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International Financial Reporting
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Table of Contents
1. Fair Presentation and Compliance with IFRS …………………………………………………………….. 3
1.1. Fair presentation of financial statements …………………………………………………………………… 3
1.2. Compliance with IFRS …………………………………………………………………………………………… 3
2. Accounting for plant, property, and equipment ………………………………………………………….. 6
2.1 Measurement of tangible assets………………………………………………………………………………… 6
2.4 Revaluation of tangible assets ………………………………………………………………………………….. 7
References …………………………………………………………………………………………………………………… 10
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1. Fair Presentation and Compliance with IFRS
1.1. Fair presentation of financial statements
According to a study by Hoogervorst et al. (2022), financial statements show a fair and
accurate view when they are free from material misstatements and dependably signify a firm’s
performance and position financially. Faithful representation refers to presenting all transactions
and events that an entity intends to report. The financial information must conform to IFRS
standards. It has to account for transactions to reflect their economic reality and commercial
effects rather than their strict legal form. Anderson (2019) indicates that financial statements are
required under IFRS to reasonably present financial position, performance, and cash flows. The
financial statement should convey an accurate and fair view of the IFRS standards by presenting
relevant and faithfully presented information per recognized criteria for assets, income, expenses,
and liabilities per the IASB framework. Financial statement must focus on components of
organization’s business to give its true value.
Nobes (2022) indicates that IFRS considers a fair financial statement as one that presents
information in a way that offers pertinent, consistent, comparable, and logical data to provide
additional disclosures required to help users comprehend the fiscal status of the firm. For
instance, when an entity subscribes to a financial lease, it must recognize an asset and a liability
for lease payments; that is due in a way that the information does not mislead or conceal facts
from the users; in its financial statements because of the nature of the transaction.
1.2. Compliance with IFRS
Mhedhbi & Zeghal (2016) conducted a study to determine compliance with IFRS/IAS
standards in emerging markets. They established that compliance with the IFRS standards in
markets significantly correlates with the size of the firm or entity, auditor type, leverage,
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profitability, and ownership dispersion. A report on financial reporting from Mhedhbi & Zeghal
2016) indicates the low disclosure environment, weak investor protection, and the prevalence of
external capital needs are anticipated to improve corporate reporting policies since managers in
developing nations adhere strictly to IFRS to save agency expenses. Lucchese and Carlo (2020)
demonstrate that in industrialized countries, complying with IFRS is related to size and a
corporation’s multinationality. Moreover, investor protection levels alter the relationship
between corporate features and IFRS conformance. For instance, in settings with minimal
investor protection, business size and profitability are more strongly associated with IFRS
compliance, but auditing the firm’s size, leverage, and multi-nationality enhances compliance.
Mokhtar, Elharidy and Mandour (2022) conducted a similar study on factors underlying
noncompliance with IFRS. They established that IFRS is mainly adequate in highly developed
capital markets and compliance in developing countries’ economies is questionable. However,
compliance with IFRS requirements is a significant concern for developing countries due to a
lack of financial reporting infrastructure; for example, inadequate regulatory enforcement may
cause substantial noncompliance with IFRS.
1.4 Conceptual framework
Jayed and Alamry (2022) engineered a study on the international accounting standard
board conceptual framework. They noted that the standard board conceptual framework sets
complete ideas for quality financial reporting and formal setting and offers direction to
professionals in creating reliable reporting strategies. These strategies help others endeavour to
comprehend and decipher the principles. This framework was intended to provide guidelines and
objectives when reporting finances. Martinez (2019) established that IFRS provides specific
definitions of potentially misled terminologies and general principles, goals, and procedures for
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writing financial information to allow organizations to make perceived judgments relevant in
cases that aren’t explicitly discussed.
Jayed & Alamry (2022) further indicates that the financial accounting standard (FASB)
provides a concise explanation that summarizes the financial reporting framework as imposing
an intellectual discipline when disclosing the financial status of a business. For example, an
organization may claim a vehicle as an asset while another may take it as a liability. Thus the
conceptual framework of accounting provides a reference point that sets a level ground and
provides a standardized financial reporting practice giving potential business owners a clear idea
of a business’s financial standing.
