Key Principles of International Financial Reporting Standards

International Financial Reporting Standards (IFRS) provide essential guidelines for preparing financial statements. These standards ensure consistency, transparency, and comparability, which are crucial for effective financial information analysis and informed decision-making in the global marketplace.

1. IAS 1: Presentation of Financial Statements

   • Establishes the overall framework for financial statement presentation, ensuring consistency and comparability.
   • Requires entities to present 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 materiality and aggregation in presenting financial information.

2. IFRS 15: Revenue from Contracts with Customers

   • Introduces a five-step model for recognizing revenue from contracts, focusing on the transfer of control rather than the transfer of risks and rewards.
   • Requires entities to identify performance obligations and allocate transaction prices to those obligations.
   • Mandates detailed disclosures about revenue recognition policies and significant judgments made.

3. IAS 2: Inventories

   • Defines inventories and outlines the measurement basis, primarily at the lower of cost and net realizable value.
   • Specifies methods for determining cost, including FIFO (First-In, First-Out) and weighted average cost.
   • Requires disclosure of accounting policies, carrying amounts, and any write-downs to net realizable value.

4. IAS 16: Property, Plant and Equipment

   • Provides guidance on 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.
   • Mandates regular reviews of useful lives and residual values, along with disclosures about asset classes and depreciation methods.

5. IAS 38: Intangible Assets

   • Defines intangible assets and outlines criteria for recognition, including identifiability, control, and future economic benefits.
   • Requires initial measurement at cost and subsequent measurement using either the cost model or revaluation model.
   • Emphasizes the need for impairment testing and detailed disclosures about intangible assets.

6. IFRS 16: Leases

   • Introduces a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases over 12 months.
   • Mandates the measurement of lease liabilities at the present value of future lease payments and the recognition of a right-of-use asset.
   • Requires disclosures about lease terms, options, and the impact on financial statements.

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

   • Defines provisions and outlines the criteria for recognition, including a present obligation and probable outflow of resources.
   • Distinguishes between provisions, contingent liabilities, and contingent assets, emphasizing the need for careful assessment.
   • Requires detailed disclosures about the nature of provisions and the uncertainties involved.

8. IAS 12: Income Taxes

   • Addresses the accounting for current and deferred tax, focusing on the recognition of tax liabilities and assets.
   • Requires the use of the balance sheet approach to measure deferred tax based on temporary differences.
   • Mandates disclosures about tax expenses, effective tax rates, and significant judgments made in tax accounting.

9. IFRS 9: Financial Instruments

   • Introduces a comprehensive framework for the classification, measurement, and impairment of financial instruments.
   • Requires entities to classify financial assets based on the business model and contractual cash flow characteristics.
   • Mandates an expected credit loss model for impairment, enhancing the timeliness of loss recognition.

10. IAS 36: Impairment of Assets

    • Provides guidance on identifying and measuring impairment losses for assets, including goodwill.
    • Requires entities to perform impairment tests when there are indicators of impairment and to estimate recoverable amounts.
    • Mandates disclosures about impairment losses, including the assumptions and methodologies used in the assessment.