IFRS (International Financial Reporting Standards)

1. IFRS 1: First-time Adoption of International Financial Reporting Standards

o Objective: Ensures consistency and comparability in the financial

statements of entities transitioning to IFRS for the first time.

o Key Sections:

▪ Opening IFRS Statement of Financial Position: Entities must

present an opening balance sheet as of the transition date,
reflecting all IFRS requirements.

▪ Exemptions: Entities can apply certain exemptions (e.g., business

combinations, share-based payments) to ease the transition.

▪ Reconciliation: Requires reconciliation between previous GAAP

and IFRS financial statements to explain adjustments.

2. IFRS 2: Share-based Payment

o Objective: Prescribes accounting for share-based payments, where

entities grant shares or share options to employees or other parties.

o Key Sections:

▪ Equity-Settled Share-based Payments: Recognize the fair value

of goods or services received at the grant date of equity
instruments.

▪ Cash-Settled Share-based Payments: Measure the liability at the

fair value of the cash or other assets to be transferred.

▪ Vesting Conditions: Include performance conditions that affect

the number of shares granted.

3. IFRS 3: Business Combinations

o Objective: Establishes the accounting treatment for business

combinations, including the acquisition of subsidiaries or other entities.

o Key Sections:

▪ Acquisition Method: Requires recognition of identifiable assets,

liabilities, and any non-controlling interest at fair value.

▪ Goodwill Calculation: Goodwill is calculated as the excess of the

purchase consideration over the fair value of identifiable net
assets acquired.
 ▪ Contingent Consideration: Recognize and measure contingent
consideration at fair value on the acquisition date.

4. IFRS 7: Financial Instruments: Disclosures

o Objective: Provides disclosure requirements to help users understand

the significance of financial instruments and associated risks.

o Key Sections:

▪ Risk Disclosures: Includes credit risk, liquidity risk, and market

risk disclosures.

▪ Fair Value Measurement: Requires disclosures about the

methods and assumptions used in measuring fair value.

▪ Hedging Activities: Disclose information about hedging

relationships and their impact on financial statements.

5. IFRS 9: Financial Instruments

o Objective: Addresses the classification, measurement, and recognition

of financial assets and liabilities.

o Key Sections:

▪ Classification and Measurement: Financial assets are classified

into categories based on the entity’s business model and cash
flow characteristics.

▪ Impairment: Introduces an expected credit loss model, requiring

entities to recognize impairment losses based on future credit loss
expectations.

▪ Hedge Accounting: Aligns hedge accounting with risk

management activities, improving the effectiveness of hedge
accounting.

6. IFRS 15: Revenue from Contracts with Customers

o Objective: Provides a comprehensive framework for revenue recognition,

aiming for consistency and comparability.

o Key Sections:

▪ Five-Step Model:

1. Identify the Contract: Recognize contracts with

customers.
 2. Identify Performance Obligations: Distinguish distinct
goods or services promised.

3. Determine Transaction Price: Determine the amount of

consideration to be received.

4. Allocate Transaction Price: Allocate the transaction price

to performance obligations based on their relative
standalone selling prices.

5. Recognize Revenue: Recognize revenue when (or as) the

entity satisfies a performance obligation.

▪ Contract Modifications: Adjust revenue recognition for

modifications to contracts.

7. IFRS 16: Leases

o Objective: Provides a unified model for lease accounting, requiring

lessees to recognize assets and liabilities for all leases.

o Key Sections:

▪ Lessee Accounting: Requires recognition of a right-of-use asset

and lease liability on the balance sheet, representing the present
value of lease payments.

▪ Lessor Accounting: Classify leases as operating or finance

leases, with different accounting treatments.

▪ Lease Modifications: Account for changes to lease terms and

payments.

8. IFRS 17: Insurance Contracts

o Objective: Establishes a comprehensive accounting model for insurance

contracts.

o Key Sections:

▪ Measurement Models:

▪ General Measurement Model (GMM): Includes estimates

of future cash flows, discount rates, and risk adjustments.

▪ Premium Allocation Approach (PAA): Simplified approach

for short-term insurance contracts.

▪ Disclosure Requirements: Extensive disclosures on insurance

contract liabilities and the impact on financial performance.
GAAP (Generally Accepted Accounting Principles)

1. ASC 606: Revenue from Contracts with Customers

o Objective: Provides a framework for revenue recognition similar to IFRS

15.

o Key Sections:

▪ Five-Step Model: Similar to IFRS 15, with steps for identifying

contracts, performance obligations, and transaction prices.

▪ Contract Costs: Provides guidance on capitalizing and amortizing

costs to obtain or fulfill contracts.

2. ASC 842: Leases

o Objective: Updates lease accounting, similar to IFRS 16, focusing on

balance sheet recognition for lessees.

o Key Sections:

▪ Lessee Accounting: Requires recognition of a right-of-use asset

and lease liability for operating leases.

▪ Lessor Accounting: Continues to classify leases as operating or

sales-type/direct financing leases.

▪ Practical Expedients: Allows certain practical expedients for

transition.

3. ASC 740: Income Taxes

o Objective: Addresses accounting for income taxes, including the

recognition of current and deferred tax assets and liabilities.

o Key Sections:

▪ Current vs. Deferred Taxes: Recognize current tax

liabilities/assets and deferred tax liabilities/assets based on
temporary differences.

▪ Uncertain Tax Positions: Provides guidance on how to recognize

and measure uncertain tax positions.

4. ASC 805: Business Combinations

o Objective: Similar to IFRS 3, focusing on the accounting for business

combinations.

o Key Sections:
 ▪ Acquisition Method: Recognizes identifiable assets and liabilities,
and measures goodwill or gain from a bargain purchase.

▪ Contingent Consideration: Measures and recognizes contingent

consideration at fair value.

5. ASC 820: Fair Value Measurement

o Objective: Provides guidance on measuring fair value and related

disclosures.

o Key Sections:

▪ Fair Value Definition: Defines fair value as the price that would be
received to sell an asset or paid to transfer a liability.

▪ Valuation Techniques: Includes market, income, and cost

approaches to measuring fair value.

▪ Disclosure Requirements: Requires disclosures about the inputs

and valuation techniques used.

Key Concepts

• Revenue Recognition: Understand the criteria for recognizing revenue, including

when performance obligations are satisfied.

• Leases: Familiarize yourself with the distinction between operating and finance
leases, and the impact of lease accounting on the balance sheet.

• Fair Value Measurement: Be able to explain how fair value is determined and
the different valuation techniques.

• Consolidation: Know the principles of consolidating subsidiaries, joint ventures,

and associates, including how to prepare consolidated financial statements.

• Impairment: Understand the process for testing assets for impairment and
measuring impairment losses.

Recent Changes

• Stay updated on recent amendments to these standards, including any updates

or new interpretations that may affect financial reporting.