What Are the New IFRS Standards Effective from January 2024?

International Financial Reporting Standards

As businesses worldwide strive to maintain transparency and consistency in financial reporting, the International Financial Reporting Standards (IFRS) play a pivotal role. Effective from January 2024, several new IFRS standards and amendments aim to improve financial clarity, harmonize global practices, and address contemporary business challenges. For organizations adhering to IFRS, staying updated on these changes is crucial for compliance and accurate reporting.

This blog delves into the new IFRS standards effective in 2024, their implications, and how businesses can prepare to implement them seamlessly.

What Are IFRS Standards?

The IFRS standards, issued by the International Accounting Standards Board (IASB), are a set of accounting principles that provide guidelines for preparing and presenting financial statements. These standards aim to make financial reports comparable, transparent, and reliable across borders.

Overview of New IFRS Standards Effective from January 2024

Several new standards and amendments will take effect from January 2024. The most notable ones include:

  1. IFRS 17 – Insurance Contracts
  2. Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback
  3. Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
  4. Amendments to IAS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

Let’s explore these in detail.

1. IFRS 17 – Insurance Contracts

IFRS 17, replacing IFRS 4, introduces a standardized way to account for insurance contracts, ensuring transparency and comparability across the insurance industry.

Key Features

  • General Measurement Model (GMM): Calculates the present value of future cash flows, adjusted for risk and deferred profit.
  • Variable Fee Approach (VFA): Applies to contracts where policyholders share in underlying assets.
  • Premium Allocation Approach (PAA): Simplifies accounting for contracts with short durations.

Who Is Affected?

  • Insurance companies issuing contracts and certain financial institutions.

Implications

  • Enhanced comparability of financial results across insurers.
  • Improved clarity in revenue recognition, reducing the use of judgment.

How to Prepare

  • System Upgrades: Ensure IT systems can handle complex calculations.
  • Training: Equip finance teams with knowledge of new methodologies.
  • Data Management: Collect detailed data for cash flow estimates and risk adjustments.

2. Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback

These amendments clarify how to measure lease liabilities and recognize income in sale and leaseback transactions.

Key Features

  • Specifies that a seller-lessee should measure lease liabilities arising from a sale and leaseback transaction at the present value of lease payments.
  • Adjustments ensure that subsequent changes in variable lease payments are included.

Who Is Affected?

  • Businesses involved in sale and leaseback arrangements, particularly in real estate and aviation sectors.

Implications

  • Greater consistency in how lease liabilities are recorded.
  • Enhanced accuracy in profit recognition for sale and leaseback deals.

How to Prepare

  • Policy Review: Revisit lease arrangements to ensure compliance.
  • Adjust Financial Models: Align accounting software with the new requirements.
  • Engage Stakeholders: Discuss changes with lessors and auditors for clarity.

3. Amendments to IAS 1 – Classification of Liabilities as Current or Non-current

These amendments refine the criteria for classifying liabilities as either current or non-current.

Key Features

  • Focuses on rights available to the entity at the reporting date to defer settlement of a liability.
  • Removes the requirement for the liability settlement to be within 12 months for classification as current.

Who Is Affected?

  • All entities with long-term financial liabilities.

Implications

  • May alter how liabilities are presented in balance sheets, impacting financial ratios.
  • Provides clearer guidelines, reducing misclassification risks.

How to Prepare

  • Analyze Existing Liabilities: Determine how changes affect classifications.
  • Communicate with Investors: Explain the impact of classification changes on financial statements.
  • Update Disclosures: Reflect the new classifications in financial reporting.

4. Amendments to IAS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

These amendments aim to narrow the scope of exemptions for recognizing deferred tax assets and liabilities.

Key Features

  • Deferred tax must be recognized for temporary differences that arise on initial recognition of assets and liabilities.
  • Exceptions apply if transactions do not affect accounting or taxable profit.

Who Is Affected?

  • Companies with lease liabilities, restoration obligations, or similar items.

Implications

  • Increased deferred tax balances in financial statements.
  • Changes in effective tax rates for some entities.

How to Prepare

  • Assess Impact: Identify transactions impacted by these amendments.
  • Enhance Systems: Ensure accounting systems capture deferred tax adjustments accurately.
  • Consult Tax Advisors: Align with tax professionals to understand implications fully.

How to Prepare for IFRS Changes in 2024

  1. Understand the Standards
    • Read the full text of the new standards and amendments.
    • Seek guidance from professional accountants or IFRS consultants.
  2. Assess Business Impact
    • Analyze how the changes affect your financial position, income statement, and disclosures.
  3. Upgrade Systems and Processes
    • Ensure accounting systems can accommodate new calculations and reporting requirements.
  4. Train Teams
    • Conduct training sessions for finance and accounting teams to understand and apply the new standards.
  5. Communicate with Stakeholders
    • Inform stakeholders, including investors and auditors, about the expected changes and their financial impact.
  6. Plan for Transition
    • Adopt transition plans for a smooth shift to the new standards, including adjustments to opening balances.

FAQs on IFRS 2024 Changes

1. Do all businesses need to comply with the new IFRS standards?

Businesses that prepare financial statements under IFRS are required to comply. Check with your jurisdiction for local adoption timelines.

2. Will the new standards increase compliance costs?

Potentially, as system upgrades, additional data collection, and training may be required.

3. How can small businesses prepare for IFRS changes?

Leverage simplified models, consult professionals, and adopt scalable accounting software.

Conclusion

The new IFRS standards effective from January 2024 reflect the IASB’s commitment to enhancing transparency, consistency, and relevance in financial reporting. These changes, from IFRS 17’s overhaul of insurance contracts to refinements in lease liabilities, current liabilities, and deferred taxes, will significantly impact how businesses present their financial statements.

Preparing for these changes requires a proactive approach—upgrading systems, training staff, and engaging stakeholders. While compliance may seem challenging, embracing these updates ensures financial statements remain credible, comparable, and insightful in the evolving global landscape.

Stay ahead by preparing today. Let these changes drive greater clarity and precision in your financial reporting.

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