According to Bradbury and Scott (2021), the conceptual framework assists organizations
develop accounting procedures whenever IFRS standards do not apply to a particular business
transaction. The framework depicts many components of financial statements. Financial
statements represent the economic consequences of events and transactions by categorizing them
into broad categories based on their economic features. These sections are directly related to the
balance sheet, which includes assets, liabilities, equity, and other items. The income statement is
divided into two sections: income and expenses. The cash flow statement must reflect changes to
the balance sheet and income statement.
When an asset’s worth can be calculated and its benefits projected, it is added to the
balance sheet. On the other hand, liability is reflected on the balance sheet when a current
commitment may result in the outflow of invested resources.
According to Morales Daz and Zamora Ramrezn (2018), revenue is recognized in the
income statement when the rise in future benefits from an asset growth or a liability drop has
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developed to the point where its value can be adequately quantified. Thus, income is recognized
following a rise in assets from selling products and services or a decrease in liabilities from the
write-off of bad debts. Also, an expense is recorded when it is reasonably sure that there will be
less money in the future due to a decrease in assets or a rise in liabilities. Expenses are recorded
simultaneously as a liability or asset increase or reduction.
2. Accounting for property, plant, and equipment
IFRS dictates that Accounting Standard 10 (AS10) addresses Property Plant and
Equipment (PPE) to establish accounting treatment for property and plant and equipment
pertinent to enabling users of financial information to comprehend the investment made by an
organization in property, and plant and equipment. IFRS makes it a subject to evaluate such
assets since the play key roles in production and they form a larger part of a firm’s investment.
2.1 Measurement of tangible assets
Jurkovic, Dragija, and Lutilsky (2022) argue that once an asset is recognized under PPE as per
AS10, an entity can use the cost or revaluation model to calculate the carrying cost of the assets they have
acquired. Thus, the chosen method becomes the acting accounting policy necessary for calculating the
carrying amount of all the assets categorized under the PPE.
According to the cost model, after an asset has been recognized, the PPE item is carried at initial
cost less accumulated depreciation and accrued impairment losses. Liapis and Thalassinos (2013) also
indicate the price of PPE items, like acquisition costs, is made up of non-refundable purchase taxes and
import duties less any available trade discounts. The cost model also includes the cost of transporting the
asset from its place of manufacture to its final location, the asset’s current condition, which influences its
ability to function as planned, the cost of removal or disassembly, and any necessary repairs. Several
elements, including the initial cost of transportation and handling, the cost of assembly and installation,
and professional fees, contribute to an asset’s optimal performance.
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Cipriano, Cole, and Briggs (2021) disclose that the revaluation model specifies that after
the asset is recognized, PPE components should be carried at a revalued amount if the fair value
of the PPE can be measured accurately. The revalued amount is equal to the fair value of PPE
items at the time of the revaluation, less accrued depreciation and impairment losses. PPE must
be re-evaluated regularly to ensure that the carrying cost does not deviate significantly from the
amount verified on the balance sheet using the fair value. Depreciation of tangible assets is a
charge applied to an asset systematically throughout its useful life. Because the asset is prone to
wear and tear, depreciation is inescapable. The depreciation amount paid in each period of an
asset’s lifecycle is recorded in an entity’s profit and loss statement and serves as an indicator of
the asset’s value decline.
2.4 Revaluation of tangible assets
Dreghiciu (2022) says that revaluation of a fixed asset is the accounting system for
increasing or decreasing the value of a fixed asset of an organization or gathering fixed assets to
show any significant changes in how they are valued honestly. At first, a fixed asset or group of
fixed assets is listed on an organization’s balance sheet at the cost of buying the asset. Dreghiciu
(2022) reports that assets must be evaluated to be registered in accounting and recognized by the
annual financial statements. Without evaluation and revaluation of assets, the financial position
of a business cannot be presented correctly. Thus the entity may face difficulties in calculating
economic indicators on microeconomics and macro-economic levels. Revaluation of tangible
assets has an accounting effect which leads to the modification of the values initially recorded in
accounting, which requires that highlights of revaluation be done on each corporal tangible asset.
Each revaluation operation must accurately depict the organization’s fiscal status.
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According to Karampinis (2021), following first recognition, a company must choose
between the cost and revaluation models as its accounting policy and apply the preferred
approach to all physical or intangible assets. According to IAS 16, an item of intangible or
intangible assets whose fair value can be reliably measured after recognition as an asset must be
carried at a revalued amount equal to its fair value at the stated date of revaluation less any
subsequent accumulated depreciation and subsequent accumulated impairment losses.
