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IFRS Framework with detailed examples and excercises
- 1. 1 Training Session on InternationalFinancial Reporting Standards (IFRS) For: DU, UAE Date: 8TH November 2024
- 2. 2 Energizer 😀 If youwon 3 hundred million dirhams, what would you do with it? You have a time machine where and when would you travel to? If you could be a super Hero, what super- power would you want? Would you rather be invisible or be able to read minds? If you had to pick a food you had to eat every day for a month, what would it be? What wish would make you the happiest person in the world? Would you rather be 10 years older or 4 years younger? Would you rather have 3 legs or 3 arms? Would you rather be able to whisper or have an incredibly loud voice? If could go back to any age, what age would it be? If you were invisible for a day, what would you do? Who is someone famous that you would like to be friends with? And Why? If you could play any sport professionally, what sport would it be and for what team? If you won your own beautiful island, what would you name it? Would you rather it be warm and raining or cold and snowing?
- 3. 3 Section Day 1:Topics 1 Introduction to International Financial Reporting Standards (IFRS) 2 Accounting Framework 3 IAS 16 4 IAS 2 5 IFRS 15 - Revenue Recognition 6 IAS 8 7 IAS 1 Contents
- 4. 4 Introduction to InternationalFinancial Reporting Standards (IFRS)
- 5. 5 • The originsof the International Accounting Standards Board (IASB®, 'the Board’) • The structure of the IFRS Foundation International Accounting Standards (IAS®Standards) and International Financial • Reporting Standards (IFRS®Standards) that are currently in issue • The purpose of financial statements – The Conceptual Framework for Financial Reporting. INTERNATIONAL FINANCIAL REPORTING STANDARDS
- 6. 6 Structure of theIFRS Foundation • The IASB sits under the wider parent body the ‘IFRS Foundation’ and is supported by several other groups and advisory panels • The IASB has sole responsibility for publication of IFRS Standards.
- 7. 7 The Monitoring Boardwas created to provide a link between the Trustees of the IFRS Foundation and public authorities The IASB normally forms Working Groups or other types of specialist advisory groups The IFRS Advisory Council (‘Advisory Council’) provides a forum for organizations and individuals with an interest in international financial reporting Structure of the IFRS Foundation
- 8. 8 The Conceptual Frameworkfor Financial Reporting • The framework suggests that the main purpose of financial statements is to give information to users (particularly investors and creditors) so that they can make financial decisions. • The most useful information would therefore be that which enables the prediction of future cash flows. • It is clear from this that the purpose of financial statements is little to do with taxation or management accounting.
- 9. 9 PURPOSE OF FRAMEWORK •To assist the Board itself when preparing IFRS Standards • To assist national standards-setters when preparing national standards • To assist preparers of financial statements to apply IFRS Standards and deal with topics that are not the subject of an IFRS Standards. • To assist auditors to from an opinion on the financial statements • To assist users to understand financial statements.
- 10. 10 PURPOSE OF FRAMEWORK TheConceptual Framework suggests that in order for financial information to be useful, it must possess certain qualitative characteristics. They are: Enhancing Characteristics • Comparability • Verifiability • Timeliness • Understandability Fundamental Characteristics • Relevance • Faithful representation
- 11. 11 One of thekey components of the framework is the definition of the five main elements of financial statements. In the statement of financial position, three elements can be found: • “An asset is a resource collected by the entity as a result of past events and from which future economic benefits are expected to flow to the entity • A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits • Equity is the residual interest in the assets of the entity after deducting all its liabilities.” Conceptual Framework Paragraph 4.4 Equity does not need to be defined separately because it is just the arithmetical difference between total assets and total liabilities. PURPOSE OF FRAMEWORK
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- 13. 13 Test Your Understanding1 DU plans to implement a new system to improve the reporting of revenue from long-term customer contracts. Which of the following qualities best represents the IFRS principle that the information provided by this system should be accurate, unbiased, and complete? A) Relevance B) Comparability C) Faithful Representation D) Verifiability
- 14. 14 Test Your Understanding1-Explained Answer: C) Faithful Representation Faithful representation means that financial information should accurately depict what it purports to represent.This includes completeness, neutrality, and freedom from error. For DU’s new system, ensuring revenue is reported accurately for customer contracts aligns with faithful representation, as the system would capture and present information about contracts in an unbiased and error-free way. Relevance (Option A) refers to the decision-making utility of information, but accuracy and completeness are best aligned with faithful representation.
