What is IFRS?

Compiled by Eshan Pai K. Email:eshaanpai21@gmail.com

Introduction
IFRS is short for International Financial Reporting Standards. It is the international framework which helps to properly organize and report financial information. It is derived from London based International Accounting Standards Board. IFRS is applicable in more than 120 countries. They specify exactly how accountants must maintain and report company accounts globally. It’s main objective is to develop a single set of high quality global accounting standards. It also brings about convergence of national accounting standards and International Accounting standards and IFRS to high quality solutions.

Revenue Recognition(IFRS 15)
Objective:
The target of IFRS 15 is to set up the rules that a substance will apply to report valuable data to clients of fiscal summaries about the nature, sum, timing, and vulnerability of income and incomes emerging from an agreement with a client. Application of the standard is obligatory for yearly announcing periods beginning from 1 January 2018 onwards. Prior application is allowed.
The core principle of IFRS 15 is as follows:

Identify the contract(s) with a customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognise revenue when (or as) the entity satisfies a performance obligation.

Once all the above mentioned steps are fulfilled revenue can be recognised in the books of accounts.
Let us consider an example of construction of a building:
According to the first step,the buyer approaches the builder to purchase 5 floors of a building,and they decide on a price as a whole. Hence a contract is identified.Here in this case performance obligation can be considered a construction of every floor. Every time a slab is contructed,the buyer gives an amount of money to the builder. Let us consider the cost to be 5 Crore, so everytime a floor is constructed the buyer is obliged to give 1 crore. As and when the floors are complete,the builder can recognise the amount in his financial statements.

Leases(IFRS 16)
The goal of IFRS 16 is to report data that (a) dependably speaks to lease and (b) give a premise to clients of budget summaries to survey the sum, timing and vulnerability of incomes emerging from leases. To meet that objective, a tenant ought to perceive income emerging from a rent.
IFRS 16 presents a single lessee accounting model and requires a lessee to perceive incpme for all leases with a term of over a year, except if the hidden resource is of low worth. A resident is required to perceive a right-of-utilization resource speaking on its right side to utilize the hidden rented resource and a rent risk speaking to its commitment to make rent installments. A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment) and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability. The depreciation would usually be on a straight-line basis. In the statement of cash flows, a lessee separates the total amount of cash paid into principal (presented within financing activities) and interest (presented within either operating or financing activities) in accordance with IAS 7.
Assets and liabilities arising from a lease are initially measured on a present value basis. The measurement includes non-cancellable lease payments (including inflation-linked payments), and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise an option to extend the lease, or not to exercise an option to terminate the lease. The initial lease asset equals the lease liability in most cases.
The lease asset is the right to use the underlying asset and is presented in the statement of financial position either as part of property, plant and equipment or as its own line item.
IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
IFRS 16 replaces IAS 17 effective 1 January 2019, with earlier application permitted.

Share Based Payment(IFRS 2)
IFRS 2 Share-based Payment requires an entity to recognise share-based payment transactions (such as granted shares, share options, or share appreciation rights) in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. Specific requirements are included for equity-settled and cash-settled share-based payment transactions, as well as those where the entity or supplier has a choice of cash or equity instruments.
IFRS 2 was originally issued in February 2004 and first applied to annual periods beginning on or after 1 January 2005.
IFRS 2 Share-based Payment requires an entity to recognise share-based payment transactions (such as granted shares, share options, or share appreciation rights) in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. Specific requirements are included for equity-settled and cash-settled share-based payment transactions, as well as those where the entity or supplier has a choice of cash or equity instruments.
The concept of share-based payments is broader than employee share options. IFRS 2 encompasses the issuance of shares, or rights to shares, in return for services and goods. Examples of items included in the scope of IFRS 2 are share appreciation rights, employee share purchase plans, employee share ownership plans, share option plans and plans where the issuance of shares (or rights to shares) may depend on market or non-market related conditions.
IFRS 2 applies to all entities. There is no exemption for private or smaller entities. Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration for goods or services are within the scope of the Standard.
Let us consider this with an illustration:
Company grants a total of 100 share options to 10 members of its executive management team (10 options each) on 1 January 20X5. These options vest at the end of a three-year period. The company has determined that each option has a fair value at the date of grant equal to 15. The company expects that all 100 options will vest and therefore records the following entry at 30 June 20X5 - the end of its first six-month interim reporting period.
Dr. Share option expense 250
Cr. Equity 250
[(100 × 15) ÷ 6 periods] = 250 per period
If all 100 shares vest, the above entry would be made at the end of each 6-month reporting period. However, if one member of the executive management team leaves during the second half of 20X6, therefore forfeiting the entire amount of 10 options, the following entry at 31 December 20X6 would be made:
Dr. Share option expense 150
Cr. Equity 150
[(90 × 15) ÷ 6 periods = 225 per period. [225 × 4] – [250+250+250] = 150

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