Its 11th year that IFRS. 2009 is the birth year of IFRS. The main motto of IFRS is -TEA - Transparency, Efficiency, and Accountability in Financial statement preparation and Reporting.
IFRS is not a statutory body. It is Not a Profit organization and 140 Countries are members of this. IFRS is a software code of accountants and CA to become Globally acceptable.
Before we start IFRS Decoding in my way, Its good to see who are all behind on these efforts and reason.
IFRS even though it's Not profit Organization, but set up with intention to help Capital Market People. Its by the investors, for the investors, and to the investors. Every standard must seen through Investors' specs to understand it and find deviations. If any standards which are not helping in decision making for investors, it will be modified or changed.
Let us start seeing each IFRS standard. Let's get started with IFRS 1
IFRS 1 - Presentation of Financial Statements
1. Every IFRS must be read after reading IFRS 1 every time. it helps in analyzing. IFRS 1 is a pillar on which other IFRS standards are built. Reading IFRS 1 helps to remove Ind AS mindset and analyze IFRS independently.
2. Even though IFRS 1 says about " Presentation", but the scope is wider and discusses What is Financial Statement, Contents and other aspects.
3. As per IFRS1 - Financial Statement (FS) means Balance Sheet, Income Statement, Cash Flow, Changes in Equity and notes.
4. Financial position, Performance, Cash flow with notes becomes financial statement of an organization.
As I mentioned, IFRS is meant for decision making. The same is mentioned in this IFRS as a purpose statement.
5. Fairly representation of FS is needed for IFRS. It means every item of Assets, Liability, Income, and Expenses must be shown as per the Definition and Recognition rules of IFRS. It means no one can create a new definition or meaning in above FS to deviate. Every deviation hurdles investors in taking decisions. Investors mean international investors, not belongs to any one country.
6. IFRS expects every FS must be presented in the same manner so that investors spend less time in taking decision.
If any deviation because of local regulatory, then it must be explained in notes. If any deviation is because of more and better presentation, it is allowed after extensive disclosures
Accounting Policy in IFRS means standards set by IASB and its interpretation. Wherever vacuum is there or lack of guidance, the company can choose any standards, industry practice. IFRS recognizes a wide area of business and allows people to follow existing standards till IFRS pitches.
7. With regard to basic principles and assumptions, IFRS recognizes GCA - Going Concerned, Consistency, and Accrual. However 3 more bases here. - CIN - Comparative, Immaterial need to be aggregated and No offset of Assets/Liabilities. These new basics are meant to help Investors at large.
8. With regards to the Presentation of FS - IFRS is not much different than the Indian Company Act disclosure. Same Current and Non-Current bifurcation of assets and liabilities. However, IFRS mandates to disclose items on the face of FS, rather than notes.
Income Statement - IFRS does not recognize Extraordinary items. IFRS gives the flexibility of disclosure based on the nature of expenses or Function of expenses.
9. Conclusion: One must start the implementation of IFRS in Indian firms as voluntary to make the company visible. Google which started in Garage is now one of the biggest MNC. Entrepreneurs must be guided to become proactive compliant of standards and aggressive in applying the best standards. IFRS is best for this.