Appraisal for purposes of accounting under International Financial Reporting Standards (IFRS)
International Financial Reporting Standards are the unified international "language of accounting". The IFRS Foundation is a non-profit public organization created to develop clear, binding and globally accepted accounting and disclosure standards for sustainable development.
Due to the intensive integration of Ukrainian enterprises into the international financial space and access to international markets, any company is to account in a way that allows harmonious negotiations with foreign investors and companies.
It is natural that appraisal for the purposes of IFRS is an important decision that must be made and implemented by Ukrainian companies when transitioning to international Financial Reporting Standards. Determining the market or fair value of the company's assets in accordance with international accounting standards is a key action for the transparency of the company's accounting.
In order to prepare data for accounting according to IFRS standards, the appraising company carries out appraisal procedures based on the determination of the market value of fixed assets. Appraisal for the purposes of IFRS also ensures the determination of the property status of the enterprise, since the objects of appraisal are fixed assets, real estate, as well as all intangible assets.
A fundamental principle in valuation for IFRS is the determination of fair value. That is the value that all assets and liabilities are accounted for in the company's financial statements. In fact, it is the market value or the most likely price at which the asset can be sold in the open market under conditions of free competition and with an adequate period of presentation of offers on the market. In contrast to national accounting standards, there are a number of peculiarities in determining this value according to IFRS standards.
IFRS standards identify this type of asset as investment property. The company's administration may, at its discretion, choose the method of accounting of such objects. At the same time, it should be noted. that in the case of choosing the method of accounting at value, that is he cost of acquisition with all costs taken involved, IFRS standards provide that in subsequent periods, the fair value of the property as of the new accounting date should be determined for such assets. That is, an independent appraisal is to be carried out.
In national legislation, this norm is mentioned in Accounting Standard No. 7 "Fixed Assets". That is why most companies choose the fair/market value accounting method and engage independent appraisers to determine it.
The methodology for appraisal of investment real estate involves determining the market value based on discounted future cash flows from owning it. At the same time, in order to ensure the objectivity of the appraisal, an important stage of the calculation is the choice of the method of determining the discount rate, taking into account possible associated risks.
For transitioning to financial accounting in accordance with IFRS standards, there are mainly two methods:
- Transformation of current accounting data. According to this approach, changes are made to accounting data and adjustments to balance sheet items to harmonize reporting to IFRS. The value of assets, liabilities and capital is brought to a fair value based on the results of an independent appraisal and, accordingly, is reflected in accordance with IFRS.
- Parallel accounting, which consists in simultaneous accounting according to Ukrainian Standards and IFRS. This way of preparing reports doubles the work, but at the same time it is the most correct way to comply with international and Ukrainian accounting practices.
The transition to IFRS provides undoubted advantages for companies that intend to cooperate with partners from abroad for a long time, for enterprises attracting external loans for their further development.
The facts indicate that companies interested in increasing the efficiency of management, as well as in obtaining reliable information about their activities, have already decided and implemented IFRS. Maybe you have already done it too. Then you're in the right place for gaining the annual appraisal.
Appraisal is an important tool for ensuring maximum objectivity and transparency of final values. Together with appraisers, the administrative team gets double support and justification of their position regarding accounting data for preparation for the annual audit procedure.
|Author: Maryna Petrova / Date: 29.07.2022|