Financial Reporting Standards Explained

IFRS vs GAAP - The Accounting Standards Showdown! Everyone talks about these standards, but few understand their real differences. Let's dive deep into what actually matters 👇 ➡️ THE BASICS IFRS is a set of global accounting standards developed by the International Accounting Standards Board (IASB). Its mission? Creating consistency and transparency in financial reporting across borders. GAAP is a comprehensive set of accounting standards developed by FASB. Known for its detailed, rule-oriented approach that provides specific guidance for various accounting situations. ➡️ PRINCIPLES VS. RULES IFRS takes the flexible route, focusing on professional judgment and economic substance. It's like having principles guide your decisions instead of following a strict rulebook. GAAP? It's all about specific guidelines. Every situation has its rule, every industry its playbook. Less room for interpretation, more focus on consistency. ➡️ REVENUE RECOGNITION Both systems use a 5-step model, but IFRS gives you room to breathe. It focuses on transfer of control and lets you apply broader principles across industries. GAAP draws clear lines in the sand. Each industry gets its own guidelines, and you better follow them to the letter. ➡️ INVENTORY VALUATION IFRS keeps it straightforward - no LIFO allowed, just FIFO or weighted average. Simple, clean, globally consistent. GAAP gives you options. LIFO, FIFO, weighted average - take your pick. Just remember, once you choose, you're committed. ➡️ R&D AND DEVELOPMENT Here's where it gets interesting. IFRS splits research from development - expense the research, but if development will make money, you can capitalize it. GAAP doesn't play that game. Both research and development get expensed, with few exceptions. Simple but perhaps not as reflective of reality. ➡️ IMPAIRMENT TESTING IFRS uses a two-step dance: check for impairment signs, then calculate recoverable amount. The best part? You can reverse impairment losses. GAAP keeps it one-and-done. Once you write it down, it stays down. No second chances, no reversals. ➡️ FINANCIAL STATEMENTS Income statements under IFRS flow with flexibility. Present it how it makes sense for your business. GAAP says stick to the script - specific formats, mandatory line items, no freestyle allowed. Balance sheets? IFRS lets you choose between current/non-current or liquidity order. GAAP wants non-current assets first, no questions asked. ➡️ GLOBAL REACH IFRS dominates globally - from the EU to Australia, Asia to South America. It's the language of international business. === Why does this matter? Because in today's global business world, you'll likely deal with both. Want to work internationally? Learn IFRS. Focused on US markets? Master GAAP. Want to be invaluable? Know both. Which standard do you work with? Drop your experiences below 👇

IFRS 18 is Here: A New Era for Financial Statement Presentation A significant shift in financial reporting is on the horizon. The International Accounting Standards Board (IASB) has issued IFRS 18, a new standard for the presentation and disclosure in financial statements, which will officially replace the long-standing IAS 1. This marks a pivotal moment for preparers and users of financial statements, aiming to enhance comparability and transparency in financial reporting worldwide. Key Changes to Expect: IFRS 18 introduces several key changes designed to improve the structure and content of the statement of profit or loss. The most notable changes include: Defined Categories in the Statement of Profit or Loss: IFRS 18 mandates the classification of income and expenses into three main categories: operating, investing, and financing. This structured approach is intended to provide a more consistent and comparable view of a company's performance. New Required Subtotals: The new standard will require the presentation of two key subtotals in the statement of profit or loss: Operating profit or loss Profit or loss before financing and income tax These defined subtotals will offer a clearer picture of a company's core operational performance. Enhanced Disclosures for Management-Defined Performance Measures (MPMs): Companies will now be required to provide more transparent disclosures about any non-GAAP or alternative performance measures they use. This includes a reconciliation to the nearest IFRS-defined total, bringing greater clarity and discipline to the use of such metrics. Improved Aggregation and Disaggregation: IFRS 18 provides more detailed guidance on how to group and separate information in the financial statements, aiming to strike a better balance between providing sufficient detail without overwhelming users with immaterial information. What This Means for Businesses and Investors: The implementation of IFRS 18 will require companies to review and potentially revise their financial reporting systems and processes to align with the new presentation requirements. This may involve changes to chart of accounts, internal controls, and financial statement templates. For investors and other users of financial statements, IFRS 18 is expected to bring significant benefits. The standardized presentation and enhanced disclosures will facilitate more meaningful analysis and comparison of companies across different industries and jurisdictions. The clearer distinction between operating, investing, and financing activities will provide deeper insights into a company's value creation process. The transition to IFRS 18 presents both a challenge and an opportunity. By embracing these changes, companies can enhance their financial storytelling and provide stakeholders with a more transparent and coherent view of their performance in the new era of financial reporting. #IFRS18 #IFRS #IAS1

