Understanding the principles of the International Financial Reporting Standards (IFRS)

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International Financial Reporting Standards (IFRS) was introduced to harmonize the presentation and clarity of their financial statements.

The logic of these accounting standards is based on a few points, in particular option valuation, and fair value of assets and liabilities, the primacy of substance over form,  and the precautionary principle subordinated to the neutrality and relevance.

Objectives of IFRS inlude:

primacy of economics over legal : the accounts must give a true and fair view of the company and its assets (including the leasing returns to the balance sheet )
relative importance : information should be included in the appendix if it can affect future choices for users.

Principles

The financial statements and accounting information are not defined in the same way in the international standard . These now include (IAS 1 Article 10) :

statement of financial position (balance sheet)
the statement of comprehensive income (income statement )
the statement of changes in equity
the cash flow statement (IAS 7)
notes, comprising a summary of significant accounting policies and other explanatory information … and ” any other matter relevant to the understanding of accounts document” as earnings per share for the listed companies.

As for accounting information, it must be

Intelligible – the reader should be able to form an opinion on the company’s business based on the accounting information,
Relevant – information should enable the reader to make appropriate economic decisions on the future of the company,

Of relative importance – accounting information to be disclosed if and only if it provides useful elements to the decision. The significance level (common language of financial auditors ) depends on the professional judgment .

For example, a decline in economic activity of the enterprise may be significant in volume but not significant compared to the revenue generated by the group.

The information must be reliable, used without risk of error. Reliability based on four fundamental principles:
neutral,
legal appearance
the preeminence of economic reality over appearance and legal
respect for the fair value .

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