Users and specific needs
9.4 Underlying assumptions
There are two fundamentally important assumptions on which financial statements are based, being the accrual basis of accounting and the going concern basis. Both of these are discussed in IAS 1. However, the fundamental principle of the accrual basis of accounting is that transactions are recorded in the financial statements when they occur, not when the related cash flows into or out of the entity occur. [Framework 22] Under the going concern basis, financial statements are prepared on the assumption that an entity will continue in operation for the foreseeable future. This basis is important, for example, in the assessment of the recoverability of a non-current asset, which is expected to generate benefits in the ongoing business even if its resale value is minimal. [Framework 23]9.5 Qualitative characteristics of financial statements
In deciding which information to include in financial statements, when to include it and how to present it, the aim is to ensure that the information is useful to users of the financial statements in making economic decisions. The attributes that make information useful are known as qualitative characteristics and are described in terms of understandability, relevance, reliability and comparability in the context of the preparation of financial statements. [Framework 24]9.5.1 Understandability
Information in financial statements should be understandable to users. This will, in part, depend on the way in which information is presented. Financial statements cannot realistically be understandable to everyone, and therefore it is assumed that users have: a reasonable knowledge of business and accounting; and a willingness to study with reasonable diligence the information provided.9.5.2 Relevance
Information is relevant if it has the ability to influence the economic decisions of users and is provided in time to influence those decisions. Relevance has two characteristics: a predictive value and a confirmatory value. Users can make a reasoned evaluation of how management might react to certain future events, whilst information about past events will help them to confirm or adjust their previous assessments. Information about an entity’s financial position and past performance is often used as the basis for making predictions about its future performance. It is therefore important how information is presented. For example, unusual and infrequent items of income and expense should be disclosed separately.9.5.3 Reliability
Information may be relevant, but unless it is reliable as well it is of little use. Information is considered to be reliable if it does not contain substantial errors that would affect the economic decisions of users and if it represents faithfully the entity’s transactions. Chapter 2 – The IFRS Framework Page 25 Faithful representation requires that transactions are accounted for, and presented in accordance with, their substance and economic reality, even where this is different from their legal form. Management should present information which is neutral, i.e. free from bias. To be reliable, information should also be complete.9.5.4 Comparability
For financial information to be useful, it is important that it can be compared with similar information of previous periods or to that produced by another entity. For information to be comparable, it should be consistently prepared; this can be achieved by an entity adopting the same accounting policies from one period to the next as explained in IAS 8 Accounting policies, changes in accounting estimates and errors.9.6 Elements of financial statements
The elements included in the financial statements are the building blocks from which financial statements are constructed. These elements are broad classes of events or transactions that are grouped according to their economic characteristics. [Framework 47]9.6.1. Definitions of elements
Examples of elements of financial statements: Elements Definition Comment Examples Asset A resource controlled by an entity “as a result of past events and from which future economic benefits are expected to flow” to the entity An asset may be utilised in a business in a number of ways, but all will lead to the generation of future economic benefits i.e. a contribution to cash flowing to the entity. Cash, inventories, receivables, prepayments, plant, property and equipment. Liability A present obligation of the entity “arising from past events, the settlement of which is expected to result in an outflow” of an entity’s resources A liability exists where an entity has a present obligation. An obligation is simply a duty or responsibility to perform in a certain way. It is important to make a clear distinction between a present obligation and a future commitment. Trade payables, unpaid taxes and outstanding loans. Equity The residual interest in an entity’s assets after deducting all its liabilities Equity = ownership interest = net assets i.e. share capital and reserves Share capital, retained earnings, revaluation reserve and other reserves.Parts
» The International Accounting Standards Committee IASC
» The International Organisation of Securities Commissions IOSCO
» The Financial Accounting Standards Board FASB
» The Committee of European Securities Regulators CESR
» The IASB FINANCIAL REPORTING CONTEXT
» The Standards Advisory Council SAC
» The International Financial Reporting Interpretations Committee IFRIC
» The standard-setting process THE IFRS FRAMEWORK
» Preface to International Financial Reporting Standards
» Definition THE IFRS FRAMEWORK
» Financial statements THE IFRS FRAMEWORK
» Economic decisions Users and their information needs
» Accountability of management THE IFRS FRAMEWORK
» Financial position, performance and changes in financial position
» Underlying assumptions THE IFRS FRAMEWORK
» Understandability Qualitative characteristics of financial statements
» Relevance Qualitative characteristics of financial statements
» Reliability Qualitative characteristics of financial statements
» Definitions of elements Elements of financial statements
» Recognition of elements in financial statements Measurement in financial statements
» The statement of financial position
» The statement of comprehensive income
» Currentnon-current distinction PRESENTATION OF FINANCIAL STATEMENTS
» Notes PRESENTATION OF FINANCIAL STATEMENTS
» Fair presentation and compliance with IFRS
» Comparative information Other considerations
» Additional disclosures Other considerations
» ACCOUNTING POLICIES IFRSs) Learning Materials
» Servicing fees included in the price of the product
» Cost of inventories INVENTORIES
» Cost formulae Net realisable value NRV
» Initial recognition and elements of cost
» Self-constructed assets PROPERTY, PLANT AND EQUIPMENT
» Ceasing recognition of costs
» Subsequent expenditure PROPERTY, PLANT AND EQUIPMENT
» Depreciation and revalued assets
» Which costs should be capitalised?
