Assignment Sample on Element 010 IFRS Accounting Policies
Introduction
According to Huiyue et, al, 2020, in compliance with IFRS, a financial statement commonly called a Balance Sheet, a Profit, and Loss statement for a detailed study of income and expense, statement of equity, and cash flow are prepared for computation of the business accounts (Kouki, 2018). Financial statements are developed from the perspective of an entity and on the assumption that reporting entity will continue in operation. According to Gordon and Hsu (2018), the prominent aspect of IFRS-1 is a complete view of application comparing from all the standards of IFRS that are most effective based on concluding balance sheet or while reporting the date of IFRS financial statements. The initial IFRS-1 was created with a vision that it will help companies from most of the countries to help in the transition process and assist in practical accommodations. These were intended to be a more cost-efficient process of transformation. It also helps while being as application guidance while addressing important and critical topics.
| Financial Heads | Detailing of the Account Heads |
| IAS 1
Materiality |
IAS 1 defines the useful information material to the basic users of the statements stating the financial details and has guidance for an entity to make an additional
Line items, making materiality judgment when preparing financial statements by IFRS |
| Financial Statement | Assets and Liabilities are required to be classified as current and non-current, they cannot be offset unless it is mentioned |
| Statement of Profit and Loss | The statement reflects a comprehensive structure of income and expenses. Profit and loss statements are presented by depreciation and cost of sales. Items in other comprehensive income can be presented only if permitted by IFRS standard. |
| Statement of Equity | The statement reflects the changes in equity to show the total comprehensive income for a particular period. The effects on the equity of the application following IAS 8. |
| IAS 16 Property, Plant, and Equipment | The identification of PP&E for its future economic benefits. PP&E is measured at its fair value. The depreciation is charged systematically over the lifetime of the asset either by a straight line or diminishing balance method |
| Inventories IAS 2
Measurement of Inventory |
This includes purchase cost, conversion cost (materials, labor, and overheads) without any foreign exchange differences as IAS 21 |
| Cost of Goods Sold | The carrying cost is taken as an expense over some time |
| Impairment | Net Realizable Value is taken as an expense over a period when the loss occurs. NRV is the reduction in the inventory (Cussatt et, al. 2018) |
| Intangible Asset IAS 38
The accounting process of recognizing intangible assets |
The intangible assets which are the non-monetary asset like patents, copyrights, research and development costs, etc which has economic benefits in a long run. The intangible assets are amortized over the life of the asset which is changed to an expense account |
| Investment Property IAS 40 | Investment property is the rentals earned from any land or building owned for its capital appreciation. It is measured at cost and transaction costs get considered in the measurement |
| IFRS 3 | According to Rao et, al. (2018), Outlines the acquisition and the merger of a business |
Consolidated Financial Statements in IFRS
Country-wise:
Argentina: IFRS should be listed for every company except banks and insurance. All listed companies should have IFRS other than the financial and insurance entities.
Australia: IFRS is slightly modified for Australian accounting. For example, AASB 6 is equivalent to IFRS 6 for the evaluation of mineral and natural resources; the use interest method for evaluation is required. In IFRS it is not mandatory.
Brazil: The use of IFRS is restricted. IAS 16 and IAS 38 are currently prohibited for PPE and Intangible assets. IAS 1 is only a separate comprehensive statement of income.
Canada: The applications and scope of IFRS in Canada are greater than in Europe. All IFRS standards are endorsed without any alterations.
China: Chinese GAAP and IFRS are converged. Though there are some differences for example like impairment loss reversal, joint venture investment to be accounted under equity, new IFRS standards are not yet active for accounting.
EU: IFRS has been adopted in the EU virtually. French Accounting has guided IAS 1. The guidance provided by German accounting on IAS 1, IFRIC6, and IFRS 32. Italy has guided on IFRS transition, Disclosure, and Application issues. Practical guidance of accounting treatment of tax on goodwill, impairment; Goodwill and impairment for banking sectors and insurance; and service agreement in IFRIC 12 (Zajmi and Paic, 2018).
India: IFRS is not followed in India but some companies have adopted IFRS.
The IFRS is adopted by the Indian blue-chip aligning their accounting to IFRS standards. The companies listed are Infosys Technologies, Wipro, Mahindra, NIIT, Tata Motors, textiles like Bombay Dyeing, pharma like Reddys Laboratories.
Though they are using Indian GAAP as their basic accounting without IFRS accounting they have no place in the European market. The companies which are exposed to the European market need to maintain transparency; hence there is a compulsory switchover (Tawiah, 2020).
