IFRS For Dummies Cheat Sheet (UK Edition)
Whether you’re preparing financial statements under IFRS (International Financial Reporting Standards) or looking at a set of IFRS financial statements, you’ve some key aspects to get to grips with. Use this quick-reference e-cheat sheet to speed your way to the heart of IFRS: know what’s important in the financial information; fathom the meaning of the auditors’ report; use a disclosure checklist to make sure that you don’t miss some essential details; and keep up to speed with all the latest developments in the world of IFRS.
Keeping Up-to-Date with IFRS Developments
IFRS (International Financial Reporting Standards) has to frequently change to keep up with the world’s demands. The International Accounting Standards Board (IASB) sometimes issues new accounting standards to supersede existing ones, or change existing ones to clarify requirements or iron out inconsistencies. Be sure to regularly check the IASB’s website to keep up to date with developments. Attendance at relevant CPD courses also helps you flag up any changes to standards that are on the cards.
Knowing the Characteristics of IFRS Statements
IFRS financial statements come in various shapes and sizes, but they all have certain features in common. Information in IFRS financial statements has these characteristics:
Relevance: So that it makes a difference to the decisions about a company made by users of the statements.
Faithful representation: Financial statements are complete and free from bias and error.
Comparability: You can compare financial statements from one period to the next or for two companies in the same industry so that you can make informed decisions about the companies.
Verifiability: Different people could reach the same decision based on the information, but not necessarily reach complete agreement.
Timeliness: You make information available to users in good time. Historical information quickly becomes out of date.
Understandability: You present and classify information clearly and concisely to make it understandable to users.
Understanding the Auditors’ Report
Auditors make sure that the financial statements give a true picture of how a company has performed over the year. The auditors’ report in the financial statements contains their opinion on the financial statements. The opinion is one of the following:
Unqualified (clean): All’s well! The auditors are reasonably happy that the financial statements are free from material mis-statement.
Qualified (unclean): Uh-oh. The auditors aren’t impressed. A qualified opinion (which sometimes follows with the words except for) generally means that the auditors don’t agree with the way you treated something in the financial statements.
If the report shows an adverse opinion, you’re in hot water: the auditors feel that your financial statements don’t show a true and fair view. If the auditors show a disclaimer of opinion, you’re in boiling hot water: circumstances mean that the auditor can’t form an opinion on the financial statements (for example, you’ve lost all the accounting records).
You may also see an Emphasis of Matter paragraph in the report, which flags something in the financial statements that the auditors thinks the user needs to know about.
Using a Disclosure Checklist Prepared under IFRS
A set of financial statements prepared under IFRS (International Financial Reporting Standards) can span many pages and if you look in detail you find that the majority of these pages encompass the disclosure notes. The disclosure notes give details on how the preparer of the financial statements arrived at the figures, as well as other issues such as the company’s critical accounting policies, problems encountered in the year, related party transactions and other financial and non-financial matters relating to the year.
Trying to remember every single detail that needs to go in the notes is a nightmare, so do yourself a favour and invest in a reputable disclosure checklist. You normally pay an annual subscription and receive updates from the checklist provider periodically when changes occur. Ask your professional body or auditor where you can best source a checklist.