- 15. 15 Test Your Understanding2 DU has revenue from various services such as mobile, internet, and corporate solutions. If mobile service revenue constitutes 60% of total revenue, while the other services contribute minor portions, how should DU approach reporting these revenue streams according to IFRS? A) Aggregate all revenue streams in a single line item. B) Report only mobile service revenue separately due to its materiality. C) Report each revenue stream separately, regardless of size. D) Only report revenue streams that the management finds interesting.
- 16. 16 Test Your Understanding2-Explained Answer: B) Report only mobile service revenue separately due to its materiality. •Materiality requires information that could influence users' decisions to be separately disclosed. •Since mobile services constitute a substantial part of DU's revenue, reporting it separately helps users make informed evaluations of DU’s primary revenue source. •If internet and corporate solutions revenue is minor, they might not be considered material individually, so aggregating smaller items complies with IFRS guidelines and improves clarity. •Options A and C don’t account for materiality, and D is incorrect since disclosure should be based on financial relevance rather than management’s subjective interest.
- 17. 17 Test Your Understanding3 DU has invested heavily in infrastructure for future 5G expansion, expecting benefits over the long term.The financial statements prepared for this period assume DU will operate long enough to recover the costs of this investment. Which IFRS principle does this illustrate? A) Consistency B) Going Concern C) Materiality D) Comparability
- 18. 18 Test Your Understanding3-Explained Answer: B) Going Concern •The going concern assumption means that DU’s financial statements are prepared with the expectation that DU will continue operating in the foreseeable future. •For long-term projects like 5G expansion, this assumption allows DU to capitalize and amortize the investment over time rather than recognizing costs immediately. •If DU were not a going concern, the infrastructure might be expensed or shown at liquidation value. •Options A, C, and D do not address the assumption of continuing operations, which is central to this scenario.
- 19. 19 Test Your Understanding4 DU has several contracts where customers pay upfront for a service that will be delivered over the next two years. Under the accrual basis of accounting, how should DU recognize this revenue? A) Record all revenue at the time of upfront payment. B) Defer revenue recognition until the end of the contract. C) Recognize revenue evenly over the contract period as services are provided. D) Only recognize revenue if the contract value exceeds a certain threshold.
- 20. 20 Test Your Understanding4-Explained Answer: C) Recognize revenue evenly over the contract period as services are provided. •The accrual basis requires revenue to be recognized when it is earned, regardless of when payment is received. •For DU’s multi-year contracts, this means recognizing revenue as services are provided over time, reflecting the actual service delivery. •Recording all revenue at the payment time (Option A) would inflate initial earnings, while deferring until contract end (Option B) would understate performance in the interim. •Option D lacks alignment with accrual principles and doesn’t consider the contract length.
- 21. 21 Test Your Understanding5 DU has several contracts where customers pay upfront for a service that will be delivered over the next two years. Under the accrual basis of accounting, how should DU recognize this revenue? A) Record all revenue at the time of upfront payment. B) Defer revenue recognition until the end of the contract. C) Recognize revenue evenly over the contract period as services are provided. D) Only recognize revenue if the contract value exceeds a certain threshold.
- 22. 22 Test Your Understanding5-Explained Answer: B) Relevance •Relevance in IFRS means that information should be capable of influencing users’ decisions. •For DU, customer acquisition costs provide insight into growth strategy and operational performance, which can influence investor and stakeholder decisions. •If this information is relevant to DU’s stakeholders, it supports its disclosure under IFRS principles. •Faithful representation (Option A) refers to the accuracy and completeness of reported information, while comparability (Option C) and understandability (Option D) are less directly related to the decision-making impact.
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