Which set of terms can be used to describe total stockholders’ equity under ifrs?

General
1

which set of terms can be used to describe total stockholders’ equity under ifrs?

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Which set of terms can be used to describe total stockholders’ equity under IFRS?

Answer

Under the International Financial Reporting Standards (IFRS), the framework and terminology used to describe total stockholders’ equity slightly vary from the terminology commonly used under generally accepted accounting principles (GAAP) in the United States. In IFRS, “total stockholders’ equity” is generally referred to as “equity” and is broken down into specific components. The following terms can be used to describe total equity under IFRS:

1. Share Capital (Issued Capital or Subscribed Capital):

This refers to the funds raised by the company through the issuance of shares to shareholders. It can be broken further into:

  • Ordinary Share Capital (Common Stock): Capital raised from issuing ordinary (common) shares. These shareholders generally have voting rights and share in the company’s profits.
  • Preference Share Capital (Preferred Stock): Shares that have preferential rights, such as receiving dividends before ordinary shareholders.

2. Share Premium (Additional Paid-in Capital):

The amount received from shareholders over and above the nominal (par) value of the shares. In IFRS, this is commonly referred to as “Share Premium” rather than “Additional Paid-in Capital” (U.S. GAAP terminology).

3. Retained Earnings:

Accumulated profits (or losses) that the company has earned over time and has chosen to retain rather than pay out as dividends. Retained earnings are a key component of equity under IFRS, just as under GAAP.

4. Revaluation Reserve:

Under IFRS, companies are permitted to use the revaluation model for certain assets, such as tangible assets and intangible assets. When a company revalues these assets, any upward adjustment leads to the creation of a revaluation reserve, which is included as part of equity.

5. Other Reserves (Special/Premium Reserves):

IFRS commonly includes a broad category of reserves classified as other reserves. These include:

  • Currency Translation Reserve (Foreign Exchange Reserve): If a company operates internationally and consolidates financial statements in a reporting currency, the differences arising from currency translation are recorded in this reserve.
  • Fair Value Reserve: Unrealized gains or losses on financial instruments measured at fair value through other comprehensive income (FVOCI) are captured in this reserve.
  • Capital Reserve: Reserves created from sources other than the operations of the company, such as surplus on the reissue of forfeited shares.

6. Treasury Shares (Contra-Equity Account):

IFRS includes “treasury shares”, representing the cost of shares repurchased by the company and held in its treasury. Treasury shares reduce equity and are presented in the equity section as a negative balance.

7. Non-Controlling Interest (Minority Interest):

Under IFRS, if a company owns less than 100% of a subsidiary, the portion of equity that belongs to minority stakeholders (those not controlling the group) is included in total equity but shown separately as Non-Controlling Interest.

Summary Table of Equity Terms Under IFRS

Component Description Common IFRS Term
Share Capital Funds raised via issuing shares. Includes ordinary and preference shares. Share Capital
Share Premium Amount received above the nominal/par value of shares. Share Premium
Retained Earnings Accumulated profits or losses retained in the business. Retained Earnings
Revaluation Reserve Reserves created due to upward revaluation of assets. Revaluation Reserve
Other Reserves Broad reserves (e.g., currency translation and fair value reserves). Other Reserves
Treasury Shares (Negative) Cost of company shares repurchased and held in the treasury. Treasury Shares
Non-Controlling Interest Share of equity owned by minority (non-controlling) shareholders in consolidated subsidiaries. Non-Controlling Interest

Example Structure of the Equity Section of IFRS Financial Statements:

Equity in an IFRS-compliant balance sheet is presented as follows:

Equity:

  1. Share Capital:
    • Ordinary Shares
    • Preference Shares
  2. Share Premium
  3. Retained Earnings
  4. Revaluation Reserve
  5. Other Reserves:
    • Currency Translation Reserve
    • Fair Value Reserve
    • Capital Reserve
  6. Treasury Shares (negative balance)
  7. Non-Controlling Interest

Key Differences Between Equity Terminology Under IFRS and GAAP

  1. “Share Capital” vs. “Common Stock and Preferred Stock”:

    • Under IFRS, the term “Share Capital” is used, while GAAP uses “Common Stock” and “Preferred Stock.”

  2. Reserves Terminology:

    • IFRS includes items like “Revaluation Reserves” and “Currency Translation Reserves,” which are not as commonly addressed under GAAP.

  3. Presentation of Treasury Shares:

    • Both IFRS and GAAP treat treasury shares as a reduction of equity, but presentation formats may differ.

  4. Non-Controlling Interest:

    • Both GAAP and IFRS include non-controlling interests in total equity, but this is more explicitly highlighted in IFRS financial statements.

By understanding these IFRS terms, companies and stakeholders can better interpret the components of total stockholders’ equity in compliance with international accounting standards.