Primary navigation:

QFINANCE Quick Links
QFINANCE Topics
QFINANCE Reference
Add the QFINANCE search widget to your website

Home > Regulation Best Practice > Understanding the Requirements for Preparing IFRS Financial Statements

Regulation Best Practice

Understanding the Requirements for Preparing IFRS Financial Statements

by Véronique Weets

Executive Summary

Introduction

International Financial Reporting Standards (IFRS), drawn up and published by the International Accounting Standards Board (IASB), are rapidly becoming the most globally applied set of accounting standards. Approximately 9,000 public companies in the European Union had transferred to IFRS reporting as of 2005. Russia, China, Canada, Japan, Australia, and many other countries, including those in the Middle East, are adopting IFRS or have plans to converge their national standards with IFRS. There is therefore a growing need for a better understanding of these standards.

Since its inception in 1973 as the International Accounting Standards Committee, the IASB, as it became in 2001, has issued almost 3,000 pages of standards (excluding superseded ones) along with their interpretations. These treat various topics from first-time application of IFRS to property, plant and equipment, financial instruments, mineral resources, income taxes, and so on. At this moment financial statements prepared under IFRS have to comply with 37 standards and 28 interpretations. Many topics have not yet been covered, so the IASB is continuously improving the current standards and publishing new standards. The Board’s current project timetable plans the publication of 24 new consultation documents and 23 final pronouncements between now and 2011. These will include six discussion papers, 18 exposure drafts, 22 final IFRS and one final guidance document. As a result, people involved with application of the standards will be obliged to invest considerable time in keeping their knowledge up to date.

Basic Principles

Because IFRS are a principle-based set of standards, the IASB avoids setting benchmarks to determine the appropriate accounting treatment. For example, unlike in SFAS 13—Leases, the US standard applying to lease arrangements, the equivalent IASB standard, IAS 17—Leases, sets no benchmarks to determine whether a lease is a finance lease or an operating lease. The person responsible for preparing a financial statement is thus required to use his judgment to give a faithful representation of the situation that is in accordance with the substance of the transaction and economic reality and not merely with its legal form.

Alongside that, great importance is given to the overall comparability of financial statements, both in a single period (across entities) and from period to period (within the same entity). This means that accounting policies should be applied consistently, and benchmarking within industries is encouraged. Furthermore, comparative information is required for at least the preceding accounting period. Financial statements should be prepared at least annually.

The general features of IFRS financial statements (fair representation and compliance with IFRS, along with a going-concern, accrual basis of accounting, materiality and aggregation, offsetting, frequency of reporting, the provision of comparative information, and consistency of presentation) are described in IAS 1—Presentation of Financial Statements (revised in 2007). The qualitative characteristics of financial statements (relevance, faithful representation, comparability, verifiability, timeliness, and understandability) are dealt with in the Conceptual Framework for Financial Reporting (a discussion paper to improve the framework, published in 2008).

Back to Table of contents

Further reading

Books:

  • IASCF. International Financial Reporting Standards (IFRSs). London: IASCF Publications, 2008.
  • Alfredson, Keith, Ken Leo, Ruth Picker, Paul Praeter, Jenny Redford, and Victoria Wise. Applying International Financial Reporting Standards. Enhanced ed. Milton, Australia: Wiley, 2007.

Websites:

  • The International Accounting Standards Board (IASB) website gives access to all the IASB’s standards and interpretations: www.iasb.org
  • Deloitte’s site IAS Plus has daily updates on what is happening in the IFRS world and information on almost all IASB standards: www.iasplus.com

Back to top

Share this page

  • Facebook
  • Twitter
  • LinkedIn
  • Bookmark and Share