Governments globally are bringing in strict new rules, requiring corporates to disclose their #environmental and #social impacts, and how these factors influence their financial performance. Many of these regulations require external #assurance, elevating #ESG performance to a similar level of scrutiny and traditional financial metrics. #CFOs are central to this agenda, but most don't have strong backgrounds in #sustainability and this is a complex and rapidly emerging area. To support CFOs to better understand how to lead their organisations and confidently comply, Deloitte Asia Pacific has released the first paper in our sustainability reporting series, focusing on the CFO's role in navigating these new reporting requirements and driving business value. Key insights from the report include: 💡 With many Asia Pacific countries implementing new disclosure requirements by 2027, CFOs need to understand the implications for their organisations and stakeholders. 💡 32% of organisations report that their CFO is accountable for sustainability reporting, with another 16% sharing this responsibility with the CSO. 💡 60% of organisations are unsure about the resources needed to meet their new #reporting obligations. CFOs have the opportunity to transform compliance into a strategic advantage by embedding sustainability into business governance and decision-making. Read more about what CFOs need to know today in the first of our Asia Pacific Mandatory Sustainability Reporting Series. https://lnkd.in/g_nDJwB8 Paul Dobson Chi Mun Woo Darren Gerber Viral Thakker Hidehito Goda Hussein Hussein Rikki Stancich Andrew Boivin David Hill Dave Kennedy Robert Hillard

