The Essentials aims to increase investors’ awareness of IFRS and enhance the insights they obtain when analysing information produced by IFRS financial statements. Each issue aims to provide an overview of how a specific accounting Standard (or aspect of it) is relevant to financial statement analysis.
Issue No. 1 offers an insight on IAS 7 that covers the cash flow statement and discuss how it plays a role as an input in commonly used methods of assessing a company’s cash-generating capabilities. A statement of cash flows provides investors with information about cash inflows and outflows and the resulting change in cash and cash equivalents.
Issue No. 2 offers a perspective on IAS 1 that covers how companies present their financial information and discuss how investors can use this Standard to encourage companies to communicate with candour in financial reporting. IAS 1 Presentation of Financial Statements sets out the overall requirements for the presentation of financial statements. One of the features of this IFRS is that it includes guidelines for the structure and content of financial statements, including information about the statement of profit or loss and other comprehensive income (P&L and OCI) and the statement of financial position (balance sheet).
Comparing the financial statements of banks across the globe can be a tricky exercise, because the size of the balance sheets can differ significantly depending on whether they are prepared under IFRS or US GAAP. One of the primary reasons for this is that IFRS and US GAAP have different offsetting requirements. This usually results in IFRS balance sheets for banks ‘appearing’ to be larger (all else being equal). Issue No. 3 explains the reason for this difference and how required note disclosures can give investors the information they need.
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