What is The IFRS

What is The IFRS Free Online Research Papers International Financial Reporting Standard (IFRS) are the standards which are principal based in nature. These are the standards, framework and the interpretation promulgated by International Accounting Standards Board (IASB), an international standard setting-body based in London. IFRS has a specific structure as it establishes rules and also gives guidelines on the various procedures to be followed for treatment. Started by IASC (International Accounting Standards Committee) for formulating the standards, IASC decided to dissolve itself in 2001 and form a professional board IASB. IASC trustees appoint members for IASB, IFRIC (International Financial Reporting Interpretations Committee) and SAC (Standards Advisory Council). IASB emphasizes on developing standards based on sound and clearly stated principles which requires interpretation. During the existence of IASC, it formulated 41 standards which are known as International Accounting Standards (IAS) and the Framework for the Preparation and Presentation of Financial Statements ( Barry J. Epstein Eva K.Jermakowicz). Some of the standards formulated by IASC have been withdrawn since then like IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions or superseded like IAS 22, Business Combinations was superseded by IFRS 3, Business Combinations. IASB framework for the Preparation and Presentation of Financial Statements defines the concepts which form the basis of preparation and presentation of financial statements. It includes the objectives, assumptions, characteristics, definitions and criteria that administer financial reporting and the framework is also known as conceptual framework due to these features. The frameworks defines the objective of the financial statement, underlying assumptions, qualitative characteristics that specifies the usefulness of information in financial statements and the definition, identification and measurement of elements used to construct the financial statement. The framework is not a standard and also, it does not have to be implemented like a standard. The sole purpose of framework is to assist and guide IASB while developing new or revising the existing standards, to assist in setting of standards at national level consistent with international principles and to assist during the prepar ation of financial statement in judging the circumstances which are addressed by any standard. The framework inherited by IASB from IASC states that the objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Accounting policies are promulgated by IASB by the framework and the standards of IFRS. The framework states that the users of financial statement have to evaluate the ability of the entity to not only generate the income but also the timing and assurance of doing so. The framework also specifies that financial statement should be true and fair. Two differences and similarities between IFRS and GAAP Similarities IFRS and GAAP both have the same approach for treatment of foreign currency translation. The criteria to determine the functional currency of an entity are defined separately in both GAAP and IFRS; however they lead to same determination which is the primary currency of entity. The transaction of foreign currency has to be re-measured in the entity’s operational currency and the amount from translation in currency is booked under income. Also, both IFRS and GAAP state that the operational currency has to be re-measured in operational currency before translation in reporting currency. IFRS and GAAP define that Earnings per Share should be disclosed by the entities which issue shares in market or are in the process of share trading. They require that the diluted and basic EPS should be presented on the face of income statement. Treasury stock method is required for determining the impact of stock options on diluted EPS calculation. Differences In GAAP, the lease for land or building which involves transferring of ownership to lessee or involves the bargain purchase option is classified as capital lease by lessee. In IFRS, land and building are considered as separate while evaluating the indicators. In GAAP if the fair value of land at starting in more than 25% of fair value of lease then the land and building component are considered separately for evaluation purpose whereas in IFRS, there is no condition of 25% and the land and building has to be considered separately only for evaluation In GAAP, equity method investments are accounted at fair value and in case of entity not willing to go for fair value accounting, equity method of accounting can be used as an option whereas in IFRS investors have to use equity method of accounting for their investments. Mutual funds, venture capital entities and unit trusts are excluded from this standard. IFRS also requires the uniformity of accounting policy between the investor and investee while GAAP does not have such requirement, the accounting policy of investor and investee can be different. Work Cited Barry J. Epstein Eva K.Jermakowicz. Interpretation and Application of International Financial Reporting Standards. Wiley, 2010. 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