Things to Know about IFRS
IFRS is the abbreviation of International Financial Reporting Standards. They have set protocols for the rules and standards of accounting that are accepted internationally. These rules and standards need to be followed to write the business’s financial statement. International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB) to make the financial statements of the businesses comparable and readable internationally. IFRS is followed in most of the countries across the world wherein it changed the national standards of accounting, but US is one nation that does not follow IFRS, rather they follow GAAP (Generally Applied Accounting Principles).
IFRS standards have been successfully adopted by over 140 jurisdictions and have been put to action in many countries like India, Australia, Pakistan, Hong Kong, Russia, South Africa, Singapore, Brazil, European Union, Turkey, etc. The benefit of adopting a global system of accounting standards is to provide businesses with a chance to explore the international markets. This helps in maintaining uniformity of the accounting standards across the world so that it is easy to understand the state of the businesses across different borders.
Objectives of the financial statements
The main motive of the financial statements is to be a faithful and an honest source of information that would be helpful for the existing and the future investors, the creditors, lenders, etc. that have a say in the financing of the business and influence the finances of the business in Dubai, UAE. The financial information has to be relevant, comparable, understandable, faithful and timed. The basic concepts of the business-like assets, equity, income, expenses, liabilities, etc. have to be reported clearly and rightly in the financial statements.
Presentation of the financial statements in IFRS
Following the International Financial Reporting Standards, the financial statements have to comprise of the following elements:
- Statement of financial position: This is most commonly known as the balance sheet wherein the different components of the financials are reported.
- Statement of comprehensive income: This statement could be represented as a single statement or as different statements showing the profits and the loss for each of the comprehensive income.
- Statement of changes in equity: This statement records the change in the business’s profits over a duration of time.
- Statement of Cash flow: This statement shows the financial transactions of the business in a certain period of time.
General Features about IFRS
- Compliance with IFRS: The compliance with the standards of IFRS can be achieved only if the representation of your business’s financial statement is legit and true. You need to report the transactions, assets, liabilities, equity, income, expenses, etc. in a fair manner so that the integrity of the financial statement about your business could be trusted.
- Accrual base for accounting in Dubai, UAE: The assets, liabilities, income, expenses, and the equity of business shall only be considered only if they abide by the definition set in the framework of IFRS.
- Going concern: The financial statements of a business have to represent on a going concern basis. The only exception could happen if the entity’s trading has been ceased or it had to liquidate it.
- Materiality and aggregation: The materials that are similar and belong to the same class of materials have to be clubbed together in the representation. Otherwise, the different sorts of materials according to their nature or function have to be represented separately.
- Frequency of reporting: The IFRS has set the rule for a compulsory annual showcase about the business’s financial statements although there are some companies that also publish their interim financial statements that abide by the rule IAS 34 Interim Financial reporting.
- Offsetting: The process of offsetting is not allowed in IFRS, but there is an exception to this rule as in the case of IAS 19 and IAS 12.
- Comparative information: The businesses have to present the comparative data in accordance with their amounts that were reported in the previous period along with the financial statements for the current financial period.
- Consistency of presentation: The presentation of the financial statement in accordance with the standards of the IFRS have to be maintained from one financial period to the next. This could be exempted if the entity’s presentation could be improved by presenting in another way or the second reason could be if there is a change in the IFRS standards.
Cash flow statements
The cash flow statements have to be presented in a certain way pertaining to the standards set by the International Financial Reporting Standards. The cash flow statements in IFRS are generally presented as follows:
- Operating cash flows: These are the main activities of the firm that contribute towards the revenue of the firm and are usually calculated by using the undirect method wherein the gain and the loss are adjusted according to the effects of the transaction of the non-cash culture. They are free of any deferrals or the accruals of the past or the future payments or cash receipts. The income and expense related items that are associated with the investing or the financing cash flows are also not included in the calculation of the operating cash flow statements.
- Investing cash flows: These statements are a representation of the extent to which the expenditures were experienced to purchase the resources that intent to create a future income or cash flow. The acquisitions or the disposals of the long-term assets, investments or other relevant cash equivalents are not a part of these statements. The expenditures that turn into the assets are taken into consideration for the statement of the financial position, and these expenditures are also eligible for the classification of the investing activities.
- Financing cash flows: These account for the activities that bring about some changes in the size or the composition of the equity or the borrowings that are contributive for the entity. These cash flow statements are important because they are used to predict the claims on the future cash flows that would be given by the providers of the capital for the business.
As the businesses are going global, adhering to the IFRS norms is essential for organizations to conduct their operations seamlessly. If you are unsure about the process, the you must avail the services of professional service providers.
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