🔍📈 𝐅𝐫𝐚𝐦𝐞𝐰𝐨𝐫𝐤 𝐅𝐨𝐫 𝐄𝐪𝐮𝐢𝐭𝐲 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐢𝐧 𝐋𝐞𝐯𝐞𝐫𝐚𝐠𝐞𝐝 𝐂𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬: 𝐀 𝐌𝐮𝐬𝐭-𝐑𝐞𝐚𝐝 𝐟𝐨𝐫 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐏𝐫𝐚𝐜𝐭𝐢𝐭𝐢𝐨𝐧𝐞𝐫𝐬 As valuation professionals, we often face the intricate task of determining the fair value of equity interests in privately held, leveraged companies. My latest LinkedIn article delves deep into this subject, guided by the principles of FASB ASC 820. 𝐇𝐞𝐫𝐞'𝐬 𝐰𝐡𝐲 𝐭𝐡𝐢𝐬 𝐚𝐫𝐭𝐢𝐜𝐥𝐞 𝐢𝐬 𝐚 𝐦𝐮𝐬𝐭-𝐫𝐞𝐚𝐝: - 𝐂𝐨𝐦𝐩𝐫𝐞𝐡𝐞𝐧𝐬𝐢𝐯𝐞 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬: Understand the critical role of fair value measurement from a market participant's perspective and how it impacts transaction decisions. - 𝐃𝐞𝐚𝐥𝐢𝐧𝐠 𝐰𝐢𝐭𝐡 𝐂𝐨𝐦𝐩𝐥𝐞𝐱𝐢𝐭𝐢𝐞𝐬: Grasp the nuances of valuing companies with a mix of debt and equity, and learn how specific terms like change in control provisions can significantly affect equity valuation. - 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐂𝐨𝐧𝐬𝐢𝐝𝐞𝐫𝐚𝐭𝐢𝐨𝐧𝐬: Discover how the expected duration of equity holding and various investment strategies play a pivotal role in determining value. - 𝐏𝐫𝐚𝐜𝐭𝐢𝐜𝐚𝐥 𝐌𝐞𝐭𝐡𝐨𝐝𝐨𝐥𝐨𝐠𝐢𝐞𝐬: Explore how valuation models are calibrated to transaction prices and subsequently adjusted to reflect changes in market conditions and expected cash flows. - 𝐃𝐢𝐯𝐞𝐫𝐬𝐞 𝐒𝐜𝐞𝐧𝐚𝐫𝐢𝐨𝐬 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬: Gain insights into different valuation approaches and scenarios, highlighting the versatility required in equity valuation. - 𝐑𝐢𝐬𝐤 𝐚𝐧𝐝 𝐋𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐅𝐚𝐜𝐭𝐨𝐫𝐬: Learn about incorporating market liquidity, risks, and probability-weighted scenarios, especially in uncertain conditions. - 𝐑𝐞𝐚𝐥-𝐖𝐨𝐫𝐥𝐝 𝐄𝐱𝐚𝐦𝐩𝐥𝐞: Dive into a detailed example of my experience that illustrates these concepts, providing a clear, practical understanding of the valuation process. Whether you're a seasoned professional or new to the field, this article offers valuable knowledge and strategies to enhance your approach to equity valuation in complex financial environments. #EquityValuation #FinancialAnalysis #PrivateCompanies #FASB #ValuationPractitioners #Leverage #MarketAnalysis #ProfessionalDevelopment #FinanceCommunity #valuation

SEC Cybersecurity Incident Disclosure Report Imagine a 60% rise in cyber incidents since new SEC rules. This report dives deep into 75 disclosures from 48 companies (December 2023 and October 2024). ↳ Key Insights: • Less than 10% described the material impact. • 78% disclosed within eight days, with 42% updating their Form 8-K. • One in four breaches were third-party incidents. • Threat actors used SEC rules as extortion tactics, even submitting whistleblower reports. ↳ Authors analyzed these disclosures, focusing on: • Information disclosed about Cybersecurity Incidents. • Methods of disclosure to the SEC. • Future compliance strategies. ↳ Key Findings: • 75% of incidents notified law enforcement. • 13% included press releases or blog references. • 42% filed multiple disclosures for the same incident. ↳ Timing of Disclosures: • 32% within four days of discovery. • 78% within eight days. ↳ Examples of Material Impact: • Bassett Furniture Industries: Business operations affected. • Sonic Automotive: Quarterly results impacted. • First American Financial: Fourth-quarter operations affected. ↳ Industries Affected: • Financial Services • Healthcare • Retail • Technology ↳ Recommendations: • Evaluate and test disclosure controls. • Prepare for SEC enforcement actions. ♻️ Repost this post to help your colleagues today 💬 Leave a comment with your experience ➕ Follow Andrey Gubarev for more posts like this

In the world of CSRD reporting, materiality is a cornerstone concept—but did you know there are three distinct types of materiality tests, each serving a unique purpose?     Here’s a breakdown:   ♟️Material matters:  Identifying material matters ensures you're reporting on the right topics. These topics are identified through a double materiality assessment, which considers both the impact of external factors on your business and your business's impact on external stakeholders. T   📄Material information:  Once you’ve identified your material matters, you need to determine the material information about those matters. This means considering the disclosure requirements of applicable standards and considering what your report users (e.g., investors, customers, regulators) would find relevant and useful for decision-making.    ✅Material misstatement:  Assurance providers will look for whether there has been a material misstatement in your disclosure. This involves evaluating whether the material information that you provided is accurate and reliable, as well as whether you omitted information that should be considered material.    Each type of materiality builds on the other, creating a robust framework for transparent and effective sustainability reporting.     To achieve a CSRD-compliant report, you must pass all three materiality tests: ensuring you’re reporting on the right topics (material matters), providing the right information (material information), and ensuring the accuracy and reliability of the information. By addressing all three, you not only align with regulatory standards but also strengthen stakeholder confidence and enhance the credibility of your disclosures ✅

