International Financial Reporting Standards (Research Paper Sample)

International Financial Reporting Standards
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International Financial Reporting Standards
Introduction
IFRS (International Financial Reporting Standards) is a set of standard procedures designed for use by business globally so as to enable uniformity in financial reporting. IFRS are particularly of high importance to companies that have subsidiaries or partners from across several nations. IFRS are slowly taking over from the various national reporting, accounting standards, and it comprises of directions that should be followed by accountants to keep financial books that can be understood, compared and are significant to all users, both nationally and across the borders. The emergence of IFRS came as an effort to synchronize accounting across EU., but the value became appealing and it spread worldwide. This paper will look at the importance, structure and some examples of IFRSs (Herath et.al, 2012).
Importance of IFRSs
IFRSs is economical when it comes to time and cost of operation. Since a common single standard is used globally, IFRS will lower the cost of operation. Also, the time and cost of implementing different standards will be highly cut down with the employment of one common reporting standard.
IFRS 3- Business combination
IFRS 3 is a transaction in which a new owner takes over the running of a business, for example, buying of shares or business assets, or merging of businesses in a legal way. It provides guidelines for the accounting when a person takes over a company. This transaction is done using the method and it states that the assets and liabilities to be acquired have to be estimated at their current value during the time of the takeover. The present version of IFRS 3 was in 2008, January.
IFRS 3 strives to uphold the importance and reliability of the financial statement about combination of business and their effectiveness. It draws the guidelines for the identification and evaluation the assets to be acquired as well as the liabilities. IFRS 3 will not apply to the creation of joint business, the takeover of assets that are not a business, takeover of a company’s subsidiary, and the takeover of a company under common control transactions.
IFRS 3 gives more procedures for deciding whether a transaction qualifies as a business combination, and thus carried out according to the provisions. Business combination can take place in several ways, e.g. the transfer of money, accepting liabilities, or transfer of equity instruments. It must include acquisition of business and it must have the elements of input, process, and output. The method has three steps, namely the identification of the acquirer, determining the date, recognition and evaluation of goodwill, and recognition and measurement of assets (Alali & Foote, 2012).
IFRS 6- Evaluation and exploration of mineral resources
A company will apply IFRS 6 to explore and evaluate the expenses that it incurs. IFRS 6 is applied only after exploration and evaluation and before the process of mining have been assessed and demonstrated to be feasible and viable. The company’s assets are evaluated as either tangible or not, depending on the type of the assets acquired. According to IFRS 6, a company can change its accounting policies if it will make the statements more significant and more reliable to the parties that use it to come up with important decisions.
A company should reveal the information that points out and explains the amounts realized in the statements that emerge from exploring and evaluating the mineral resources. It reveals its policies and the amount of assets and liabilities, income and operating cash flows. The assets of exploration are evaluated at their present value. The examples of expenses that can be included in the first measurement of the assets are the expenses of acquiring the rights to explore, geochemical studies, the process of drilling, taking samples and other activities related to the feasibility of mining (Alali & Foote, 2012). After recognition, a company can decide to use the cost model or use the revaluation model to explore and evaluate assets.
IFRS 8- Operating Segments or units
The company is required to disclose or to reveal information to allow the parties that use its statements to assess the type and effects of the business activities and the set-up it operates in. IFRS 8 deals with the yearly statements of a company or companies whose shares trade in a public market or is being registered for the purpose of admission to the market.
The information that needs to be revealed, includes the independent reports about the operating units or segments of the company. If the total income reported by the units amounts to less than seventy five percent of...