IFRS 5 is an accounting criterion that offers direction on the accounting for non-current assets held for sale and discontinued operations, it supports businesses, enhances asset disposal, and streamlines business operations by enhancing transparency and accountability. It also increases efficiency and profitability, decreasing the risk of financial misstatements, and improving the ability to attract stakeholders and lenders. In this article, we will discuss the implementation of IFRS 5 in Dubai, and its benefits, and furnish expert advice on how to implement it. Additionally, this article seeks to explore the complexities and benefits that businesses may face upon implementing IFRS 5. Therefore, businesses should consult Top Audit Firms in Dubai to effectively implement IFRS 5 in compliance with the statutory regulations.
Key Concepts of IFRS 5
To have a better understanding of IFRS 5, here are some key concepts to note;
1. Non-current Assets Held for Sale
IFRS 5 offers strategies for categorizing non-current assets that are available for sale as a distinct category in the financial statements. These assets are reflected to be held for sale if their carrying cost will be recovered through a sale transaction rather than persistent use.
2. Discontinued Operations
IFRS 5 states discontinued operations as mechanisms of a body or unit that have either been disposed of or are categorized as held for sale. Also, it represents a distinct major line of business or environmental area of operations.
IFRS 5 stipulate that discontinued operations and non-current assets held for sale should be measured at the inferior of their carrying amount or fair value less the amount to sell. This standard confirms that assets are not passed at values higher than their probable recovery through the sale.
4. Presentation and Disclosure
IFRS 5 frameworks the presentation requirements for discontinued operations in the financial statements and assets held for sale. It obligates distinct disclosure of related information such as;
- Results of Discontinued Operations
- Cash Flows
- Assets Held for Sale
- Liabilities Held for Sale
5. Timing of Classification
IFRS 5 offers specific standards for defining the timing of cataloging of discontinued operations and assets as held for sale. It highlights that the standards should be encountered at the balance sheet date and that management’s verdict to sell should be highly feasible.
How to Implement IFRS 5?
Implementation of IFRS 5 needs careful preparation and accomplishment. Here are some important steps to consider when implementing IFRS 5 in your business;
1. Comprehend the Standard
Start by carefully studying and comprehending the principles and requirements defined in IFRS 5. Explain yourself with the definitions, measurement standards, and disclosure requirements associated with non-current assets held for sale and discontinued operations.
2. Evaluate Applicability
Assess whether your business has any non-current assets that meet the standards for cataloging as held for sale or discontinued operations. Govern the influence of applying IFRS 5 on your financial statements and reporting processes.
3. Classify Implementation Challenges
Classify any possible challenges or difficulties specific to your business. These could contain issues related to;
- Asset Valuation
- Determining Fair Value Fewer Costs to Sell
- Evaluating The Classification of Discontinued Operations
4. Create a Project Plan
Develop a comprehensive project plan that summarizes the implementation timeline, jobs, responsibilities, and milestones. This plan should deliberate factors such as;
- Data Collection
- System Modifications
- Employee Training
- Coordination with Relevant Stakeholders
5. Collect and Examine the Data
Collect all essential financial and operational data associated with assets held for sale and discontinued actions. Examine this data to define fair value less amount to sell, evaluate impairment, and establish an apt classification.
6. Transform Accounting Systems
If required, make essential adaptations to your accounting systems to ensure they can catch and report the obligatory information correctly. This may include;
- Adjusting Chart of Accounts
- Introducing New Reporting Categories
- Enhancing Data Tracking Capabilities
Benefits of Implementing IFRS 5
There are many benefits of implementing IFRS 5 in your business. Some of them are given below;
1. Improved efficiency and profitability
IFRS 5 can support businesses to streamline their operations by needing them to sell assets that are no longer reflected to be intentional. This can lead to amplified efficiency and profitability.
2. Condensed risk of financial misstatements
IFRS 5 delivers clear direction on how to account for assets that are held for sale or are categorized as discontinued operations. This can help to lessen the risk of financial misstatements.
3. Enhanced ability to attract investors and lenders
IFRS 5 also support businesses to fascinate investors and lenders by providing them with clear information about the business’s financial position and performance.
4. Improved transparency and accountability
As IFRS 5 needs, businesses provide more information about assets that are held for sale or are categorized as discontinued operations. This information support stakeholders in better comprehending the financial position and presentation of the business.
Consult top Audit Firms in Dubai
Implementation of IFRS 5 in Dubai ensures opportunities for businesses to optimize asset disposal and rationalize their business operations. Therefore, it is advisable for businesses to consult Top Audit Firms in Dubai to effectively implement IFRS 5 in compliance with the statutory regulations. Hence, contact us today and we shall be glad to assist you.
Theshani is a Senior auditor and has experience of 4+ years in providing audit assurance and advisory services to a wide range of industry clients. She continues to stay on top of ever-changing industry dynamics by continuously learning and developing expertise.