Modification:
According (Prihatni et, al. 2019), in IFRS 3, in this standard the bargain purchase has to be mentioned in equity. Control transactions to be evaluated by the historical method.
Japan: IFRS is reformed as per the authoritative requirement of the country. For a complete change in the set of accounting principles, few requirements need to be met.
- Share to be listed in the exchange market
- Disclosure of Annual security repot maintenance for financial statements
- Allocating executives with profound knowledge of IFRS
- The permitted usage of IFRS will require further expanded accounts of the subsidiaries
South Korea: Mandatory usage of IFRS for the listed companies for IFRS. It has adopted virtually all the IFRS techniques.
Mexico: IFRS should be listed for every company except banks and insurance. All listed companies should have IFRS other than the financial and insurance entities.
Russia: Mandatory usage of IFRS for the listed companies for IFRS. It follows a formal process for interpretations and amendments for IFRS and new standards are processed by technical expertise.
Saudi Arabia: All listed companies should have IFRS other than the financial and insurance entities.
South Africa: It’s a private sector entity that has an accounting board empowered to apply and issue standards for the companies without change.
Turkey: Mandatory usage of IFRS for the listed companies for IFRS
South African consolidated Balance Sheet
IFRS statements
Statement showing details of Financial Position at December 31st
| Particular | 2020 | 2021 |
| Fixed assets | ||
| PP&E | 8,340 | 9,340 |
| Deferred tax | 27 | |
| Current assets | ||
| Cash | 171,800 | 129,000 |
| Total assets | 180,167 | 138,340 |
| Equity | ||
| Share capital | 100,000 | 100,000 |
| Retained earnings | 65,495 | 26,692 |
| Non-current liabilities | ||
| Lease liability | 1,819 | 3,472 |
| Deferred tax | 1,473 | |
| Current liabilities | ||
| Current tax | 11,200 | 5,200 |
| Lease liability | 1,653 | 1,503 |
| Total equity and liabilities | 180,167 | 138,340 |
IFRS 16
IFRS 16 replaces the below standards:
IAS 17 Lease
IFRIC 4 Determination of Arrangement for Lease
SIC-27 Evaluating Transactions Involving a Legal Form for a Lease
SIC-15 leases by operating Leases with Incentives
Scope:
- lease for mineral, natural gas, and oils
- Lease for a biological asset
- lease for the license of an Intellectual property
- lease for the right of patents, copyrights, etc
A lease is a contract where it conveys the control of the asset with the right of use over a certain period.
IAS 16
The accounting treatment of the PP&E, the recognition and determination of an asset, and the depreciation charges that are recognized along with its impairment charges. The recognition of Property, Plant, and Equipment for its future economic benefits. PP&E is measured at its fair value. The depreciation is charged systematically over the lifetime of the asset either by a straight line or diminishing balance method
The scope for IAS 16 is:
- are held in production of goods and services and also for rental, and administrative purposes; and
- The future benefits are measured
- The cost of an asset is calculated reliably in IAS 16
- expected to use a time of more than one time period
In IAS 16 Accounting treatment of PP&E is covered. IAS 16 deals with the identification of PP&E, impairment losses, and disclosure and depreciation charges. IAS 16 applies to PP&E and is not covered by IFRS. This accounting standard deals with the fixed asset of the firm. There are two models for accounting which are the Cost model and revaluation model.
IAS 38
The intangible assets are the non-monetary asset like patents, copyrights, research and development costs, etc which has economic benefits in a long run. The intangible assets are amortized over the life of the asset which is changed to an expense account. Examples are:
- software,
- patents,
- customer lists and customer relationships,
- licenses,
- marketing rights,
- training,
- motion films,
- advertising
- copyrights
- royalty
For tangible assets, the face value has its reduction as depreciation whereas the intangible asset has amortization which is imposed on the valuation of the asset and charged to the expense account over some time.
IAS 40
Investment property is the rentals earned from any land or building owned for its capital appreciation. It is measured at cost and transaction costs get considered in the measurement.
This Standard does not cover matters of IAS 17 Leases which includes
(a) classification of finance and operating under leases;
(b) recognition of income from investment as lease
(c) measurement of a lessor’s statements whether its a finance lease;
(d) measurement of a lessee’s statements of property held under lease
(e) disclosure about finance or operating under leases
(f) accounting for lease or sale transactions;
This Standard has no application to (a) biological assets associated with agricultural activity and (b) mineral rights, natural resources, and mineral reserves
IAS 2
This includes purchase cost, conversion cost (materials, labor, and overheads) without any foreign exchange differences as IAS 21. The carrying amount is taken as an expense in the period. Net Realizable Value is taken as an expense over the period when the loss occurs. NRV is the reduction in the inventory.
