Finance terms

Introduction to the IFRS Glossary

Welcome to the IFRS Glossary, your essential guide to mastering the vocabulary needed for effective communication in the world of finance. This glossary is specifically designed to support professionals seeking to enhance their language skills.

Below, you will find a curated collection of key terms and phrases frequently used in finance, but also management, and entrepreneurship. Each entry provides a clear definition, ensuring that you not only learn the terms but also understand their significance in the business landscape.

By using this resource, you can broaden your vocabulary, gain confidence in your communication abilities, and navigate finance discussions with ease.

IFRS glossary

1. IFRS (International Financial Reporting Standards): A set of accounting standards developed by the International Accounting Standards Board (IASB) to ensure financial statements are consistent, transparent, and comparable across international boundaries.

2. IAS (International Accounting Standards): Predecessor to IFRS, created by the International Accounting Standards Committee (IASC). While many IAS are still in use, they are gradually being replaced by IFRS.

3. IASB (International Accounting Standards Board): The independent body responsible for developing IFRS and promoting the use of these standards globally.

4. Accrual Basis: An accounting method where revenue and expenses are recorded when they are earned or incurred, not when cash is received or paid.

5. Amortization: The gradual reduction of an intangible asset’s value over time, usually through periodic charges to income statements.

6. Consolidated Financial Statements: Financial statements that present the assets, liabilities, equity, income, expenses, and cash flows of a parent company and its subsidiaries as if they were a single entity.

7. Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

8. Impairment : A reduction in the recoverable amount of an asset, resulting in a write-down on the asset’s carrying value on the balance sheet.

9. Intangible Assets: Non-physical assets that have economic value, such as patents, trademarks, or goodwill.

10. Leases (IFRS 16):This standard outlines the accounting for lease agreements, requiring lessees to recognize most leases on their balance sheet as a right-of-use asset and a corresponding lease liability.

11. Liabilities: Obligations of a company arising from past transactions or events, which are expected to result in an outflow of resources.

12. Materiality: A concept that determines whether information is significant enough to influence the decision-making process of users of financial statements.

13. Non-Current Assets: Assets that are expected to be held for more than one financial year, such as property, plant, and equipment (PPE).

14. PPE (Property, Plant, and Equipment): Tangible fixed assets that are used in the production or supply of goods and services and expected to be used over a period longer than one year.

15. Revenue Recognition: The accounting principle dictating when and how revenue is to be recognized in financial statements. Under IFRS 15, revenue is recognized when control of a good or service is transferred to the customer.

16. Statement of Financial Position: Another term for the balance sheet, which presents a company’s financial position by detailing its assets, liabilities, and equity at a specific point in time.

17. Statement of Profit or Loss (Income Statement): A financial statement that summarizes revenues, costs, and expenses during a specific period, resulting in net income or loss.

18. Subsidiary: A company controlled by another company (the parent), typically through the ownership of more than 50% of its voting shares.

19. Goodwill: An intangible asset that arises when a company acquires another business for a price higher than the fair value of its net identifiable assets.

20. Deferred Tax: A tax liability or asset that arises from differences in the timing of when tax is payable or recoverable, compared to when the related income or expense is recognized in the financial statements.

21. Cash Flow Statement: A financial statement that shows the inflows and outflows of cash within a company during a specific period, categorized into operating, investing, and financing activities.

22. Current Liabilities: Obligations that are due to be settled within the company’s normal operating cycle or within 12 months from the reporting date.

23. Equity: The residual interest in the assets of the entity after deducting liabilities, also referred to as shareholders’ equity or net assets.

24. Financial Instruments (IFRS 9): Contracts that give rise to financial assets in one entity and a financial liability or equity instrument in another, including cash, shares, and bonds.

25. Contingent Liability: A potential obligation that may arise from past events but depends on the outcome of a future event to be confirmed.

Accounting Terms Gap Fill Exercise

Fill in the blanks with the appropriate terms from the list above:

  1. The __________ is responsible for developing and promoting the use of IFRS globally.
  2. Financial statements that include data from a parent company and all its __________ present them as a single entity.
  3. The __________ method requires that revenues and expenses be recorded when they are earned, irrespective of cash transactions.
  4. An asset’s __________ occurs when its recoverable amount falls below its carrying value.
  5. __________ are assets that do not have a physical presence but possess economic value, such as trademarks.
  6. Under IFRS 15, the __________ principle governs when revenue should be recognized based on control transfer.
  7. The __________ serves as a snapshot of a company’s financial position at a certain date, detailing assets, liabilities, and equity.
  8. A __________ occurs when a company pays more for a business than the fair value of its identifiable net assets.
  9. Companies typically account for long-term obligations as __________, which are due within the next 12 months.
  10. The IASB’s mission includes improving the __________ by adopting consistent standards across regions.
  11. A __________ is an independent body established to create the standards that preceded IFRS.
  12. __________ are created by the timing differences between when income or expenses are recognized and when taxes are paid.
  13. The __________ is a financial statement that reports cash inflows and outflows during a specific period.
  14. __________ are defined as contracts that create a financial asset in one entity and a financial liability or equity instrument in another.
  15. __________ refers to the gradual decline in value of intangible assets over time due to usage or obsolescence.
  16. __________ include items like property, plant, and equipment, expected to be held for longer than one financial year.
  17. __________ refer to obligations resulting from past transactions, expected to lead to resource outflows.
  18. A __________ is a potential obligation depending on the outcome of a future event.
  19. The __________ is essential for assessing profitability over a specific period, detailing revenues and expenses.
  20. __________ are defined as the residual interest that remains in the assets of the entity after deducting liabilities.

Answers Key

Answers in white below

  1. IASB
  2. Subsidiaries
  3. Accrual Basis
  4. Impairment
  5. Intangible Assets
  6. Revenue Recognition
  7. Statement of Financial Position
  8. Goodwill
  9. Current Liabilities
  10. Materiality
  11. IAS
  12. Deferred Tax
  13. Cash Flow Statement
  14. Financial Instruments (IFRS 9)
  15. Amortization
  16. Non-Current Assets
  17. Liabilities
  18. Contingent Liability
  19. Statement of Profit or Loss
  20. Equity

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