Last updated on November 16th, 2019 at 10:00 am

IFRS Impact Assessment in Dubai

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS):

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB).

The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting.

Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will simplify accounting procedures by allowing a company to use one reporting language throughout. A single standard will also provide investors and auditors with a cohesive view of finances.

Currently, over 100 countries permit or require IFRS for public companies, with more countries expected to transition to IFRS by 2015. Proponents of IFRS as an international standard maintain that the cost of implementing IFRS could be offset by the potential for compliance to improve credit ratings.

IFRS is sometimes confused with IAS (International Accounting Standards), which are older standards that IFRS has replaced.

Effect of an international Financial Reporting Standards (IFRSs) needs to be assessed to understand the impact on – recognition, measurement and disclosure on revenue, expenses, assets and liabilities to an entity, when a new standard or revision in existing standards taken place.

In order to cope up with the requirement of new challenges in the economy or to rectify the possible errors or for better presentation of the financial statements time to time, the IASB

  • Either issues new IFRS
  • or reissue the existing standards with suitable modifications.

Such newly issued or reissued IFRS will be always specifying the date from which it will be effective be considered in the financial statements.

IFRS impact assessment is an assessment conducted when new or revised accounting standard is implemented in any business from a specific date. Sometimes the value disclosed in the financial statements needs to be changed while comparing with those normally disclosed under existing practice, because of change in measurement of the item. In some cases, the impact will be only on information disclosed in the financial statement and may not necessarily an impact on the financial figures. In certain situations, items which were not accounted till date or had a different treatment earlier may change by the adoption of new or revised one.  In some other cases, the impact could be on both; on the financial figures as well as on the disclosure requirements.

Why it is important to commence IFRS impact assessment?

Anyways, whether the impact is on the amount to be recognized or the amount to be measured or on the disclosure requirements, it is important to do an analysis of impact on introduction of IFRS well before preparing the financial statement to report to the stakeholders and/or to the public. Then the management will have a fair idea on the impact of such new or revised IFRS well before closing the financial year.

What is IFRS Impact Assessment?

When a new International Financial Reporting Standard (IFRS) gets introduced or there is a revision in the existing standard, its impact on the financial statements needs to be assessed. An assessment is performed to understand the impact on measurement, recognition, and disclosure on the assets, liabilities, revenue and expenses of an entity. The International Accounting Standards Board (IASB) either issues new IFRS or reissues the existing ones with suitable modifications from time to time to cope with the new challenges in the economy, rectify the probable errors in the financial statements or for their better presentation.

Such newly issued or reissued IFRS become effective from the date as specified by the IASB.

How can the impact be recorded?

  • When a new or revised accounting standard is implemented, it may call for a change in the value of an item in the financial statement because of the change in the measurement of the item.
  • In some cases, there may be no change required in the financial statement figures, but only the disclosures made therein.
  • In certain cases, items which weren’t needed to be recorded in the financial statements may now require to be accounted for.
  • In some other cases, there could be an impact on both financial figures as well as the disclosures made in the financial statements.

Why is it important to conduct an IFRS impact assessment?

An IFRS impact assessment can prove beneficial for the stakeholders and the prospective investors to get a fair idea on the impact of such new or revised IFRS on the business of the entity. This is the reason why organisations must conduct an IFRS impact assessment before the closing of the financial year.

Information needed to carry out IFRS impact assessment

  • Audited financial statements for the previous two financial years
  • Contracts, Agreements and necessary invoices
  • Details of contract revenue, costs in the previous year, anticipated projects for the current year, etc.
  • Accounting manuals, if used by the management
  • Assets and Liabilities with their detailed classifications
  • Details of all the contracts entered by the company with its customers. These include written as well as verbal contracts.
  • Other necessary information, as and when required during the course of the IFRS impact assessment procedure.

Following are some of the relevant IFRS where we provide IFRS impact assessment services:
IFRS 15 Impact Assessment (Revenue from contracts with customers)

  • Identifying when to recognise revenues.
  • Identifying the contract with customers and performance obligation.
  • Based on the criteria laid out in IFRS 15, analysing whether performance obligations are being carried out as stipulated.
  • Verification of transaction price and recognition of contract costs.
  • Evaluation of revisions needed in the estimates, if any.
  • Checking if there is any need to modify the contracts with the customers to comply with IFRS 15.
  • Evaluating if there are any modifications or updates required in the IT systems.
  • Comparison of accounting policies and various accounting treatments in the previous year with the current year.

IFRS 16 Impact Assessment (Leases)
It will broadly cover the following areas:

  • Disclosure requirements as per the new or reissued standards.
  • Any asset is given to other parties on a lease.
  • Any plant & equipment or property whether hired or acquired from a third party.
  • Lease amortisation, if any.
  • Lease accounting review, if needed.

IFRS 9 Impact Assessment (Financial Instruments)
It will broadly cover the following areas:

  • Disclosure requirements as per the new or reissued standards.
  • Based on the three stages impairment model, impairment of liabilities and assets.
  • Financial Assets and Liabilities with their detailed classification.

As per IFRS 9, one of the requirements to be reported is the need for an impairment allowance. It should be done on regular intervals, and any change in the allowance must be reflected in the profit and loss account.

Alya Auditors   caters highly qualified professional in the related field of work by providing a wide range of Audit and Assurance services all over UAE – Dubai, Abu Dhabi, Ajman, Sharjah, Fujairah & Ras Al Khaimah.

  • Internal Audit
  • Financial Statement Audit
  • Business Valuation
  • Due Diligence Audit
  • Risk Management
  • Forensic Investigation Audit
  • IFRS Impact Assessment
  • Annual Audit
  • External Audit

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