Key Principles of IFRS to Know for International Accounting

International Financial Reporting Standards (IFRS) set the rules for how companies present their financial statements globally. These standards ensure clarity, consistency, and comparability, making it easier for investors and stakeholders to understand financial performance across different regions and industries.

1. IAS 1: Presentation of Financial Statements

   • Establishes the overall framework for financial statement presentation.
   • Requires a complete set of financial statements, including a statement of financial position, statement of profit or loss, and statement of cash flows.
   • Emphasizes the importance of comparability, consistency, and clarity in financial reporting.

2. IFRS 15: Revenue from Contracts with Customers

   • Provides a comprehensive framework for recognizing revenue from contracts with customers.
   • Introduces a five-step model for revenue recognition: identify contracts, identify performance obligations, determine transaction price, allocate price to obligations, and recognize revenue when obligations are satisfied.
   • Aims to enhance transparency and comparability in revenue reporting across industries.

3. IAS 2: Inventories

   • Defines inventories and outlines the accounting treatment for inventory valuation.
   • Requires inventories to be measured at the lower of cost and net realizable value.
   • Specifies methods for determining cost, including FIFO (First-In, First-Out) and weighted average cost.

4. IAS 16: Property, Plant and Equipment

   • Governs the recognition, measurement, and depreciation of tangible fixed assets.
   • Requires assets to be initially measured at cost and subsequently at cost less accumulated depreciation and impairment losses.
   • Provides guidance on revaluation and the treatment of subsequent expenditures.

5. IFRS 16: Leases

   • Introduces a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases.
   • Requires the recognition of a right-of-use asset and a lease liability at the commencement of the lease.
   • Aims to improve transparency and comparability in lease accounting.

6. IAS 38: Intangible Assets

   • Defines intangible assets and outlines criteria for recognition and measurement.
   • Requires intangible assets to be initially measured at cost and subsequently at cost less accumulated amortization and impairment losses.
   • Distinguishes between internally generated and acquired intangible assets.

7. IAS 36: Impairment of Assets

   • Establishes procedures for assessing and recognizing impairment losses on assets.
   • Requires entities to perform impairment tests when there are indicators of impairment.
   • Specifies the calculation of recoverable amount as the higher of fair value less costs to sell and value in use.

8. IAS 37: Provisions, Contingent Liabilities and Contingent Assets

   • Defines provisions and outlines the criteria for recognizing them in financial statements.
   • Requires provisions to be recognized when there is a present obligation, it is probable that an outflow of resources will be required, and the amount can be reliably estimated.
   • Addresses the treatment of contingent liabilities and assets.

9. IFRS 9: Financial Instruments

   • Provides guidance on the classification, measurement, and impairment of financial instruments.
   • Introduces a forward-looking expected credit loss model for impairment.
   • Establishes principles for hedge accounting to better align risk management with financial reporting.

10. IAS 12: Income Taxes

    • Addresses the accounting for current and deferred tax liabilities and assets.
    • Requires recognition of deferred tax assets and liabilities for temporary differences between the carrying amount of an asset or liability and its tax base.
    • Emphasizes the importance of tax rate changes and their impact on deferred tax calculations.

11. IFRS 3: Business Combinations

    • Outlines the accounting treatment for business combinations and the acquisition method.
    • Requires the identification of the acquirer, determination of the acquisition date, and recognition of identifiable assets and liabilities.
    • Addresses goodwill measurement and the treatment of non-controlling interests.

12. IAS 21: The Effects of Changes in Foreign Exchange Rates

    • Governs the accounting for foreign currency transactions and the translation of financial statements.
    • Requires entities to use the exchange rate at the date of the transaction for initial recognition.
    • Specifies how to translate foreign operations and recognize exchange differences in profit or loss or other comprehensive income.

13. IFRS 10: Consolidated Financial Statements

    • Establishes the principles for the preparation and presentation of consolidated financial statements.
    • Requires control as the basis for consolidation, defining control as the power to govern the financial and operating policies of an entity.
    • Addresses the treatment of subsidiaries, joint arrangements, and associates.

14. IAS 7: Statement of Cash Flows

    • Requires the presentation of a statement of cash flows to provide information about cash inflows and outflows.
    • Classifies cash flows into operating, investing, and financing activities.
    • Aims to enhance the understanding of an entity's liquidity and financial flexibility.

15. IFRS 13: Fair Value Measurement

    • Provides a framework for measuring fair value and requires disclosures about fair value measurements.
    • Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction.
    • Establishes a hierarchy of inputs used in fair value measurement, prioritizing observable inputs over unobservable inputs.