Managing IFRS/IAS Compliance with Microsoft Dynamics 365 Business Central

International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) are set of rules to be followed by any registered companies for maintaining their books of accounts which are comparable, understandable, reliable and relevant for internal as well as external stakeholders. The globalization of business and finance has led to the mass adoption of  IFRS/IAS compliance.

Microsoft Dynamics 365 Business Central is an enterprise resource planning (ERP) solution for midsize organizations that empowers people to work effectively. Microsoft Dynamics 365 Business Central makes it easy to operate across locations and countries/regions by standardizing processes, providing visibility across your organization, and helping simplify compliance. 

This article discusses IFRS/IAS standards and the relevant Microsoft Dynamics 365 Business Central that address IFRS/IAS compliance: 

IFRS/IAS Compliance	Capabilities Microsoft Dynamics 365 Business Central
Financial Reporting
IAS 1- Presentation of Financial Statements	Microsoft Dynamics 365 Business Central lets the business user define the Chart of Account structure, Through the use of appropriate parameters, such as G/L Account category and sub-category and Posting Groups.
IAS 7- Statement of Cash Flows	Creating a cash flow statement for disclosure can be prepared using the different tools, such as Cash Flow Forecasts, Chart of Cash Flow Accounts and Acc. Schedule in Microsoft Dynamics 365 Business Central.
IAS 8- Accounting Policies, Changes in Accounting Estimates and Errors	Microsoft Dynamics 365 Business Central business users can make corrections in the open accounting periods through the use of General Journal entries, reversal/cancellation of documents and creating the corrective document.
IAS 10- Events after the Balance Sheet Date	When the Balance Sheet and Income statement are prepared in Microsoft Dynamics 365 Business Central the user can only create entries in the current year if the year hasn’t been closed. Events after the balance sheet date that are experienced after the closing of the accounting year have to be created as manual corrections to the balance sheet retrieved from Microsoft Dynamics 365 Business Central and those entries are marked as Prior-Year Entry.
IAS 14- Segment Reporting	Microsoft Dynamics 365 Business Central offers a very flexible segment reporting functionality through Advanced Dimensions. Advanced Dimensions let the user define an unlimited number of dimensions that can be used for assigning each transaction to a given dimension, e.g. product line, area code, sales division etc. The dimensions used for registering transactions can later be used for generating segment reporting.
IAS 22 and IFRS 3- Business Combination	In Microsoft Dynamics 365 Business Central, using Advanced Dimensions functionality, the entries related to each business can be separated for later analysis and reporting purposes.
IAS 27 and IFRS 10- Consolidated Financial Statements	Microsoft Dynamics 365 Business Central has a consolidation feature that allows consolidation. Microsoft Dynamics 365 Business Central cannot check if the criteria in IAS are met, as this must be assessed beforehand. The consolidation feature also includes different translation methods allowing compliance with IAS 21. Microsoft Dynamics 365 Business Central provides reports for per-company (Business Unit) reports of the trial balance in the consolidating company.
IFRS 8- Operating Segments	Microsoft Dynamics 365 Business Central offers a very flexible segment reporting functionality through Advanced Dimensions. Advanced Dimensions let the user define an unlimited number of dimensions that can be used for assigning each transaction to a given dimension, e.g. product line, area code, sales division etc. The dimensions used for registering transactions can later be used for generating segment reporting.
IFRS 11- Joint Arrangements	Microsoft Dynamics 365 Business Central has a consolidation feature that allows consolidation. That allows us to manage Joint Arrangements.
Assets and Inventory
IAS 2- Inventories	Microsoft Dynamics 365 Business Central allows both FIFO and weighted average for inventory valuation. For inventory revaluations the cost prices for each item can be changed and the inventory adjustments can be calculated in batch jobs controlled by the user. Cost of inventory expensed in a period can be posted manually through Inventory Journals. In Microsoft Dynamics 365 Business Central cost of goods sold are recognized when the inventory items are sold.
IAS 16- Property, Plant and Equipment	The Microsoft Dynamics 365 Business Central Fixed Assets module lets the user record all asset transactions for a given asset. Standard treatment is cost less accumulated depreciation. Re-valuations can be manually registered through Fixed Asset Journals. The depreciation period will be the rest of the main assets life span. Fixed Assets allows the user to set up the depreciation scheme to be used for each individual asset. If the depreciation period is changed the depreciation batch job will include an adjustment to the current period’s depreciation amount to reflect that change. The treatment of gains/losses when selling an asset is controlled by the user through posting to the correct G/L accounts when creating either a Sales Invoice (if asset is sold) or Fixed Asset Journal lines (if disposed of without sale)
IAS 17 and IFRS 16- Leases	In case Lessee wants to register the lease the Fixed Assets module may be used to a large extent to register finance lease transactions, allowing registration of the asset acquisition cost and corresponding depreciation. Standard processing of vendor invoices can be used to expense operating lease payments and Standard processing of customer invoices can be used to record receivables for the lessor.
IAS 36- Impairment of Assets	Impairment is recognized in the general ledger as an expense, and Microsoft Dynamics 365 Business Central supports subsequent revaluations through the Fixed assets module. The decision to identify the impairment and recoverable amount of an asset, regardless of whether it’s from an external or internal source, is a management decision and is performed outside Microsoft Dynamics 365 Business Central.
IAS 37- Provisions, Contingent Liabilities, and Contingent Assets	Microsoft Dynamics 365 Business Central provides indirect support for IAS 37 by providing the capability to record journal entries for any provision that must be recognized, or to classify a contingent liability or asset.
IAS 38- Intangible Assets	Fixed Assets in Microsoft Dynamics 365 Business Central allows the business user to register transactions for intangible assets through FA Class Code & FA Subclass Code and record subsequent amortizations/re-valuations.
IAS 40- Investment Property	Microsoft Dynamics 365 Business Central users can record investment property transactions in the Fixed Assets module, allowing a better overview of the individual assets. No specific feature supports investment property revaluation processes (e.g. cost or market value), which must be carried out manually through Fixed Assets Journals.
Foreign Currency
IAS 21- The Effects of Changes in Foreign Exchange Rates	Microsoft Dynamics 365 Business Central can handle transactions denominated in any currency. Using the Currency Exchange Rate table the transactions will be recorded at the currency rate as of the transaction dates (Posting Dates) if rates are adjusted on a daily basis. Through a batch job (Adjust Exchange Rates) Microsoft Dynamics 365 Business Central can adjust all open A/P and A/R entries denominated in foreign currencies and convert these so they reflect the currency exchange rate at the balance sheet date. Any adjustments are posted to a G/L account specified by the user.
Revenue Recognition
IAS 11- Construction Contracts	In Microsoft Dynamics 365 Business Central construction contracts can be handled using the standard Jobs module. Jobs can be used to keep track of construction contracts and separate revenue and costs.
IAS 18 and IFRS 15- Revenue	Revenue recognition in Microsoft Dynamics 365 Business Central is done when invoicing (Posting Date) and the Cost of Goods sold is correspondingly expensed. The Chart of Accounts must be set up so the different types of revenue can be segregated.
IAS 23- Borrowing Costs	Microsoft Dynamics 365 Business Central user can record borrowing transactions manually through General Journals. Combined with proper setup of the chart of account the borrowing costs can be reported separately and to the detail level needed.
Other
IAS 19- Employee Benefits	Microsoft Dynamics 365 Business Central allows direct posting financial transaction to an Employee. This feature is newly introduced. For more information Click Here

 

Thanks!

Jaymesh Shah