👀 What will banks have to disclose? In October 2023, the Basel Committee on Banking Supervision (BCBS) issued a public consultation on banks' disclosure of cryptoasset exposures, in which it proposed minimum disclosure requirements.  These are now finalised. 🤔 Why have a common disclosure table and templates? These should support market discipline and reduce information asymmetry. 📕 Structure of the standard (DIS55) The standardised disclosure templates are set out in a new chapter of the Basel Framework: DIS55 Cryptoasset exposures. 📖 Table CAEA: Qualitative disclosure on a bank’s activities related to cryptoassets and the approach used in assessing the classification conditions 📖 Template CAE1: Cryptoasset exposures and capital requirements 📖 Template CAE2: Accounting classification of exposures to cryptoassets and cryptoliabilities 📖 Template CAE3: Liquidity requirements for exposures to cryptoassets and cryptoliabilities DIS55 will replace paragraphs SCO60.128 to SCO60.130 of the Basel Framework. 📗 Changes relative to the consultation proposals 🔶 Materiality The Committee had previously proposed disclosure requirements for banks’ “material” cryptoasset exposures.  But what does this mean? A two-stage definition is now proposed. The materiality threshold would apply to Group 2 cryptoassets reported under Template CAE1 as follows: ➡ Stage 1️⃣ would ascertain whether a bank’s cryptoasset exposures are material at an ✳ aggregate ✳ level. This stage would be met when a bank’s Group 2 exposure limit calculated in accordance with SCO60.116 to SCO60.119 is equal to or greater than 0.3%. ➡ Stage 2️⃣ would be met when a bank’s exposure to an ✳ individual ✳ Group 2 cryptoasset is greater than 5% of total Group 2 cryptoasset exposures. 🔶 Disclosure based on average daily values The Committee is proceeding with disclosure using average daily values. Minimum prudential requirements need to be met at all times and not only at the end of the reporting period. To ensure that users of Pillar 3 data have a complete picture of banks’ exposures to cryptoassets, the use of average daily values will be required for the disclosure of Group 2a and Group 2b cryptoassets under template CAE1. 🔶 Treatment of Group 1a cryptoassets The Committee had previously proposed that banks report credit and market risks arising from Group 1a exposures (i.e. tokenised assets) under template CAE1, and the liquidity requirements for Group 1a exposures under template CAE3. It will proceed with this proposal. Although separate disclosure could become unnecessary if tokenisation grows significantly, the Committee considers it important for banks to report these exposures separately. Separate disclosure allows Pillar 3 users to monitor the evolution in banks’ exposures to tokenised assets as well as the application of the infrastructure risk add-on.  …. Various other amendments have been incorporated into the final standard. Thoughts? 👇

