Introduction
International financial reporting standards (IFRSs ) are a set of standard procedures designed for use by business globally so as to enable uniformity in financial reporting. IFRS are of high importance to companies that have subsidiaries or partners from across several nations. IFRSs are slowly taking over from the various national reporting and accounting standards, and this procedure 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 Euro Union, but their value became appealing and the standards spread worldwide. This paper considers the importance, structure and some examples of IFRSs.
Importance of IFRSs
IFRSs is an economical instrument when it comes to time and cost of operations. 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.
IFRSs
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 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 adopted in January 2008. 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 (Alali & Foote, 2012). IFRS 3 gives more procedures for deciding whether a transaction qualifies as a business combination, and thus, is 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 (Alali & Foote, 2012). It must include acquisition of business and 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 used 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, an organization can change its accounting policies if it will make the statements more significant and 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 business entity 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 information in order 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 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 the total company’s revenue, extra operating units should be identified for reporting until at least seventy five percent of the total revenue has been stated in the reports. Two or more units may be joined together if they have any similarities in the type of products and services, type of process of production, class of customers, and or the type of regulatory framework (Herath et al., 2011). An operating unit is a branch of the company that carries out activities that can result in expenses or income, and the results of these involvements are monitored by the decision-maker of the company from time to time who makes decisions about the funds allocated to it. Confidential reports about the segment should also be available (Alali & Foote, 2012).
Conclusion
IFRSs 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 several nations. IFRSs are economical when it comes to time and cost of operation. Since a single standard is used globally, IFRSs will lower the operational costs. Also, the time and cost of implementing different standards will be highly cut down with the employment of one common reporting standard.
