Set of standards that are accepted, shared & utilized globally to manage business affairs by making accounts & finances pertinent to organizations easily understood and comparable across the globe are known as International Financial Reporting Standards (IFRS). The need of creating & establishing these standards in finance field ascended from increasing shareholding & trade along with companies going multinational. These standards are becoming very popular and are substituting national accounting standards. These are followed by financial accountants of the organizations as they are comprehensive, dependable and closely pertinent to consumers. These reporting standards fundamentally includes Balance Sheet, P&L Statement / Income Statement, Cash Flow Statement, Statement of Change and Notes to Accountant & Schedules.
Let’s have an understanding of the fundamental terms to gain a better understanding
It explains the financial status of an organization at any specific time span which usually is the end of every financial year. It basically comprises 3 constituents.
Liabilities: This is the cost incurred in future by a unit. It particularly generates from current obligations for that specific entity in order to transfer assets or offering services to distinct units. This activity happens as an outcome of past financial events or transactions.
Asset: These are the present & futuristic financial benefits acquired & controlled by certain unit/entity as an outcome of a historical transaction. Assets are actually an organization’s financial resources.
Holder’s Equity: This is the remaining interest from the net assets left after eradicating all the liabilities from a specific entity.
Income Statement / P&L Statement
It demonstrates a summary of financial performance of an organization in a given time span. Constituents of these statements include fixed & variable expenses, EBIDTA, PAT, revenues and so on. Let’s have a look at what significance these terminology hold.
Fixed & Variable Expenses: These are the outflows incurred by manufacturing goods, services rendered or any other pertinent activities comprising organization’s routine processes.
Revenues: These are on the contrary to expenses, are the inflows to a company generated through selling products of the firm, or rendering services or other revenue related activities of the organization.
Profit or Loss: These are the increase or decrease in the equity or net asset resulting due to any peripheral or incidental transitions.
EBIDTA: It refers to remunerations before interests, depreciations, taxes & PAT refers to profit before taxes,
Also Read>> Career Opportunities in IFRS
Cash Flow Statement
This statement basically reports an organization’s cash receiving & payments, which can be further classified as:
Operating cash flow: Comprises cash effects to transactions including business like investment for inventory, ascend in present assets and so on.
Investing cash flows: Includes cash flows encompassing plant, equipment, attainment or sale of property, security and miscellaneous investment in other firms.
Financing cash flows: These cash flows include flows from equity securities, issuance or retirement of an organization’s debt and all the dividend paid to stockholders.
This reports the sum & sources of amendments occurring in the equity, investor’s investment in the company over a specified time span which is for instance augmentation in the capital of shareholder, authority changes, paid-up & issued capital, and change in the face value of shares.
Notes to Accountant & Schedules: These statement include further elaboration of the summary in financial statement through disclosures. It also offers extra information on articles such as legal actions, employee benefits, commitments & contingency, business acquisitions & disposals, pertinent sales, other segments of the organizations and so on. Schedules statements provide information on the components of distinct financial statement including income statement, balance sheet & cash flow statement. Furthermore, supplementary schedules offer information i.e. operating income, business segment sales, heading strategies, mining company reserves and so on.
Management Discussion & Analysis:
Last but not the least, this is another significant feature of financial standards utilized by an organization. This provides an evaluation of financial condition & performance of an organization in accordance with the management perspective. It comprises operational outcomes, sales & expenses, cash flow trends, operations that are been discontinued, company’s strategy to proceed further, etc. Disclosures pertinent to cash flows, requirements in terms of debt along with plans to raise the same, timelines to reach capital markets, equity, unsecured loans, debentures, etc. are also included in it. Moreover, apart from all this, it also encompasses the growth strategy of the organization through organic/inorganic route along with merger & acquisitions with the targeted firms in the sector.
Comprehending & implementing IFRS standards in an organization can lead to substantial growth of the company financially along with assisting it to outline future strategies in accordance. Advantages of IFRS being implemented include higher comparability across the globe, flexibility in operations and above all cost effectiveness for operations leading to significant financial profits.