Changes to IFRS reporting standards
The International Financial Reporting Standards (IFRS) requirements appear to change yearly. Accountants are challenged to stay on top of 17 IFRS accounts standards alongside ensuring they are up to date with interpretations and amendments.
Not all IFRS account standards are relevant to unlisted entities, some, however, are particularly specific and relate to certain areas including agriculture and extractive industries.
No matter which IFRS standards are applicable to you and your business, it’s clear that relevant entities face a number of challenges when reporting.
Our blog provides a detailed guide on how to navigate through the most-recent of changes to IFRS accounts, specifically focussing on IFRS 9, 15 and 16.
Overview of IFRS accounts standards
‘Profit orientated entities’ are meant to have IFRS applied, as their statements are provided on performance, cash flow and position. These are then utilised by those who drive financial decisions including current or potential investors, lenders and other creditors, perhaps even employees, customers and suppliers in some circumstances.
A ‘Conceptual Framework for Financial Reporting’ was created by the International Accounting Standards Board (IASB) and outlines the concepts of IFRS accounting practices.
Some of the sections included within the framework are:
- The objective of general purpose financial reporting
- Financial statements and the reporting entity
- The elements of financial statements
- Presentation and disclosure
IFRS 1 requirements should be applied by any entity moving away from GAAP and IFRS, this refers also to an entity’s first IFRS finance statements and any interim parts which form part of that period.
The IASB lays out some exemptions for any in stances where it’s deemed that retrospective use of IFRS could be difficult, exemptions include:
- Business combinations
- Deemed cost
- Designation of previously recognised financial instruments
Being compliant with the latest IFRS standards
A number of new IFRS standards have been introduced over the past few years, namely IFRS 9, 15 & IFRS 16.
For those who are reporting under the standards, each new one comes with its own set of nuances and challenges for entities to comply with.
IFRS 9 – Financial Instruments
First applied to periods commencing back in 2018, IFRS 9 was mainly aimed towards financial institutions, however, due to bad debt provisioning it had a wider impact.
IFRS 9 was bought in to replace the IAS 39 Financial Instruments: setting out accounting requirements for financial instruments, to include classification, measurement, impairment and hedge accounting.
Included in the reporting changes was the Expected Credit Loss (ECL) model, this replaced the incurred loan loss model of IAS 39 and required entities to account for any future impairments along with any already incurred.
Companies also changed the way they classified and measured financial assets since IFRS 9, with three categories of measurement being created:
- Amortised cost
- Fair value through other comprehensive income
- Fair value through profit or loss
Under IFRS 9, companies are required to assess creditors in a different manner as they did previously, meaning that the data needed may not be easily accessible – therefore, making the process more long-winded.
It’s likely that corporate firms will find this more difficult as there’s an issue around assessing credit risks of companies whom they are supplying products to.
IFRS 15 – Contracts with customers revenue
Similarly, IFRS 9 & 15 both came into effect early 2019, these replaced IAS 18 Revenue and IAS 11 Construction contracts. Aiming to increase comparability among companies across all sectors, it also covers how and when to recognise revenue.
Previously, methods for recognising revenue has been varied, therefore leaving reports vulnerable to being amended or manipulated. The standard reduces the difficulties faced by investors, helping them to get a more realistic picture of a company’s financial statements.
Revenue should be recognised and based upon the multiple phases of company contracts with clients. IFRS has introduced a five step model to help with this.
The five steps are:
- Identify the contract or contracts with a customer;
- Identify the performance obligations within the contract;
- Determine the transaction price;
- Allocate the transaction price to performance obligations; and
- Recognise revenue when or as performance obligations are
The biggest challenge with IFRS 15 by far is calculating when to recognise revenue. Rules have changed relating to contracts and when to combine or modify them, along with royalty or licence payments, customer incentives, loyalty programmes and non-refundable upfront fees.
Any firm who sells goods that come with a type of service will find the standard has created some difficulties for them.
IFRS 16 - Leases
Reporting periods after January 2019, IFRS 16 has replaced IAS 17 leases, designed to create a more true representation of leasing transactions. Companies are required to enter leases into their balance sheet to ensure accuracy.
For lessees, IFRS 16 creates a number of reporting challenges, particularly:
- Analysis to work out what and how much data needs to be processed.
- Creating new estimates dependent on the term and nature of the lease – any potential impact to reliability and financial forecasts.
- Recognition of the lease liability and a right of use asset at the start date, using the value of the lease payment not paid at the start date
IFRS 16 only made changes for subleases, lease modifications and disclosures making lessors less impacted by the standard.
Using automation to navigate IFRS accounts changes
Needless to say that entities have been presented with new challenges following the changes to IFRS accounts reporting, this doesn’t necessarily mean that more time needs to be spent on such tasks.
Automation technology can take a significant amount of the labour intensive work away, whilst removing the need for manual processes. This will result in companies becoming less reliant on Word and Excel to store their data, and take the hassle out of IFRS reporting.
Creating specific reporting templates using accounting software (similar to our AccountsAdvanced templates) means importing data from your general ledger system is possible. Answering a few simple questions based on the reporting standard means that the technology can be built to suit you and your accounts.
The software intuitively checks all information required has been included within the specific reporting requirement, it will also prompt users to input any information which is missing to ensure the user does not fall foul of any rules.
To find out more information on the challenges of IFRS Reporting download our eBook here
Watch this video and see how automated accounting software can benefit you and ensure you stay compliant and adhere to IFRS accounts standards.