IFRS is issued by the International Accounting Standard Board with the main purpose of maintaining consistency and transparency in the financial statements across the world. It describes the common set of rules for financial statements and contributes to economic efficiency. Information in this is quite relevant for the objectives of IFRS and appropriate as it’s based on clearly stated principles. This is a common global language and adopted most of the business firms because accounts are understandable and comparable with the help of this.
Key Objectives of IFRS
- Reliability: financial statements are provided complete and unbiased. It indicates it’s the importance of being used widely as all the business affairs need the faithful representation of their financial terms.
- Relevance: Information derived using this is relevant. It works better for taking future decisions and comparability across international boundaries. This is extremely supportive to know the exact picture as manipulation by the mangers under this system is not allowed. Absence of manipulation always leads to the right decisions.
- Conceptual framework: this is a complete conceptual framework which serves as a tool to develop standards. Many companies and firms use this as a reference for selecting their accounting policies and working accordingly. So it plays a significant role in all entities.
- Compatibility: Ifrs adoption enables the comparison which is very important to do in today’s competitive era for the efficient functioning of the capital market. All companies whether small or big want to compare set of financial statements with those of previous years and other companies which helps them about the future course of action.
- Timeliness: Using this framework is also considered to be time-saving. As it’s technically based and can be done without involving many efforts. So, it is time-saving which is advantageous for all business entities to grow further. Along with that, it recognizes the loss immediately which is very beneficial for investors, Landers and other stakeholders in the company.
- Better access to foreign capital in terms of investment: It helps to access the international position easily as it is widely adopted by all the developed countries like Canada, Japan, Europe and many other joining countries. So, it shows when the financial statements are prepared under one reporting standard then they have easy access to foreign capital and investment. It helps with the comparability of the international market and also increases the focus on investors.
- Standardization of accounting and financial reporting: IFRS ensures the standardization of accounting standards which eventually helps to have clear and improved financial statements. Even, it also removes the barriers in trade and promotes the country towards globalized era.
- Identifying the opportunity and threats: adoption of IFRS helps the business to identify the opportunities. It provides the financial statements in a very true and fair manner which are very helpful in identifying the opportunities and risks across the world. By this, it contributes to economic efficiency as well and helps in improving capital allocation.
- Flexibility provides with more flexibility in the accounting standards as it uses a principles-based system rather than a philosophy based and follows specific rules. The goal is to reach a reasonable valuation, there are multiple ways to reach that outcome. IFRS system gives the freedom to firms that it needs to adapt to the global system to fit their specific situations.
Advantages of IFRS compared with GAPP ( Generally Accepted Accounting Principles)
There are noticeable and significant advantages of using IFRS more than gapp.
- IFRS is principles-based whereas gapp Is rule-based. The information provided by Ifrs adoption is in much less detail. As a result, the theoretical framework and objectives of IFRS leave more scope for the interpretation of financial statements.
- On the flip side, principles in the Ifrs are consistent and fair which are logically more sound and better represents the economics of all business affairs and transactions.
- IFRS is considered to be more effective to maintain stability and transparency across the financial world. It enables the business to see the exact picture without manipulation of accounts. By this, businesses and individual investors can make better financial decisions for future growth.
IFRS system is followed in all the main countries primarily Business reporting their financial statements anywhere except the United States. United States follow GAAP ( generally accepted accounting principles) which is entirely rules-based. IFRS follow principles-based approach and makes the work much easier, lesser, cleaner and understandable.
IFRS includes or covers a broad list of topics:
- Presentation of Financial statements
- Employee benefits
- Revenue recognition
- Income taxes
- Borrowing cost
- Investment in associates
- Fixed assets
- Intangible assets
- Retirement benefits plan
- Foreign exchange rate
- Business combinations
- Operated segment
- An industry like mineral resources and agriculture use for specific accounting.
IFRS system is adopted by more than 144 countries around the globe as it’s the main objective is to establish a common global language that can be easily understood from company to company and country to country.
So, it is wide in scope for company accounting affairs.
Set up of IFRS standards
IFRS standards need to be set up properly and due process is followed in that. The thorough and transparent process needs to be followed while issuing IFRS standards that helps companies to better implement the objectives of IFRS standards. Standards setting process includes:
- Public board meetings which are live from the London office.
- Agenda papers and document that tells the board’s deliberations.
- Discussions and other necessary information that is available right after the meeting
- Comment letters that are received on the consultation documents.
So, we can see that IFRS due process is followed strictly and posted online to understand it’s working as well as described in detail in the handbook. It’s a step by step process which ensures smooth working in companies by providing a conceptual framework used around the world for details of financial statements.
Let’s have a look at the elements of financial statements
- Asset: In simpler terms, it is any useful thing that could be converted into cash. In accounting terms, it is meant to be any resource which is owned by business or entity that could produce positive economic value.
- Liability: it is an obligation imposed on someone. In other words, it is debt owed to non-owners or creditors like loans, mortgage and account payable.
- Equity: remaining interest in the assets of the entity after deducting all the liabilities.
- Income: it refers to the revenue or sakes that business receives from the selling of products. In other words, enhancement if assets or decrease in liabilities increasing equity is also the income. But, it does not include the contributions made by owners, partners or shareholders of the company.
- Expenses: it is the cost incurred for something. Whenever there is a decrease in the assets and increase in the liabilities which results in the decreases of the equity is defined as the expenses. But, it excludes the distribution made to the equity participants (owners, partners and shareholders
Recognition of elements of financial statements
An item is considered to be recognized or identified in the objectives of IFRS financial statements when
- It is profitable when the future benefit in economics terms will flow to or from an entity.