Overview of data requirements of ESRS: The information companies need to provide, assess and report if they find ESRS material (high-level summary) The European Sustainability Reporting Standards (ESRS), under the Corporate Sustainability Reporting Directive (CSRD), provide a structured framework for companies to disclose sustainability-related information. This chart presents reporting requirements across ESRS, categorizing sustainability topics into environmental (E), social (S), and governance (G) dimensions, including sub-topics. However, this is not the full picture, as companies must also conduct a materiality assessment to provide relevant information for stakeholders. It highlights where policies, actions, targets, transition plans, and key metrics are mandatory. At a topical level, if an organization deems a data point immaterial, it does not have to report on it. A sustainability topic must typically be reported under a specific disclosure requirement to become actionable. Reliable reporting requires diligent systems, operating procedures, and data manuals. Companies must conduct a double materiality assessment to determine whether a sustainability matter has a significant financial impact or affects people and the environment. The chart outlines ESRS reporting requirements, including policies, actions, targets, and transition plans. For example, Environmental Topics (E1-E5) require both policies and targets for CSRD compliance and GHG reductions, and a reporting on plans, investments, and levers (by e.g., including CapEx and OpEx-planning from EU taxonomy). Gaps exist between commitments and implementation. However, since CSRD is a reporting directive, it does not mandate specific actions. Sustainability reporting must go beyond commitments and include measurable actions. Each policy should have specific objectives linked to measurable targets for accountability. The Social Standards (ESRS S1-S4) and Governance Standard (G1) are policy-based. CSRD and ESRS require reporting on human rights, labor conditions, and social responsibility, referencing OECD and UNGP. SMEs must prepare for extended supplier reporting obligations. Policies must be implemented via transition or action plans to support long-term sustainability. Companies must assign accountability for each material sustainability matter. Hopefully once implemented and transposed, the Corporate Sustainability Due Diligence Directive (CSDDD) will work alongside CSRD, requiring businesses to integrate ESG into corporate governance. Looking forward to see a lot of new ESRS reports in the coming months!

IFRS 18: The New Standard That Replaces IAS 1 What’s Changing and Why It Matters. The IASB has issued IFRS 18 Presentation and Disclosure in Financial Statements, which replaces IAS 1 Presentation of Financial Statements. This is the biggest change to how financial statements are presented in over 15 years. The aim is to bring more clarity, consistency, and comparability to financial reports across companies and industries. Here’s what’s changing under IFRS 18: • Companies must now present specific required subtotals in the statement of profit or loss. These include: Operating profit, Profit before financing and income taxes & Profit before income taxes • Income and expenses must be grouped into three main categories: > Operating > Investing > Financing This is similar to the structure of the statement of cash flows and will help users better understand performance. • If companies present management performance measures (MPMs) like adjusted profit or EBITDA, they must: > Define them clearly > Reconcile them to IFRS numbers > Explain their purpose • The presentation of cash flows will now align with the new profit or loss categories, improving consistency across the financial statements. When does IFRS 18 apply? • IFRS 18 is effective for annual periods beginning on or after 1 January 2027. Early adoption is permitted. Why this matters: • It helps investors and analysts compare companies more easily • It increases transparency and discipline in how performance is reported • It means finance teams need to plan ahead for changes to reporting processes and systems If your business is preparing for IFRS 18, now is the time to start assessing the impact and updating your internal reports and systems. Let’s connect if you’d like guidance on transitioning smoothly to IFRS 18 or improving your financial reporting. #IFRS18 #IAS1 #FinancialReporting #AccountingStandards #IFRSUpdate #FinanceTransformation #CPA #ACCA #CFO #FinancialStatements

Updated!! Applying IFRS: A closer look at IFRS 18 This updated version of our July 2024 publication on the same topic, includes new illustrations as well as frequently asked questions arising out of discussions in practice, covering a range of issues relating to all aspects of the new requirements in IFRS 18. IFRS 18 is effective for reporting periods beginning on or after 1 January 2027. It introduces several new requirements that are expected to impact the presentation and disclosure of most, if not all, entities. These include: The requirement to classify all income and expense into specified categories and provide specified totals and subtotals in the statement of profit or loss. Enhanced guidance on the aggregation, location and labelling of items across the primary financial statements and the notes. Mandatory disclosures about management-defined performance measures (a subset of alternative performance measures). IFRS 18 also makes consequential amendments to other accounting standards, including IAS 7 Statement of Cash Flows, IAS 33 Earnings per Share and IAS 34 Interim Financial Statements. https://bit.ly/4m4LHrl