International Financial Reporting Standards (IFRS) Overview
IFRS 1: First-time Adoption of International Financial Reporting Standards
Objective
To establish the procedures for a company adopting IFRS for the first time for its general-purpose financial statements.
Summary
Provides an overview for companies adopting IFRS for the first time (through an explicit statement of compliance) in their annual financial statements.
IFRS 2: Share-based Payment
Objective
To establish the accounting treatment for transactions where goods or services are exchanged for equity instruments, or liabilities are assumed equal to the price of company shares or other assets.
Summary
All share-based payment transactions should be recorded at fair value. Expenses are recognized upon consumption of goods or services. IFRS 2 applies to both listed and unlisted companies. If fair value cannot be reasonably measured for unlisted entities, intrinsic value is used.
IFRS 3 (2008): Business Combinations
Fundamental Principle
The acquirer recognizes acquired assets and assumed liabilities at fair value on the acquisition date and discloses information enabling assessment of the acquisition’s nature and financial effects.
Summary
A business combination is a transaction where a buyer gains control of one or more companies. IFRS 3 excludes joint ventures, combinations under common control, and acquisitions of assets not constituting a business. The acquisition method is mandatory. The steps include:
- Identify the acquirer (entity gaining control).
- Determine the acquisition date (date control is obtained).
- Recognize and measure identifiable acquired assets, assumed liabilities, and any non-controlling interest in the acquiree.
- Recognize and measure goodwill or gain from advantageous acquisitions.
Goodwill is the difference between:
- The sum of: (a) fair value of consideration transferred; (b) any non-controlling interest; and (c) in staged acquisitions, the fair value of the acquirer’s previously held interest.
- The net amount of identifiable acquired assets and assumed liabilities (valued under IFRS 3).
IFRS 3 also addresses:
- Combinations without consideration transfer
- Reverse acquisitions
- Identifying acquired intangible assets
- Pre-existing relationships (e.g., reacquired rights)
- Re-evaluating acquiree’s contracts
IFRS 4: Insurance Contracts
Objective
To establish interim financial reporting for insurance contracts until the IASB completes its project’s second phase.
Summary
- Catastrophe and equalization provisions are prohibited.
- Requires proof of adequate insurance liabilities and impairment testing for reinsurance assets.
- Insurance liabilities cannot be offset against reinsurance assets.
- Restricts accounting policy changes.
- Requires new disclosures.
- Financial guarantee contracts fall under IAS 39, unless previously designated as insurance contracts.
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
Objective
To establish the accounting treatment for non-current assets held for sale and the disclosure requirements for discontinued operations.
Summary
Introduces “held for sale” classification (assets available for immediate sale with high disposal probability within 12 months) and “disposal group” (assets disposed of in a single transaction, including liabilities). Non-current assets or disposal groups held for sale are valued at the lower of carrying amount or fair value less selling expenses. These assets are not amortized and are presented separately in the statement of financial position.