- When the resources are capable of being measured reliably.
In some exceptional cases and situations, specific standards includ e some additional conditions before recognition is done or prohibit recognition altogether.
Theory and Concepts of capital and capital maintenance
It’s a very significant concept for all businesses. Income earned after deducting the amount of all expenses or the excess of amount earned needed to maintain the capital is regarded as profits. This conceptual framework will describe the concept of capital maintenance of any business:
- Financial capital maintenance: As per this concept, capital is maintained only when or profit is earned only when if the financial amount of net assets at the end of a year is equal to or exceeds the financial amount of its net assets at the beginning of the period, excluding any distributions and contributions from the owner during that specific period. Financial capital maintenance can be measured in two ways mainly either in nominal monitory units or units of constant purchasing power is suitable.
- Physical capital maintenance: this concept also holds it’s own significance. In this, a profit is earned only when the physical productive capacity also called the operating capacity of the firm at the end of the year is more than the physical operating capacity at the beginning of a year, excluding all the distributions and contributions made by an owner in that period.
Career prospect of IFRS
IFRS is in high demand these days as most of the entities accept the objectives of IFRS and use for their financial reporting.
- Finance professionals having the certification of IFRS enjoy more advantage than others as they possess a better knowledge of international accounting standards which is demanded by all businesses.
- As it’s accepted worldwide, IFRS qualified will be eligible to work in more than 100 countries as it’s wide in scope across the world.
- IFRS qualified are huge in demand in the sectors like banking and Insurance as well as non-banking financial entities and listed companies as all of these follow the objectives of IFRS guidelines. They always require the best IFRS consultants.
- IFRS professional can also start their consulting firms in advising firms for the proper interpretation of their financial statements.
- It also allows them to be an IFRS trainer with various recognized universities and finance education industry.
So, we can see IFRS have career growth prospects as well in this competitive era. Even, this demand will continue to rise because objectives of IFRS guidelines are constantly updated and revised. Finance is a sector growing day by day at a rapid rate. The government takes various initiatives from time to time like demonetization, gross and services tax and many others which increases the importance of understanding the financial world and it’s updating. So, we conclude that IFRS today is a global accounting icon emerging in all the fields. If professionals are the mandatory requirements of all the companies for their financial statements and identifying the opportunities and risks with the help of this conceptual framework.
Who can pursue this course:
This course is recommended to all those candidates interested in enhancing their financial skills and getting the desired jobs with big MNCs, banking and Insurance sector. The candidates who have passed their MBA degree in finance or accounting branch, Charted accountants, company secretary, cost and works accountant, certified financial planner, charted financial analyst and any other relevant course in the field of accounting and finance will boost their knowledge and level by doing specialized courses and training programs in international standard accounting and be the IFRS professionals with leading businesses and entities. They can exploit the abundance of opportunities in India and abroad.
Let’s discuss the objectives of IFRS
- To develop a qualitative, faithful, globally accepted standards in the public interest which are entirely principles-based.
- It also aims to ensure transparency and comparability in the financial statements and other financial reporting which helps the investors, shareholders and all involved in the capital market to make worth economic decisions.
- Fulfils the objectives associated with small and medium-sized firms regarding the presentation of their financial statements and taking right decisions.
- Evaluates the economic resources in the best way.
IFRS specialized courses: there are specific courses recommended to learn objectives of IFRS protocols :
- Certificate course on international financial reporting standards within 100 hours by ICAI for charted accountants.
- Certificate course on international financial Reporting standards convergence within 2 months by ICWAI for universities faculties, students, cost accountants, charted accountants, company secretary, seniors and middle-level position executives working with various MNCs and other organizations.
- The advanced certification program is available too on IFRS in 6 weeks duration by KPMG for working professionals having 2 years or more experience. However, the experience is not mandatory for MBA, CA, CWA, CS.
- Diploma in international financial reporting in 3-6 months by ACCA for the graduates having 3 or more years of experience in finance, commerce and postgraduate or master degree holder holding 2+ years experience in the field of finance, auditors and practising accountancy.
- IFRS / IND AS certification program in 40 hours duration for students and professionals willing to attempt the ACCA exam.
These are some of the recommended and valuable courses for candidates seeking their career in the finance field. You may find any other course than these, always remember to verify its genuineness and accreditation before joining or signing up there.
You can also check reviews and rating of particular organizations offering such courses and their FAQs to have a better understanding.
The salary trend is also good in IFRS.
According to reports of LinkedIn and Naukri, IFRS professionals working in leading auditing firms and MNCs earn starting annual package in the range of 8-16 lacs. However, it depends on the individual skills and educational background of every individual.
So, here we conclude that objectives of IFRS system acceptance is growing day by day due to its multiple benefits and an easy approach. Many countries all over the world feel comfortable to follow it and present their financial statements with the help of it. IFRS provides with general guidance about the preparation of financial statements rather than setting rules for reporting. It contributes well to economic efficiency by setting a global conceptual framework. It supports all investors, shareholders and owners to make worthy decisions and in measuring the assets and liabilities. IFRS professionals demand will boost day by day due to its favourable use in business affairs. Trusted accounting language always helps in lowering the cost of capital and decreases international reporting cost as well. The IFRS is not a complicated task to understand, it provides specific recognition and proper measurements criteria for the recording of transaction in the financial record. It is easier to understand and implement.