Introduction

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 What is IFRS?
 IFRS: International Financial Reporting Standards
◦ single-set of high quality
◦ globally accepted and enforced set of standards that require
◦ high quality, transparent and Comparable information in financial
statements
◦ issued by IASB [International Accounting Standards Board]
• Those Standards prescribe:
the items that should be recognized as assets, liabilities, income and
expense
how to measure those items;
how to present them in a set of financial statements; and
related disclosures about those items.

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 Principles-Based Standards
IFRS are referred to as being principles-based standards
• Provide core principles (objectives) with minimum
guidance.
• Results in accounting that is more flexible to deal with
unique economic and business circumstances
• The judgments are expected to be consistent with
clear conceptual framework
• They are more loosely framed, allowing for
professional judgment to be applied
• Some argue that allowing professional judgment
introduces bias
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 Why IFRS?

• Investors are acting on a global market !!

• National standards don’t work on a global market

• Cross boarder business is hindered by national

standards

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 Benefits of IFRS

• Credibility of local market to foreign investors

• More cross-border investment

• Efficient capital allocation

• Comparability across political boundaries

• Facilitates global education and training

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 Benefit of IFRS

• Lower cost of capital

• Facilitates raising capital abroad

• Integrated IT systems

• One set of books + easier consolidation

• Better understanding of financial statements from
business partners abroad

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 IFRS Adoption

• Many countries (more than 126) have converted to IFRS

and conversions are imminent for other countries
• IFRS Standards are applied by domestic companies in
150 jurisdictions
• 126 of the 150 jurisdictions require IFRS  for all or most
domestic publicly accountable entities (listed companies
and financial institutions).

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 IFRS in Ethiopia

• Ethiopia passed a financial reporting law in 2014

which requires the use of IFRS by commercial
businesses operating in Ethiopia.

Proclamation No. 847/2014

Regulation No. 332/2014

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 IFRS in Ethiopia

The proclamation requires:

• Commercial organizations to follow
 International Financial Reporting Standards (IFRS),
or
 International Financial Reporting Standards for
Small and Medium Enterprises (IFRS for SME)
• Charities and societies to follow International Public
Sector Accounting Standards (IPSAS)
• Public auditors to follow International Standards for
Auditing.
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 IFRS in Ethiopia

• Public interest entity (PIE) should use the full IFRS.

• A PIE is a reporting entity that is of significant public
relevance because of the:
• nature of its business,
• its size,
• its number of employees.
• PIE also includes banks, insurance companies, and any
other financial institutions and public enterprises.
• Small or medium enterprises (SME)= Not public interest
entity

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 Structure, strategic plan, & roadmap of AABE

• Accounting and Auditing Board of Ethiopia is

established by Regulation No. 332/2014

• It is an autonomous government organ accountable to

MOFEC.

• It is headed by the Director General

• It has 12-member Board of Directors

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 AABE duties (among others)

• Issue standards and directives relating to financial

reporting and auditing and ensure their compliance.

• Receive and register financial statements of reporting

entities

• Review and monitor the accuracy and fairness of FS to

enforce compliance with the reporting standards

• Register and license public auditors

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 AABE duties (among others)

• Oversee professional accountancy bodies

• Establish, publish and review a code of professional

conduct and ethics for certified public accountants and
certified auditors

• Conduct or arrange for the conduct of professional

examination for the purpose of registering certified
public accountants
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Back to IFRS

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 IASB and IFRS

• IFRS is developed by the International Accounting Standards Board (IASB),

which operates under the oversight of the IFRS Foundation.

• IASB was formerly called International Accounting Standards Committee

(IASC)

• IASB is based in London

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How IASB Works

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Standards Development Process

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List of Applicable IFRS

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List of Applicable IFRS

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IFRS Comprises

International Accounting
Standards (IAS)

International Financial Reporting

Standards (IFRS)

Standing Interpretations
Committee (SIC)

International Financial Reporting

Interpretations Committee
(IFRIC)
 International Accounting Standards (IAS)

• IAS 1: Presentation of Financial Statements

• IAS 2: Inventories

• IAS 7: Statement of Cash Flows

• IAS 8: Accounting Policies, Changes in Accounting

Estimates and Errors

• IAS 10: Events after the Reporting Period

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 International Accounting Standards (IAS)

• IAS 12: Income Taxes

• IAS 16: Property, Plant and Equipment
• IAS 19: Employee Benefits
• IAS 20: Accounting for Government Grants and
Disclosure of Government Assistance
• IAS 21: The Effects of Changes in Foreign Exchange
Rates
• IAS 23: Borrowing Costs
• IAS 24: Related Party Disclosures

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 International Accounting Standards (IAS)

• IAS 26: Accounting and Reporting by Retirement Benefit

Plans
• IAS 27: Separate Financial Statements

• IAS 28: Investments in Associates and Joint Ventures

• IAS 29: Financial Reporting in Hyperinflationary Economies

• IAS 32: Financial Instruments: Presentation

• IAS 33: Earnings per Share

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 International Accounting Standards (IAS)

• IAS 34: Interim Financial Reporting

• IAS 36: Impairment of Assets

• IAS 37: Provisions, Contingent Liabilities and Contingent
Assets
• IAS 38: Intangible Assets
• IAS 40: Investment Property
• IAS 41: Agriculture

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 International Financial Reporting Standards

• IFRS 1: First-time Adoption of International Financial

Reporting Standards
• IFRS 2: Share-based Payment
• IFRS 3: Business Combinations
• IFRS 4: Insurance Contracts (will be superseded by IFRS
17 as of 1 January 2021)
• IFRS 5: Non-current Assets Held for Sale and
Discontinued Operations
• IFRS 6: Exploration for and Evaluation of Mineral
Resources
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 International Financial Reporting Standards

