Four Basic Features of IFRS with Relevant Examples

This report discusses the four basic features of IFRS (International Financial Reporting Standards) with relevant examples. It emphasizes the importance of developing quality financial reports and providing accurate information for decision-making. The four basic features of IFRS are understandability, relevance, reliability, and comparability. Complying with these features helps improve the integrity and transparency of financial reporting.

Four Basic Features Of IFRS With A Relevant Example For Each
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Introduction
It has become highly essential for the business entities around the world to develop and
comply with the relevant accounting standards and policies stated by the IFRS (International
Financial Reporting Standards). This is required by businesses for developing quality financial
reports and providing accurate depiction of their financial position to assist the present and
potential investors in decision-making. In this context, this report has discussed the four basic
features of IFRS along with their relevant examples to provide proper understanding of its
essential features.
Four Basic Features of IFRS with the Relevant Examples
International Financial Reporting Standards (IFRS) are the accounting standards and
policies that are developed for providing a common global language for businesses to report their
financial reports. In this context, it has provided some basic features that need to be present
within financial reports for improving its quality for decision-making. The four basic features of
IFRS can be discussed as follows:
Understandability
The understandability characteristic of financial reporting as per the IFRS gas stated that
the information provided in the financial statements by an entity must be presented in a clear
format so that it can be easily understood by the end-users. The end-users of financial report
include investors, creditors, lenders and borrowers. For example, the annual reports of business
entities discloses the information regarding the accounting policies and methods that are used for
developing the values of key financial items such as assets, liabilities, retune, expenses, sales and
others. The business entities complying with IFRS are required to develop and disclose relevant
financial information in the notes section of the financial reports. The additional information
provided in the notes section of the annual report of businesses helps the investors in clarifying
the methods adopted to prepare various sections of the financial statements (IFRS Conceptual
Framework, 2018).
Relevance
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The IFRS standards have also made it essential for business entities to provide relevant
financial information. The relevancy criteria require that the financial information must be able
to provide a depiction of both its present and expected future financial performance. The
predictive value requires that the financial information must be able to provide an analysis of its
present financial performance while confirmatory value requires that the financial results must be
able to provide an assurance of its present financial position. For example, the income statement
of a business entity complying with the IFRS accounting standards provides information relating
to business revenue. The revenue information is able to provide a depiction of both the present as
well as future financial performance of a business entity (Christian and Lüdenbach, 2013).
Reliability
The reliability feature of the financial reporting requires that the financial information
must be free from any materialistic error to ensure that the investors receive accurate information
for taking decisions. The financial information should not be misleading and therefore requires
that the financial reports must be able to faithfully represent the nature of financial transactions
depicted within the financial reports (PKF International Ltd, 2017). For example, the financial
report of business entities in order to comply with IFRS requires to provide proper disclosure
regarding the estimates and uncertainties that are adopted for development and presentation of
financial statements. Also, the business entities are also required to include auditor’s statement
within the financial report. The incorporation of such auditor report is required to ensure that the
key value of financial items depicted within the financial reports are free from any type of
materialistic error and is complete in all aspect to assist the decision-making process of investors
(Schroeder, Clark and Cathey, 2016).
Comparability
The financial information must be comparable for providing assistance to the end-users
regarding the current trends in the financial growth of an entity. This requires that the
information must be disclosed in a comparable format in the financial statements so that end-
users can easily identify the percentage growth realized by an entity as compared with the
previous year. The business entities prepare financial statements in a comparable format over the
previous two years financial periods. This will help in easily depicting the percentage of increase
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or decline in the key value of its financial statements in comparison to the past years (Macve,
2015).
Conclusion
It has been stated from the overall analysis carried out in the report that business entities
complying with UFRS are able to improve the quality of their financial reporting. This is because
financial reporting as per the IFRS standards is done as per the qualitative features of
understandability, relevance, reliability and comparability. The adoption of these qualitative
features helps in improving the integrity and transparency in financial reporting and ensuring the
protection of the interests of the stakeholders.
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References
Christian, D. and Lüdenbach, N. 2013. IFRS Essentials. US: John Wiley & Sons.
IFRS Conceptual Framework. 2018. Conceptual Framework for Financial Reporting. [Online].
Available at: https://www.ifrs.org/-/media/project/conceptual-framework/fact-sheet-project-
summary-and-feedback-statement/conceptual-framework-project-summary.pdf [Accessed on: 20
April 2019].
Macve, R. 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision
Tool, or Threat. UK: Routledge.
PKF International Ltd. 2017. Wiley IFRS 2017: Interpretation and Application of IFRS
Standards. US: John Wiley & Sons.
Schroeder, R.G., Clark, M. and Cathey, J.M. 2016. Financial Accounting Theory and Analysis:
Text and Cases. US: Wiley.
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