how business transactions and other activities are reported in financial statements but their are namely four assumptions of IFRS discussed below-

1. Accrual Assumption

According to this assumption income and expenses are recorded as they occur, whether cash is exchanged or not. Accrual Assumptions says, record the revenues when they earned not when they are received in cash.The transactions are recorded in the books of accounts on accrual basis i.e, as and when they occur and not when the settlement of transactions takes place. It deals with in the period to which the transactions relate and not when they are received or paid. 

2. Going Concern Assumption

The Going Concern concept of accounting says that the business entities will continue its operations for a foreseeable period and there is no intention to close the business or scale down its operations significantly. This means a business entity will not be forced to halt its operations and liquidate its assets on short term basis This states that the business will not be dissolved in the immediate future unless their is a clear legal document of closure of business. It is assumed that the life of the business is infinite,  the business entities will continue its operations for an indefinite period.

3. Measuring Unit Assumption

This Assumption works for capital measured in nominal monetary units. It means assets and liabilities are recorded at their values when first acquired, i.e, Assets should be reflected at its fair value.

4. Constant Purchasing Power Assumption

Constant purchasing power means value of capital be adjusted to inflation in the economy at the end of the financial year. Only constant real value non-monetary items are adjusted for inflation during low inflation or deflation.

👉Must Read Generally Accepted Accounting Principles

👉Must Read Accounting Information System (AIS) Explained

Which Financial Statements are produced under IFRS?

The Financial Statements produced under IFRS are mentioned below:

1. Statement of Financial Position- 

The contents under the Statement of Financial Position are as under-

• Assets- An Asset is a resource with economic value that a business entity owns or control the same with the expectation that it will provide a benefit in future, or say anything which will enable the firm to get cash or a benefit in future. Assets are shown in Company's Balance Sheet to increase firm's value or benefit the firm's operations.
• Liability- Liabilities means the amount owned by the business. These are firm's legal financial debts and obligations that arise during the course of business operations, or say the amount payable by the business from the past events and operations which results in outflow of assets by means of any payment method.
• Equity- Equity is found in company's balance sheet which represents the amount of money that would be returned to company's shareholders if all of the assets were liquidated and all the liabilities were paid off. It is the the most important element on a company's balance sheet, it helps to assess the financial position of the company. Thus, we can say-

Owner's Equity or capital+ Claims of Outsiders=Assets

2. Statement of Comprehensive Income- 

A Statement of Comprehensive Income includes two separate statements:

• Income Statement- A Statement of profit and loss for the year of an enterprise.
• Statement of Comprehensive Income- A Statement that reconciles the income/loss as per Income statement with total comprehensive income. Comprehensive includes those elements of income/Expense that are not recognized in the profit and loss account to comply with the other relevant standards.

The elements or contents of the statements include-

• Revenue- Revenue is that amount which the company receives from selling goods/providing services to its customers and clients. It increases the economic benefit during the accounting period as a result of business operations or increase in the value in the business assets.
• Expense- An expense is the amount spent or incurred by an enterprise for generating it's revenue. It is a decrease in economic benefits in the form of outflows during the accounting period and it also results in decrease in value of Shareholder's equity while assets results in increase in the value of Shareholder's equity.

3. Statements of Changes in Equity- 

This statement defines the changes in company's share capital, Company's reserves and retained earnings in a specific period of time.

4. Statement of Cash Flow- 

A Cash Flow Statement is a financial statement that measures how well a company manages its cash position, from what sources and how the cash generates to pay its debt obligations and arrange fund for its operating expenses. In other words, it records the Cash Incoming and Cash outgoing details in a significant manner.

5. Notes and Significant Accounting Policies

IFRS v/s GAAP

Basis	IFRS	GAAP
Acronym	International Financial Reporting Standard	Generally Accepted Accounting Principles
Meaning	International Financial Reporting Standards (IFRS) refer to an International Accounting Standards set of guidelines which states how business transactions and other activities are reported in financial statements. The International Accounting Standards Board (IASB) issues IFRS, and they shows how Accountants must report and maintain their accounts	The Generally Accepted Accounting Principles (GAAPs) are the accounting rules that are accepted by accountants based on which transactions are recorded in the books of accounts and financial statements are prepared. These rules or guidelines adopted for recording and reporting business transactions, in order to bring uniformity and consistency in the preparation and presentation of financial statements.
Basis	Principals based	Rule based
Scope	IFRS is used in more than 110 countries around the world, including the European Union and many Asian and South American Countries	GAAP is only used in United States
Concept	Based on Fair value Concept	Based on Historical Cost Concept
Income Statement	Extraordinary items are not segregated in the Income statement under IFRS.	Under GAAP, extraordinary items are shown below the net income.
Developed by	International Accounting Standard Board (IASB)	Financial Accounting Standard Board (FASB)
Treatment of Intangible Assets	Intangible assets are only recognized if they will have a future economic benefit, or they give a money value in future.	Intangible assets recognized at their current fair market value and no future considerations took place.
Treatment   of Inventory	LIFO (Last in First out) method of calculating inventory is not allowed	LIFO or FIFO (First In First Out) method method can be used for estimating inventory