• IFRS 7: Financial Instruments: Disclosures

• IFRS 8: Operating Segments

• IFRS 9: Financial Instruments

• IFRS 10: Consolidated Financial Statements

• IFRS 11: Joint Arrangements

• IFRS 12: Disclosure of Interests in Other Entities

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 International Financial Reporting Standards

• IFRS 13: Fair Value Measurement

• IFRS 14: Regulatory Deferral Accounts

• IFRS 15: Revenue from Contracts with Customers

• IFRS 16: Leases

• IFRS 17: Insurance Contracts (replaces IFRS 4 as of

January 1, 2021)

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 IFRS Interpretations Committee
Interpretations (IFRIC)

• IFRIC 1: Changes in Existing Decommissioning, Restoration and

Similar Liabilities
• IFRIC 2: Members’ Shares in Co-operative Entities and Similar
Instruments
• IFRIC 5: Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds

• IFRIC 6: Liabilities arising from Participation in a Specific

Market – Waste Electrical and Electronic Equipment

• IFRIC 7: Applying the Restatement Approach under IAS 29

Financial Reporting in Hyperinflationary Economies
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 IFRS Interpretations Committee
Interpretations (IFRIC)

• IFRIC 9: Reassessment of Embedded Derivatives

• IFRIC 10: Interim Financial Reporting and Impairment

• IFRIC 12: Service Concession Arrangements
• IFRIC 14: IAS 19 – The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction

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 IFRS Interpretations Committee
Interpretations (IFRIC)

• IFRIC 16: Hedges of a Net Investment in a Foreign

Operation
• IFRIC 17: Distributions of Non-cash Assets to Owners
• IFRIC 19: Extinguishing Financial Liabilities with Equity
Instruments
• IFRIC 20: Stripping Costs in the Production Phase of a
Surface Mine
• IFRIC 21: Levies

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 Standing Interpretations Committee
Interpretations (SIC)

• SIC-7: Introduction of the Euro

• SIC-10: Government Assistance – No Specific Relation to

Operating Activities

• SIC-25: Income Taxes – Changes in the Tax Status of an Entity

or its Shareholders
• SIC-29: Service Concession Arrangements: Disclosures
• SIC-32: Intangible Assets – Web Site Costs

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 The Conceptual Framework
of
Financial Reporting under IFRS

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 Meaning of the Conceptual Framework
Conceptual Framework sets out the concepts that
underlie IFRS financial statements
• It comprises of:
 the objective of general purpose financial reporting
 qualitative characteristics
 elements of financial statements
 recognition
 measurement
 presentation and disclosure
• Other concepts all flow from the objective
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 Purpose of the Conceptual Framework
• To assist IASB in setting and revising standards
• To assist preparers to make the judgements that are
necessary to apply IFRSs
• To assist auditors and regulators assess judgments of
preparers
• To assist users to consider those judgments when
using IFRS financial information to inform their
decisions
• To assist in understanding of standard-setting by IFRS
• To reduce conflicts between Framework and
Standards
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 Objective of General Purpose
Financial Reporting

“Provide financial information about the reporting

entity that is useful to existing and potential investors,
lenders and other creditors in making decisions about
providing resources to the entity”

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 Objective of General Purpose
Financial Reporting

• To provide information about

 Economic resources and claims (SFP)
 Changes in economic resources and claims
(SPLOCI)
 Financial performance reflected by past cash
flows (SCF)
 Changes in economic resources and claims not
resulting from financial performance (SCE)

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Qualitative Characteristics of Useful Financial
Information

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 Qualitative Characteristics of Useful Financial
Information
• Relevance: Capable of making a difference in users’
decisions
predictive value
confirmatory value
materiality (entity-specific)
• Faithful representation: Faithfully represents the
phenomena it purports to represent
completeness (depiction including numbers and
words)
neutrality (unbiased)
free from error (ideally) 39
 Qualitative Characteristics of Useful Financial
Information
• Comparability: like things look alike; different things look
different
• Verifiability: knowledgeable and independent observers
could reach consensus, but not necessarily complete
agreement, that a depiction is a faithful representation
• Timeliness: having information available to decision-
makers in time to be capable of influencing their
decisions
• Understandability: Classify, characterize, and present
information clearly and concisely
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 Elements of Financial Statements

Income
Asset
• recognised increase in
• resource controlled by the
asset/decrease in liability in
entity
current reporting period
• result of past event
• that result in increased equity
• expected inflow of economic except contributions from
benefits owners
Liability Expense
• present obligation • recognised decrease in
• arising from past event asset/increase in liability in
current reporting period
• expected outflow of economic
benefits • that result in decreased equity
Equity = assets less liabilities except distributions to owners
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 Financial Statements

 A statement of financial position as at the end of the

period
 A statement of profit or loss and other
comprehensive income for the period
 A statement of changes in equity for the period
 A statement of cash flows for the period
 Notes, comprising
 A summary of significant accounting policies

 Other explanatory information

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 IFRS for SMEs

• Final standard issued 9 July 2009

• 230 pages (vs. 3,000+ in full IFRS)

• Simplified IFRSs, but built on an IFRS foundation

• Completely stand-alone and divided into 39 Sections

• Designed specifically for SMEs

• Internationally recognized

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 How simplified

1. Some topics in IFRSs omitted if irrelevant to

private entities
2. Where IFRSs have options, include only simpler
option
3. Recognition and measurement simplifications
4. Reduced disclosures
5. Simplified drafting

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 Who are SMEs?

• Small or medium enterprise is:

 A reporting entity, and

 is not a public interest entity

• Quantitative Thresholds for Full IFRS Adoption

• More than 50 Million annual turnover
• More than 100 Million Total Asset
• More than 100 Million Total Debt
• Over 100 Employees

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