RULES change. They adapt to evolving circumstances, reshaping themselves in response to new challenges and realities. Change necessitates adaptation and through adaptation, rules evolve to remain relevant and effective.
Rules under the International Financial Reporting Standards (IFRS) continue to change, aiming to enhance reliability and faithful representation of financial information.
As we close 2024, we prepare financial reports in compliance with the accounting standards effective for the reporting period. Simultaneously, we plan for and assess the financial impact of standards issued but not yet effective as of Dec. 31, 2024. Notably, IAS 1: Presentation of Financial Statements mandates the disclosure of these forthcoming standards.
As of today, the International Accounting Standards Board has issued several IFRS and amendments effective Jan. 1, 2025 onward. Following is a summary of these pronouncements, which may significantly impact financial reporting from 2025 and beyond.
Effective for annual periods beginning on or after Jan. 1, 2025 is the lack of exchangeability or amendments to IAS 21: The Effects of Changes in Foreign Currency Exchange Rates). The changes to IAS 21 provide guidance on determining currency exchangeability and the appropriate accounting treatment when it is not. A currency is exchangeable if it can be converted in the foreign exchange market at a spot rate for immediate settlement. If exchangeability is lacking, an estimated exchange rate must be used, reflecting the rate that would apply if the currency were exchangeable.
Effective for annual periods beginning on or after Jan. 1, 2026, meanwhile, are amendments to the classification and measurement of financial Instruments (Amendments to IFRS 9 and IFRS 7). They address issues from the post-implementation review of IFRS 9. They clarify that financial liabilities settled via electronic payment systems are derecognized when the payment system irrevocably settles the obligation, typically when the entity no longer controls the cash used for settlement.
The amendments also provide guidance on environmental, social, and governance-linked financial assets, requiring assessment under the “solely payments of principal and interest” test. Assets failing the test are measured at fair value through profit or loss, while those passing may qualify for amortized cost or fair value through other comprehensive income.
Also effective starting 2026 is the Annual Improvements to IFRS Accounting Standards – Volume 11. This set includes minor amendments to 5 standards, aiming to enhance clarity and consistency:
– IFRS 1: First-time Adoption of International Financial Reporting Standards, which simplifies transition by permitting the use of cumulative translation differences from the previous GAAP as the deemed cost for translation adjustments.
– IFRS 7: Financial Instruments: Disclosures aligns the disclosure requirements with IFRS 9 for financial instruments with ESG-linked features.
– IFRS 9: Financial Instruments resolves classification inconsistencies and clarifies the treatment of fees for financial liability modifications, promoting greater consistency and accuracy in its application.
– IFRS 10: Consolidated Financial Statements clarifies accounting for asset sales or contributions between an investor and its associate or joint venture after a loss of control, ensuring consistency in consolidation and equity method adjustments.
– IAS 7: Statement of Cash Flows clarifies the classification of cash flows for interest paid and received under IFRS 9’s hedge accounting, improving transparency for entities using hedging activities.
Effective for annual periods beginning on or after Jan. 1, 2027, lastly are:
– IFRS 18: Presentation and Disclosure in Financial Statements that introduces defined profit or loss subtotals, requires disclosure of management-defined performance measures, and establishes principles for information aggregation.
– IFRS 19: Subsidiaries without Public Accountability, which allows eligible subsidiaries to use IFRS with reduced disclosure requirements if they lack public accountability.
Early adoption is a notable feature of newly issued standards, provided that appropriate disclosure is included in the financial statement notes. However, most entities choose to implement these standards only upon their effective date.
The accounting cycle is a continuous process, where the conclusion of one sets the foundation for the next. Ending balances transition into the new financial year as beginning balances, ensuring continuity. As we close one financial year, we prepare for the next, embracing new accounting standards that may significantly shape future financial reporting.
In this era of technological advancement, accountants remain pivotal in financial reporting. However, success belongs to those who are well-equipped with up-to-date knowledge, reliable competence, and a commitment to continuous learning.
Let us move forward, ready to adapt to new rules and proactively assess their financial impact, ensuring we are prepared for the challenges and opportunities ahead.
Floyd C. Paguio, CPA, MBA, is the chairman of Paguio, Dumayas & Associates, CPAs (PDAC), the Philippine member firm of PrimeGlobal International. He is also an assistant professor at the University of Perpetual Help Las Piñas and the author of several intermediate accounting textbooks. Previously, he held leadership roles as a national director of ACPAPP and a trustee of the ACPAPP Foundation. The views and opinions expressed are his own and do not reflect those of the institutions mentioned.
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