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Introduction

The book “International Financial Reporting Standards” by Nandakumar Ankarath, published in 2020, serves as a comprehensive guide to understanding and applying IFRS in financial reporting. The book is structured to benefit practitioners, accountants, auditors, and students by explaining the intricacies of these standards with clarity and depth. It encompasses a wide array of topics within the financial reporting domain, providing detailed discussions, practical examples, and actionable advice.

1. The Fundamentals of IFRS

Ankarath begins by laying the groundwork for understanding IFRS, covering its history, development, and the conceptual framework upon which it is built. The standards are designed to bring transparency, accountability, and efficiency to financial markets worldwide.

Example: IFRS 1 – First-time Adoption of International Financial Reporting Standards helps companies transitioning from other accounting standards to IFRS.
Actionable Advice: When first implementing IFRS, a company should prepare an opening IFRS statement of financial position, restating all assets and liabilities as per IFRS.

2. Presentation of Financial Statements (IAS 1)

The author explains that IAS 1 sets out overall requirements for the presentation of financial statements, ensuring comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities.

Example: An entity must provide a fair presentation of its financial position, financial performance, and cash flows.
Actionable Advice: Ensure that your financial statements include a balance sheet, income statement, statement of changes in equity, cash flow statement, and notes, as mandated by IAS 1.

3. Revenue Recognition (IFRS 15)

IFRS 15 provides a framework for recognizing revenue from contracts with customers. Ankarath emphasizes the five-step model that entities should follow.

Example: A telecom company recognizes revenue when control of goods or services is transferred to the customer.
Actionable Advice: Identify each contract’s performance obligations, determine the transaction price, and allocate it to performance obligations based on relative standalone selling prices. Recognize revenue when each performance obligation is satisfied.

4. Leases (IFRS 16)

This standard dictates how lessees and lessors should account for leases. Ankarath explains the right-of-use model and how it replaces the distinction between operating and finance leases.

Example: A retail business signs a five-year lease for a store. This lease must be recognized as an asset (right-of-use) and a corresponding liability on the balance sheet.
Actionable Advice: Recognize leased assets and liabilities in your balance sheets, measure lease liabilities at present value of lease payments, and right-of-use assets at the amount of the lease liability, adjusted for lease prepayments and incentives.

5. Financial Instruments (IFRS 9)

Ankarath’s discussion on IFRS 9 covers the classification, measurement, and impairment of financial instruments, including the approach to hedge accounting.

Example: A company investing in corporate bonds must determine if these financial instruments will be measured at amortized cost or fair value.
Actionable Advice: Classify financial assets based on the entity’s business model and the cash flow characteristics of the asset. Use the expected credit loss model to assess and recognize impairment.

6. Property, Plant, and Equipment (IAS 16)

Ankarath guides the reader through the recognition, measurement, and depreciation of property, plant, and equipment (PPE). He discusses both the cost and revaluation models.

Example: A manufacturing firm acquires new machinery that must be depreciated over its useful life.
Actionable Advice: Initially measure PPE at cost and then choose to carry it at cost less depreciation or at a revalued amount. Regularly review and update useful lives and residual values of assets.

7. Intangible Assets (IAS 38)

IAS 38 addresses the accounting treatment for intangible assets, which can be challenging due to their non-physical nature.

Example: A tech company develops proprietary software, which is recognized as an intangible asset.
Actionable Advice: Recognize an intangible asset if it is identifiable, controlled by the entity, and expected to generate future economic benefits. Amortize it if its useful life is finite.

8. Inventory (IAS 2)

The author explains the principles associated with the accounting for inventories, emphasizing cost determination and the net realizable value.

Example: A retail business values its inventory at the lower of cost and net realizable value.
Actionable Advice: Use either FIFO or weighted average cost method for cost determination. Regularly assess inventories for potential write-downs to their net realizable value.

9. Consolidated Financial Statements (IFRS 10)

IFRS 10 lays down the guidelines for the preparation and presentation of consolidated financial statements, particularly the principles for control.

Example: A parent company must consolidate a subsidiary that it controls.
Actionable Advice: Consolidate all entities where there is control, meaning the parent has the power to govern financial and operating policies to gain benefits from activities.

10. Fair Value Measurement (IFRS 13)

IFRS 13 is dedicated to the measurement of fair value for both financial and non-financial assets and liabilities. Ankarath elaborates on the fair value hierarchy and valuation techniques.

Example: A real estate investment trust measures its properties at fair value.
Actionable Advice: Use observable inputs (level 1 or level 2) as much as possible when measuring fair value. Provide disclosures to help users understand the valuation techniques and inputs used.

11. Employee Benefits (IAS 19)

Ankarath outlines how to account for various types of employee benefits, including short-term benefits, pensions, and other long-term post-employment benefits.

Example: A corporation provides a defined benefit pension plan to its employees.
Actionable Advice: Recognize employee benefits as they are earned. For defined benefit plans, recognize the net defined benefit liability or asset, and the actuarial gains and losses in other comprehensive income.

12. Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

IAS 37 applies to all provisions, contingent liabilities, and contingent assets, except those resulting from financial instruments.

Example: A mining company must recognize a provision for decommissioning costs associated with site restoration.
Actionable Advice: Recognize a provision when there is a present obligation, an outflow of resources is probable, and the amount can be estimated reliably. Review and adjust estimates regularly.

13. Business Combinations (IFRS 3)

IFRS 3 covers the accounting treatment of business combinations using the acquisition method.

Example: When a company acquires another entity, it recognizes the identifiable assets acquired and liabilities assumed at fair value.
Actionable Advice: Identify the acquirer, determine the acquisition date, and recognize the full goodwill or the acquired business’s proportionate share of net assets.

14. Income Taxes (IAS 12)

Ankarath’s discussion on IAS 12 emphasizes the importance of recognizing current and deferred tax assets and liabilities.

Example: A company recognizes deferred tax liabilities on temporary differences between the tax base and the carrying amount of assets.
Actionable Advice: Calculate current tax based on taxable profit for the period. Recognize deferred tax for temporary differences, using enacted tax rates expected to apply when the liability is settled.

15. Segment Reporting (IFRS 8)

IFRS 8 requires an entity to disclose information to enable users to evaluate the nature and financial effects of the business activities it engages in, and the economic environments in which it operates.

Example: A conglomerate reports financial information for different business segments, like electronics and automotive.
Actionable Advice: Identify operating segments based on components that are regularly reviewed by the chief operating decision-maker. Disclose segment revenue, profit, assets, and liabilities.

Conclusion

Nandakumar Ankarath’s “International Financial Reporting Standards” systematically guides readers through the complex landscape of international financial reporting. By using practical examples and actionable advice, the book equips readers with the tools and understanding necessary to accurately apply IFRS in their financial reporting practices. Whether one is a seasoned professional or a novice, the book offers valuable insights that can enhance the clarity, transparency, and comparability of financial statements across global markets.