Key International Accounting Standards (IAS) Overview

Posted on Nov 25, 2024 in Economy

IAS 1 – Presentation of Financial Statements

Objective: To establish the framework for presenting general-use financial statements, including structure and content guidelines.

Abstract: Basic principles include going concern, uniform presentation, accrual accounting, and materiality. Financial statements are usually prepared annually. Any change in period must be reported.

A complete set of financial statements should include:

  • A statement of financial position
  • A statement of revenue and total expenditure
  • A statement of changes in equity
  • A cash flow statement
  • Explanatory notes

IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors

Objective: To set criteria for selecting and changing accounting policies, and the requirements for reporting such changes and errors.

Summary: Establishes a hierarchy for choosing accounting policies:

  • IASB Standards and Interpretations, considering IASB implementation guidance.

Accounting policies should be uniform for similar operations. Changes should only occur if required by IFRS or if they result in more relevant and reliable information.

Significant errors should be corrected by restating comparative figures from the previous year, or by restating the opening statement of financial position if the error occurred earlier.

IAS 10 – Events after the Balance Sheet Date

Objective: To determine when a company should adjust its financial statements for events after the balance sheet date, and the required disclosures about the authorization date and balance sheet date facts.

Abstract: Events after the balance sheet date are those occurring between the balance sheet date and the financial statement issuance authorization date.

  • Adjusting Events: Financial statements should be adjusted to reflect events providing evidence of conditions existing at the balance sheet date (e.g., lawsuit resolution).
  • Non-Adjusting Events: No adjustment is needed for events occurring after the balance sheet date that do not reflect conditions existing at that time (e.g., market price decrease after the financial year).

An entity shall disclose the financial statement issuance authorization date.

IAS 17 – Leases

Objective: To establish the accounting principles and disclosure requirements for lessees and lessors regarding finance and operating leases.

Abstract: A lease is classified as a finance lease if it transfers substantially all risks and benefits of ownership. For example:

  • The lease covers virtually all of the asset’s life.
  • The present value of lease payments is roughly equal to the asset’s fair value.

All other leases are operating leases. A simultaneous lease of land and buildings should be divided into land and building elements.

IAS 18 – Revenue

Purpose: To establish the accounting treatment for revenues from sales of goods, services, interest, fees, and dividends.

Summary: Revenue should be measured at the fair value of consideration received or receivable. Revenues are generally recognized when it is probable that economic benefits will be obtained and when the revenue amount can be reliably quantified. The following conditions must be met:

  • Sale of Goods: Revenue is recognized once significant risks and benefits are transferred to the buyer, the seller loses effective control, and the amount can be reliably measured.
  • Provision of Services: The percentage of completion method is used.
  • Interest, Royalties, and Dividends: Revenue is recognized when the company is likely to derive economic benefit.

IAS 34 – Interim Financial Reporting

Objective: To regulate the minimum content of interim financial information and the applicable recognition and measurement criteria.

Summary: IAS 34 applies when an entity is obligated or decides to publish interim financial reports in accordance with IFRS. Regulatory bodies in each country (not IAS 34) determine:

  • Which companies must submit interim financial statements.
  • The frequency of presentation.
  • The date from the end of the interim period.

IAS 39 – Financial Instruments: Recognition and Measurement

Objective: To establish criteria for the recognition, derecognition, and valuation of assets and liabilities.

Summary: All assets and liabilities, including derivatives and certain embedded derivatives, should be recognized in the statement of financial position. Financial instruments are initially measured at fair value on the acquisition or issue date, usually at cost, though some adjustments may be necessary.

For subsequent measurement, IAS 39 classifies financial assets into four categories:

  1. Loans and receivables not available for trading.
  2. Investments held to maturity, such as debt securities and redeemable preference shares that the company intends to hold to maturity and has the necessary financial resources.
  3. Financial assets measured at fair value through profit or loss, including those held for trading (short-term purposes) and any other financial asset designated by the entity (fair value option).
  4. Financial assets available for sale. This includes other financial assets not in previous categories, such as equity instruments not valued at fair value in the income statement.