IFRS, the key concepts for your business
Updated: Feb 14, 2021
Financial standards are the cornerstone of any auditing institution. The current set of standards of IFRS or International Financial Reporting Standards brings forth some changes to the current GAAP regulations.
Your business needs to adhere to these changes, luckily, we have compiled a list of key areas where the IFRS rules are applied.
· Inventory Methods: IFRS allows FIFO and WAC costing methods; under this rule LIFO is not allowed.
· Inventory Valuation might fluctuate under IFRS: under this rule, it is possible to reverse an inventory write-down, which is the expensing of goods stolen, lost or their value has declined. (Commonly known as inventory adjustments)
· Fair Value Revaluations: IFRS allows the revaluation of assets such as inventories, property, plant & equipment (PPE), intangible assets, and investments in securities such as stocks, bonds, shares, mutual funds, etc. This process may show a decrease or an increase in the asset’s value.
· Impairment Losses: IFRS allows the reversal of impairment loss transactions, impairments that occur when the market value of an asset decline. This procedure is allowed on all types of assets except for goodwill.
· Intangible Assets: Generally, under IFRS law, research costs for the development of an intangible asset are expensed. However, under certain criteria, internally developed intangible assets are capitalized and amortized. (Future economic benefit are to be considered)
· Fixed Assets: Long-lived assets such as buildings, furniture, and equipment are valued at a cost under IFRS. They can be revalued up or down depending on the market. Also, any components making up those assets, with different useful lives, will need to be depreciated separately.
· Investment Property: IFRS recognizes ‘Investment Property’ as a property held for rental income or capital appreciation. Initially measured at cost and can be subsequently revalued to market value. A distinct category is needed to classify Investment Property.
· Lease Accounting: Under the rule of IFRS 16, a lessee is required to recognize assets and liabilities for all leases with a term of more than 12 months unless the underlying asset is of low value.
This article was written in collaboration with the Accounting Firm of Gosa Ashine PLC.