Finance and AccountingFinancial Reporting
Summary of Wiley IFRS 2017
Book Title: Wiley IFRS 2017: Interpretation and Application of International Financial Reporting Standards
Author: PKF International Ltd
Category: Financial Reporting
Introduction:
“Wiley IFRS 2017” serves as a comprehensive guide for interpreting and applying the International Financial Reporting Standards (IFRS). This book by PKF International Ltd provides a robust analysis of the IFRS framework and offers practical advice for consistent application. It includes numerous examples, expert insights, and actionable steps to help financial professionals align their reporting practices with global standards.
1. Overview of IFRS Framework
The IFRS framework emphasizes transparency, accountability, and efficiency in global financial markets. The primary objective is to establish a common language for business affairs so that company accounts are understandable and comparable across international boundaries.
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Concrete Example: A multinational corporation operating in the US and Europe needs to prepare its financial statements under a unified framework for consolidation purposes. By following IFRS, the company can ensure standardization across its operations, making it easier for stakeholders to interpret the financial health of the entity.
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Actionable Step: Adopt IFRS guidelines for all subsidiaries to ensure uniform financial reporting across your organization.
2. Presentation of Financial Statements (IAS 1)
IAS 1 details the requirements for general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities.
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Concrete Example: A company must include a balance sheet, income statement, statement of changes in equity, statement of cash flows, and notes. The notes should provide narrative descriptions or disaggregations of items presented in those statements and relevant information not presented elsewhere in the financial statements.
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Actionable Step: Ensure all required components of financial statements are included and clearly presented with accompanying notes for transparency.
3. Revenue Recognition (IFRS 15)
IFRS 15 establishes a comprehensive framework for recognizing revenue from contracts with customers, focusing on the transfer of control rather than the transfer of risks and rewards.
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Concrete Example: A software company recognizes revenue over time as it implements its product for a client, recognizing revenue based on the completion of distinct performance obligations in the contract.
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Actionable Step: Implement new accounting systems to track revenue recognition based on performance obligations rather than delivery alone.
4. Financial Instruments (IFRS 9)
IFRS 9 provides guidelines for the classification, measurement, and recognition of financial assets and liabilities. The standard introduces a forward-looking ‘expected credit loss’ model for determining impairment.
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Concrete Example: An investment firm classifies its financial assets into categories such as amortized cost, fair value through profit or loss, and fair value through other comprehensive income, to more accurately reflect their financial position.
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Actionable Step: Review and reclassify financial instruments according to the criteria set in IFRS 9 and implement an impairment model based on expected credit losses.
5. Leases (IFRS 16)
IFRS 16 eliminates the distinction between operating and finance leases for lessees, requiring all leases to be recorded on the balance sheet.
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Concrete Example: A retailer leases a store and must now recognize a right-of-use asset and a corresponding lease liability in its financial statements rather than treating it as a rental expense.
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Actionable Step: Update accounting policies and systems to capture all lease agreements as assets and liabilities on the balance sheet and adjust financial metrics accordingly.
6. Consolidation (IFRS 10 and IFRS 12)
IFRS 10 defines the principles of control and establishes the basis for consolidation, while IFRS 12 outlines disclosure requirements for interests in subsidiaries, joint arrangements, associates, and unconsolidated structured entities.
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Concrete Example: A parent company includes its subsidiaries in its consolidated financial statements, reflecting a true and fair view of the group’s financial position.
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Actionable Step: Identify all entities under control and ensure they are appropriately consolidated in financial statements with comprehensive disclosures about the nature of the relationships.
7. Fair Value Measurement (IFRS 13)
IFRS 13 defines fair value, provides a framework for measuring fair value, and requires disclosures about fair value measurements.
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Concrete Example: A real estate investment company uses market data to determine the fair value of its property assets, ensuring that the measurements reflect current market conditions.
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Actionable Step: Establish robust processes for determining fair value using market-based inputs and enhance disclosures to explain the valuation techniques and inputs used.
8. Employee Benefits (IAS 19)
IAS 19 prescribes accounting and disclosure for employee benefits, including short-term benefits, post-employment benefits, other long-term benefits, and termination benefits.
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Concrete Example: A company recognizes its pension obligations on the balance sheet, calculating the present value of defined benefit obligations minus the fair value of plan assets.
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Actionable Step: Conduct regular actuarial valuations of long-term employee benefits and promptly reflect these in financial statements.
9. Intangible Assets (IAS 38)
IAS 38 addresses the accounting treatment of intangible assets, including their recognition, measurement, and amortization.
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Concrete Example: A pharmaceutical company capitalizes development costs of a new drug that has met specified criteria, including feasibility and intent to complete and use or sell the intangible asset.
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Actionable Step: Develop criteria for capitalizing development costs and regularly review intangible assets for impairment.
10. Impairment of Assets (IAS 36)
IAS 36 requires entities to assess whether assets are carried at more than their recoverable amount and to recognize an impairment loss if this is the case.
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Concrete Example: A manufacturing company tests its machinery and equipment for impairment annually, especially when signs of potential decline in value are evident due to market conditions.
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Actionable Step: Implement procedures for annual impairment testing of assets and recognize losses in financial statements as needed.
Conclusion:
“Wiley IFRS 2017” is instrumental for financial professionals aiming to align their reporting practices with IFRS. Each chapter provides detailed explanations, illustrative examples, and actionable steps to deal with the complexities of international financial reporting. By adhering to the rigorous standards set forth, organizations can achieve greater transparency, consistency, and comparability in their financial statements, which is crucial in today’s global economy. The actionable steps recommended, such as adopting IFRS guidelines, updating accounting policies, and enhancing disclosures, are essential for maintaining compliance and leveraging the benefits of standardized financial reporting.