Assessment of Dividend Advances under IFRS 1 and IFRS 10: A Review from the Perspective of Initial Application and Consolidation

Abstract

This study examines dividend distribution, a crucial aspect for businesses in Turkey obligated to apply international financial reporting standards, within the framework of Turkish Financial Reporting Standards (TFRS 1 and TFRS 10). Advance dividend distribution can be defined as the distribution of profits earned by businesses at the end of a period to their shareholders under certain conditions before the profits are finalized. While Turkish tax legislation allows for the prior distribution of dividends in the form of advance dividends, this is not considered a direct dividend distribution under TFRS. The study also provides information on advance dividend distribution under TFRS 1 and, in the context of consolidation for group companies, under TFRS 10. The study concludes that, particularly with the shift from rule-based to principle-based approaches in financial reporting practices, advance dividend distribution will significantly contribute to classification and increased reliability of financial statements in line with prudence and fair presentation principles. This study also assists businesses and practitioners in readjusting and evaluating their financial statements regarding advance dividend payments, addressing accounting entries that may arise from previous accounting practices or that do not comply with IFRS provisions.