CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
International Financial Reporting Standards (IFRS) can be said to be a set of international accounting standards (http://www.investopedia.com/terms/i/ias.asp)(IAS) that states how transactions (http://www.investopedia.com/terms/t/transaction.asp) and other events should be reported in financial statements (http://www.investopedia.com/terms/f/financial-statements.asp). IFRS are issued by the International Accounting Standards Board, and they clearlydefine how accountants must maintain and report their accounts. IFRS were established in order to have a common accounting language, so business and accounts can be understood from company to company and country to country. 1. IFRSs refers to the entire body of IASB pronouncements, including standards and interpretations approved by the IASB and IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee. IFRS (International Financial Reporting Standards) are specifically designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.
IFRS creates a single source of revenue requirements for all entities in all industries. The new revenue standard is a significant change from current IFRS. The new standard applies to revenue from contracts with customers and replaces all of the revenue standards and interpretations in IFRS. IFRS is principles-based, consistent with current revenue requirements, but provides more application guidance. The lack of bright lines will result in the need for increased judgment.The new standard will have little effect on some entities, but will require significant changes for others, especially those entities for which current IFRS provides little application guidance. IFRS introduces a new approach to determine whether revenue should be recognized overtime or at a point in time. Three scenarios are specified in which revenue will be recognized over time broadly, they are when: the customer receives and consumes the benefits of the seller’s performance as the seller performs, 2, the seller is creating a ‘work in progress’ asset which could not be directed to a different customer and in respect of which the customer has an obligation to pay for the entities work to date. If revenue is to be recognized over time, a method should be used which best reflects the pattern of transfer of goods or services to the customer. If a transaction does not fit into any of the three scenarios described above, revenue will instead be recognized at a point in time, when control passes to the customer.