- Inventories are sold in course of business action
- Inventories are processed for sale; or
- Inventories including materials and supplies are taken for production which is to be consumed and rendered in services
IFRS 3
According to Maseko and MIndianingwini (2019), this standard outlines the acquisition and the merger of a business. The purchase or acquisition includes a fair value that the business might have acquired previously. The contingent is also recognized while taking the fair value on the date of the acquisition or the merger.
The acquired assets should be included in the consolidated statement with its fair value items like pension or deferred taxes. This standard improves the relevance and comparability of the accounting information.
IAS 1
IAS 1 defines the useful information material to the basic users of the financial statements and has guidance for an entity. Line items, making materiality judgment when preparing financial statements following IFRS. Assets and Liabilities are required to be classified as current and non-current, they cannot be offset unless it is mentioned. The statement reflects a comprehensive structure of income and expenses. Profit and loss statements are presented by depreciation and cost of sales. Items in other comprehensive income can be presented only if permitted by IFRS standard. The statement reflects the changes in equity to show the total comprehensive income for a particular period. The effects on the equity of the application following IAS 8 are reflected in this standard (Turlington et, al. 2019).
The objective of the standard is to ensure the fair and comparative presentation of the financial statements of the previous periods and also a view of other entities. It gives a clear view of the financial structure of a company. It highlights the areas which need improvements in terms of the working capital or interest to the stakeholders, the overall financing of a company, the number of payables and receivables.
IFRS accounting policies are in practice by many countries now. Certain amendments are made for the companies which converge both the methods of IFRS and country-specific accounting standards (Loitz, 2018).
Reference
Cassatt, M., Huang, L. and Pollard, T.J., 2018. Accounting quality under US GAAP versus IFRS: The case of Germany. Journal of International Accounting Research, 17(3), pp.21-41.
Humayun, S., 2020. Goodwill impairment: a comparative study under US GAAP, IFRS, and China GAAP (Doctoral dissertation).
Kouki, A., 2018. IFRS and value relevance. Journal of Applied Accounting Research.
Kouki, A., 2018. Mandatory IFRS adoption, investor protection, and earnings management. International Journal of Accounting & Information Management.
Prihatni, R., Subroto, B., Saraswati, E. and Purnomosidi, B., 2018. Comparative value relevance of accounting information in the IFRS period between a manufacturing company and financial services go public in Indonesia stock exchange. Academy of Accounting and Financial Studies Journal, 22(3), pp.1-9.
Rao, N., Bedia, D.D. and Shrivastava, K., 2020. EFFECT OF IFRS AND IND AS ON THE FINANCIAL STATEMENTS OF LISTED INDIAN COMPANIES: A COMPARATIVE ASSESSMENT. Journal of Commerce & Accounting Research, 9(2).
Tawiah, V., 2020. Convergence to IFRS: a comparative analysis of accounting standards in India. International Journal of Accounting, Auditing and Performance Evaluation, 16(2-3), pp.249-270.
Zajmi232, S. and Paic233, M., 2018. GLOBAL DIVERSITIES IN FINANCIAL REPORTING: COMPARATIVE ANALYSIS OF INVENTORY VALUATION METHODS CONCERNING US GAAP AND IFRS. Recent Advances in Information Technology, Tourism, Economics, Management and Agriculture, p.579.
Gordon, E.A. and Hsu, H.T., 2018. Tangible long-lived asset impairments and future operating cash flow under INDIAN GAAP and IFRS. The Accounting Review, 93(1), pp.187-211.
Loitz, R., 2018. Tax Accounting of the Future. In Rechnungslegung, Steuern, Corporate Governance, Wirtschaftsprüfung und Controlling (pp. 111-138). Springer Gabler, Wiesbaden.
Turlington, J., Fafatas, S. and Oliver, E.G., 2019. Is it INDIAN GAAP or IFRS? Understanding how R&D costs affect ratio analysis. BIndianiness Horizons, 62(4), pp.427-436.
Maseko, V. and MIndianingwini, C., 2019. An empirical long-term commodity price range for Mineral Reserve declarations to minimize impairments in gold and platinum mines. Journal of the Southern African Institute of Mining and Metallurgy, 119(3), pp.229-242.
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