Revaluation must be done with enough care to ensure that the carrying amount does not change
significantly from what would be determined using fair value at the balance sheet date.
When an asset gets revalued, the fair market value as of the revaluation date is used to
determine the amount of revaluation. Also described is the process of revaluing field assets. The
standards indicate value modifications of acquisitions by decreasing historical costs or the
amount that substitutes the fair value. Property, plant, and equipment are considered intangible
assets and are subject to different recognition of unrealized gains and potential losses from
modifications to fair value, as argued by Jurkovic, Dragija, and Lutilsky (2020). Accordingly, a
revaluation reserve or surplus is recorded in Equity if the book value of PPE increases due to a
revaluation. An increase in tangible assets value in this case is termed as asset appreciation
which might originate from proper maintenance and increased operation efficiency. But it
reduces the time when gains are recognized until they are realized.
When a revalued asset is derecognized, a revalued asset is disposed of, or a revalued asset
is used, the surplus from the revaluation could be moved from Equity (which corresponds to
property, plant, and equipment) to Retained Earnings. Unrealized gains on movable and
immovable assets are treated the same when calculating the amount transferred to retained
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earnings. Further, the surplus from a revaluation of tangible and intangible assets is added
straight to retained earnings rather than going through the income statement.
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References
Anderson, N. (2019). IFRS Standards and climate-related disclosures. URL: https://cdn. IFRS.
org/-/media/feature/news/2019/November/in-brief-climate-change-nick-Anderson. pdf.
Bradbury, M. E., & Scott, T. (2021). What accounting standards were the cause of enforcement
actions following IFRS adoption? Accounting & Finance, 61, 2247-2268.
Cipriano, M., Cole, E. T., & Briggs, J. (2021). Value relevance and market valuation of assets
measured using IFRS and US GAAP in the US equity market. International Journal of
Accounting & Information Management.
Dreghiciu, A. (2022). Retrieved 29 July 2022, from https://www.semanticscholar.org/paper/TheAspects-of-Revaluation-of-Tangible-AssetsDreghiciu/71f0e4c115f253acbba76f849898a132b7cb7ff4.
Hoogervorst, H., Lloyd, S., Anderson, N., & Cendon, T. (2022). Fair presentation of financial
statements. Ifrs.org. Retrieved 29 July 2022, from
https://www.ifrs.org/content/dam/ifrs/publications/pdfstandards/english/2021/issued/part-a/ias-1-presentation-of-financial-statements.pdf.
Jayed, S., & Alamry, A. (2022). Retrieved 29 July 2022, from
https://www.researchgate.net/publication/331072114_Chapter_1_The_Conceptual_Fram
ework_of_Accounting.
Jurkovic, S., Dragija, M., & Lutilsky, I. (2022). Revaluation of tangible assets. Infos.unios.hr.
Retrieved 29 July 2022, from
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Karampinis, N. I. (2021). A cross-national analysis of the impact of enforcement on impairments
of tangible assets under IFRS. Journal of International Accounting, Auditing, and
Taxation, 42, 100358.
Liapis, K. J., & Thalassinos, E. (2013). A Comparative Analysis for the Accounting Reporting of
“Employee Benefits” between IFRS and other Accounting Standards: A Case Study for
the Biggest Listed Entities in Greece.
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Lucchese, M., & Carlo, F. D. (2020). Inventories Accounting under US-GAAP and IFRS
Standards: The Differences That Hinder the Full Convergence. International Journal of
Business and Management, 15(7), 180-195.
Mokhtar, E., Elharidy, A., & Mandour, M. (2022). Compliance with IFRS. researchgate.net.
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MOLOCINIUC, M. (2021). Comparative Study on the Valuation of Property, Plant, and
Equipment after Recognition–IAS 16 vs OMPF No. 1802/2014. CECCAR Business
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Morales Díaz, J., & Zamora Ramírez, C. (2018). IFRS 16 (leases) implementation: Impact of
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Finance, 17, 60-97.
Martinez, A. L. (2019). Are IFRS standards a good starting point for a corporate tax base? Tax
Principles for a CCCTB. Red-Revista Electronica de Direito, 20(3), 113-137.
Nobes, C., & Stadler, C. (2022). The Qualitative Characteristics of Financial Information, and
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performance of emerging capital markets’, Review of Accounting and Finance, vol. 15,
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