What is IFRS Impact Assessment?

When a new International Financial Reporting Standard (IFRS) gets introduced or there is a revision in the existing standard, its impact on the financial statements needs to be assessed. An assessment is performed to understand the impact on measurement, recognition, and disclosure on the assets, liabilities, revenue and expenses of an entity. The International Accounting Standards Board (IASB) either issues new IFRS or reissues the existing ones with suitable modifications from time to time to cope with the new challenges in the economy, rectify the probable errors in the financial statements or for their better presentation.

Such newly issued or reissued IFRS become effective from the date as specified by the IASB.

How can the impact be recorded?

• When a new or revised accounting standard is implemented, it may call for a change in the value of an item in the financial statement because of the change in the measurement of the item.
• In some cases, there may be no change required in the financial statement figures, but only the disclosures made therein.
• In certain cases, items which weren’t needed to be recorded in the financial statements may now require to be accounted for.
• In some other cases, there could be an impact on both financial figures as well as the disclosures made in the financial statements.

Why is it important to conduct an IFRS impact assessment?

An IFRS impact assessment can prove beneficial for the stakeholders and the prospective investors to get a fair idea on the impact of such new or revised IFRS on the business of the entity. This is the reason why organisations must conduct an IFRS impact assessment before the closing of the financial year.

Information needed to carry out IFRS impact assessment

• Audited financial statements for the previous two financial years
• Contracts, Agreements and necessary invoices
• Details of contract revenue, costs in the previous year, anticipated projects for the current year, etc.
• Accounting manuals, if used by the management
• Assets and Liabilities with their detailed classifications
• Details of all the contracts entered by the company with its customers. These include written as well as verbal contracts.
• Other necessary information, as and when required during the course of the IFRS impact assessment procedure.

Following are some of the relevant IFRS where we provide IFRS impact assessment services:
IFRS 15 Impact Assessment (Revenue from contracts with customers)

• Identifying when to recognise revenues.
• Identifying the contract with customers and performance obligation.
• Based on the criteria laid out in IFRS 15, analysing whether performance obligations are being carried out as stipulated.
• Verification of transaction price and recognition of contract costs.
• Evaluation of revisions needed in the estimates, if any.
• Checking if there is any need to modify the contracts with the customers to comply with IFRS 15.
• Evaluating if there are any modifications or updates required in the IT systems.
• Comparison of accounting policies and various accounting treatments in the previous year with the current year.

IFRS 16 Impact Assessment (Leases)
It will broadly cover the following areas:

• Disclosure requirements as per the new or reissued standards.
• Any asset is given to other parties on a lease.
• Any plant & equipment or property whether hired or acquired from a third party.
• Lease amortisation, if any.
• Lease accounting review, if needed.

IFRS 9 Impact Assessment (Financial Instruments)
It will broadly cover the following areas:

• Disclosure requirements as per the new or reissued standards.
• Based on the three stages impairment model, impairment of liabilities and assets.
• Financial Assets and Liabilities with their detailed classification.

As per IFRS 9, one of the requirements to be reported is the need for an impairment allowance. It should be done on regular intervals, and any change in the allowance must be reflected in the profit and loss account.

Musthafa Abdul Hameed Auditing of Accounts is an esteemed CA firm with its offices in India and the UAE. We offer a wide range of audit and assurance services including internal audits, statutory audits, VAT audits and more.

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