Why IFRS and IAS 1

Vocabulary flashcards covering key terms from the lecture notes on IFRS, IAS 1, standard-setting, EU endorsement, and related topics.

IFRS

International Financial Reporting Standards; internationally recognized accounting standards aimed at reliable, efficient, transparent, and comparable financial reporting across borders; used for listing and investor reporting; convergence with US GAAP; in Italy, IFRS records can be used as the basis for calculating income taxes.

IAS 1

International Accounting Standard 1; prescribes the presentation of financial statements and outlines the objective and minimum content of those statements.

IASB

Independent standard-setting body of the IFRS Foundation that issues IFRS standards.

Endorsement process (EU)

EU process for approving IFRS: IASB issues standard → EFRAG advises → ARC opinion → Commission drafts regulation → Parliament/Council scrutiny → Commission adopts amending regulation.

EFRAG

European Financial Reporting Advisory Group; advises the European Commission on endorsement of IFRS standards.

ARC

Accounting Regulatory Committee; EU body that provides a formal opinion on IFRS endorsement to the Commission.

Regulation 1606/2002

EU regulation establishing the endorsement framework for IFRS (involves EC, EFRAG, ARC, Parliament and Council).

Endorsement of IFRS in the EU

EU pathway to approve IFRS for use; includes adoption steps and public scrutiny before an IFRS becomes applicable in EU member states.

Standard Setting Process stages

Phases from Program Consultation to Post-Implementation Review, including Information Request, Research Programme, Discussion Paper, Draft Proposal, Definitive IFRS, Implementation, and Interpretation/Modification.

IFRS Area of Application in Italy

Under Decree 38/2005 and amendments, IFRS is mandatory for listed entities and consolidated FS; optional for some other entities; banks and supervised institutions have specific rules.

Statement of Financial Position

Balance sheet; primary financial statement showing assets, liabilities and equity at a date, with notes and comparatives.

OCI (Other Comprehensive Income)

The portion of comprehensive income not included in profit or loss; includes items like revaluation gains/losses, FVOCI gains/losses, cash flow hedges, foreign currency translation, defined benefit plan remeasurements, and related tax effects.

Current vs Non-Current

Classification of assets and liabilities based on expected realization/settlement within 12 months or the entity's operating cycle; current if within 12 months or cycle, otherwise non-current.

Examples of current/non-current classifications

Examples: long-term receivable with a covenant breach that may prevent accrual; a loan with a 12-month extension option may be non-current if the extension right is exercisable.

Minimum content of the Balance Sheet

Face of the balance sheet includes essential asset and liability line items, with totals (TOTAL ASSETS, TOTAL LIABILITIES) and equity; supports clearer presentation.

Assets (examples)

Examples include Property, Plant and Equipment; Investment Properties; Intangible Assets; Financial Assets; Inventories; Trade and other receivables; Cash and cash equivalents.

Liabilities and Equity (examples)

Examples include Trade and Other Payables; Provisions; Financial Liabilities; Current and Deferred Tax; Non-controlling interests; Issued capital and reserves attributable to owners of the parent.

Objective of financial statements

To provide information about an entity’s financial position, financial performance, and cash flows that is useful for a wide range of users in economic decisions.

IAS 1: classification by nature vs function

Classification of expenses by nature or by function; IAS 1 requires disclosures related to these classifications and OCI.

Convergence with US GAAP

Efforts to align IFRS and US GAAP to improve comparability and efficiency of internal reporting.

Consolidated FS vs Separate FS

IFRS requires consolidated financial statements (IFRS 10); IAS 27 governs separate financial statements; IAS 27 applies when not consolidating.

Taxation under IFRS in Italy

IFRS-based accounting records can be used as the basis for calculating income taxes in Italy.

Notes to the financial statements

Explanatory information and significant accounting policies accompanying the primary statements.

Minimum requirements – IAS 1

IAS 1 sets minimum requirements for primary statements and notes, including classification and disclosure rules.