[Module 1] The Financial Reporting Environment
Topic 16 - International Financial Reporting Standards
Section overview 17 IFRS
● There are currently 17 IFRS in issue and several International Accounting Standards
(IAS)
● IFRS are having a growing influence on national accounting requirements and practices
● Where a company has to change from a national GAAP to IFRS, it has to deal with a
number of practical issues
16.1 Standards currently The current list of International Accounting Standards and International Financial Reporting
in issue Standards is as follows:
16.2 Scope and Scope and Application of IFRS
Application of IFRS Scope
, ● Any limitation of the applicability of a specific IFRS is made clear within that standard.
● IFRS are not intended to be applied to immaterial items.
○ An item is immaterial if its omission or misstatement would not influence
decisions that users of financial statements make
● Each individual IFRS lays out its scope at the beginning of the standard
Application
● Within each individual country local regulations govern, to varying degrees, the issue
of financial statements
● These local regulations include accounting standards issued by the national regulatory
bodies and/or professional accountancy bodies in the country concerned.
16.3 Alternative Alternative Treatments
Treatments Many of the old standards permitted two accounting treatments for like transactions or events
1. Benchmark treatment
● effectively the preferred treatment
2. Alternative treatment
This is no longer the case
However, some standards do still allow more than one policy – for instance, IAS 16 allows
property, plant and equipment to be carried at cost or revalued amount
16.4 Interpretations of Interpretations of IFRS
IFRS The IFRS Interpretations Committee
● Has the responsibility for issuing additional guidance on the application of an
accounting standard where unsatisfactory or conflicting interpretations exist
● The documents issued are called IFRICs
● As at October 2016, there are 23 IFRICs in issue (of which 13 are still in force), together
with 32 SICs (of which 27 have been superseded) which were issued by the IFRS
Interpretations Committee's predecessor, the Standing Interpretations Committee.
● May also suggest IASB agenda items if there are financial reporting issues that are not
specifically covered by an IFRS
16.5 Fair Presentation Fair Presentation Override
Override ● There may be (very rare) circumstances when management decides that compliance
with a requirement of an IFRS would be misleading
● Departure from the IFRS
● required to achieve a fair presentation
IAS 1 Presentation of Financial Statements states that the following should be disclosed
in such an event:
1. Management confirmation that the financial statements fairly present the entity's
financial position, performance and cash flows;
2. A statement that all IFRS have been complied with except departure from one IFRS to
achieve a fair presentation;
3. Details of the nature of the departure, why the IFRS treatment would be misleading, and
the “treatment adopted; or
4. Financial impact of the departure.
True and fair override
● This is sometimes referred to as the ‘true and fair override’ or the ‘fair presentation’
override.
● Not all jurisdictions allow the use of the ‘true and fair’ override.
○ For example, in Australia, preparers of financial statements are not permitted to
depart from any of the requirements of accounting standards (see section 6.10).
Instead, the financial statements must disclose additional information.”
16.6 Extreme case Extreme case disclosures
disclosures In very rare circumstances, management may conclude that compliance with a requirement in a
Standard or Interpretation may be so misleading that it would conflict with the objective of
financial statements set out in the Conceptual Framework
● but the relevant regulatory framework prohibits departure from the requirements
IAS 1 states that in such cases the entity needs to reduce the perceived misleading aspects
Topic 16 - International Financial Reporting Standards
Section overview 17 IFRS
● There are currently 17 IFRS in issue and several International Accounting Standards
(IAS)
● IFRS are having a growing influence on national accounting requirements and practices
● Where a company has to change from a national GAAP to IFRS, it has to deal with a
number of practical issues
16.1 Standards currently The current list of International Accounting Standards and International Financial Reporting
in issue Standards is as follows:
16.2 Scope and Scope and Application of IFRS
Application of IFRS Scope
, ● Any limitation of the applicability of a specific IFRS is made clear within that standard.
● IFRS are not intended to be applied to immaterial items.
○ An item is immaterial if its omission or misstatement would not influence
decisions that users of financial statements make
● Each individual IFRS lays out its scope at the beginning of the standard
Application
● Within each individual country local regulations govern, to varying degrees, the issue
of financial statements
● These local regulations include accounting standards issued by the national regulatory
bodies and/or professional accountancy bodies in the country concerned.
16.3 Alternative Alternative Treatments
Treatments Many of the old standards permitted two accounting treatments for like transactions or events
1. Benchmark treatment
● effectively the preferred treatment
2. Alternative treatment
This is no longer the case
However, some standards do still allow more than one policy – for instance, IAS 16 allows
property, plant and equipment to be carried at cost or revalued amount
16.4 Interpretations of Interpretations of IFRS
IFRS The IFRS Interpretations Committee
● Has the responsibility for issuing additional guidance on the application of an
accounting standard where unsatisfactory or conflicting interpretations exist
● The documents issued are called IFRICs
● As at October 2016, there are 23 IFRICs in issue (of which 13 are still in force), together
with 32 SICs (of which 27 have been superseded) which were issued by the IFRS
Interpretations Committee's predecessor, the Standing Interpretations Committee.
● May also suggest IASB agenda items if there are financial reporting issues that are not
specifically covered by an IFRS
16.5 Fair Presentation Fair Presentation Override
Override ● There may be (very rare) circumstances when management decides that compliance
with a requirement of an IFRS would be misleading
● Departure from the IFRS
● required to achieve a fair presentation
IAS 1 Presentation of Financial Statements states that the following should be disclosed
in such an event:
1. Management confirmation that the financial statements fairly present the entity's
financial position, performance and cash flows;
2. A statement that all IFRS have been complied with except departure from one IFRS to
achieve a fair presentation;
3. Details of the nature of the departure, why the IFRS treatment would be misleading, and
the “treatment adopted; or
4. Financial impact of the departure.
True and fair override
● This is sometimes referred to as the ‘true and fair override’ or the ‘fair presentation’
override.
● Not all jurisdictions allow the use of the ‘true and fair’ override.
○ For example, in Australia, preparers of financial statements are not permitted to
depart from any of the requirements of accounting standards (see section 6.10).
Instead, the financial statements must disclose additional information.”
16.6 Extreme case Extreme case disclosures
disclosures In very rare circumstances, management may conclude that compliance with a requirement in a
Standard or Interpretation may be so misleading that it would conflict with the objective of
financial statements set out in the Conceptual Framework
● but the relevant regulatory framework prohibits departure from the requirements
IAS 1 states that in such cases the entity needs to reduce the perceived misleading aspects