» When should capitalisation of borrowing costs commence?
» Suspension of capitalisation BORROWING COSTS
» Ceasing capitalisation BORROWING COSTS
» Non-monetary government grants GOVERNMENT GRANTS
» Repayment of government grants
» No specific relation to operating activities
» Proposed revision of standard
» Changes of plan NON-CURRENT ASSETS HELD FOR SALE
» Nature of investment properties Scope
» Initial recognition INVESTMENT PROPERTY
» Measurement after recognition INVESTMENT PROPERTY
» Applicable to both the fair value model and the cost model
» The cost model INVESTMENT PROPERTY
» Separately acquired intangible assets
» Exchanges of assets INTANGIBLES
» Intangible assets acquired as part of a business combination
» The research phase INTANGIBLES
» The development phase INTANGIBLES
» The cost of internally generated intangible assets
» Stage 1 – Indicators of impairment
» Stage 2 – Measuring recoverable amount
» Stage 3 – Recognising an impairment loss
» Future operating losses Provisions
» Contingent liabilities and contingent assets
» Best estimate PROVISIONS AND CONTINGENCIES
» Present value PROVISIONS AND CONTINGENCIES
» Other measurement points PROVISIONS AND CONTINGENCIES
» Reimbursements PROVISIONS AND CONTINGENCIES
» Decommissioning, restoration and environmental funds
» Waste management costs PROVISIONS AND CONTINGENCIES
» Carrying amount versus tax base Calculate the temporary difference
» Determining deferred tax TAXATION
» Revaluations Recognition criteria: further issues
» The expected manner of recovery of an asset
» Annual review Recognition criteria: further issues
» Discounting Recognition criteria: further issues
» Temporary differences and investments
» Other related disclosures TAXATION
» Risks and rewards Situations indicating the existence of a finance lease
» Initial recognition Finance lease recognition
» Depreciation Finance charge Finance lease recognition
» Actuarial method Methods of allocating finance charges
» Disclosures for finance leases
» Operating lease incentives Accounting treatment of operating leases
» Disclosures for operating leases
» Disclosure by a lessor for finance lease arrangements
» Disclosure by a lessor for operating lease arrangements
» Operating lease incentives Operating leases
» An overview All short-term benefits
» Short-term compensated absences Profit-sharing and bonus plans
» Recognition and measurement Disclosure
» The discount rate Movements during the period
» Variations in actuarial assumptions
» Past service costs Sundry considerations
» Curtailments and settlements Sundry considerations
» Minimum funding requirements and the limit on a defined benefit asset
» Disclosure and presentation of defined benefit plans
» Share-based payment transactions – cash-settled or equity-settled
» Group and treasury share transactions
» Objectives, scope and definitions of IFRS 2 Disclosure requirements
» EVENTS AFTER THE REPORTING PERIOD
» The functional currency FOREIGN EXCHANGE
» The presentation currency FOREIGN EXCHANGE
» Monetary and non-monetary items
» Summary of the approach of IAS 21
» Initial recognition FOREIGN EXCHANGE
» Reporting at the ends of subsequent reporting periods
» Transactions settled within the period
» Transaction balance is outstanding at the end of the reporting period
» Net Investment in a Foreign Operation
» Change in Functional Currency
» Translation of a foreign operation
» Disposal of a foreign operation
» Settlement options FOREIGN EXCHANGE
» Compound financial instruments FOREIGN EXCHANGE
» Financial assetliability at fair value through profit or loss
» Held-to-maturity investments Loans and receivables
» Available-for-sale financial assets Financial assets
» IFRIC 2 Members’ shares in co-operative entities and similar instruments
» Derecognition in its entirety Continuing involvement after a transfer
» Financial liabilities FOREIGN EXCHANGE
» Qualifying for hedge accounting
» Fair value hedge Cash flow hedge
» Hedge of a net investment in a foreign operation
» Objectives and Scope of IFRS 7
» Fair value Other disclosures
» Statement of comprehensive income Nature and extent of risks
» Objective and scope What is cash?
» The direct method FOREIGN EXCHANGE
» Indirect method FOREIGN EXCHANGE
» Non-cash transactions FOREIGN EXCHANGE
» Additional disclosures FOREIGN EXCHANGE
» Identifying segments FOREIGN EXCHANGE
» Reportable segments FOREIGN EXCHANGE
» Reporting formats FOREIGN EXCHANGE
» Discontinued operations Disclosure Prior periods
» Contents Form FOREIGN EXCHANGE
» Selected explanatory notes FOREIGN EXCHANGE
» Impairment in the interim period
» Calculating earnings FOREIGN EXCHANGE
» Calculating the weighted average number of ordinary shares
» Calculation of earnings Calculation of the weighted average number of shares
» Related parties FOREIGN EXCHANGE
» Contract revenue FOREIGN EXCHANGE
» Contract costs FOREIGN EXCHANGE
» Stage of completion FOREIGN EXCHANGE
» Reliable measurement FOREIGN EXCHANGE
» Loss making contracts FOREIGN EXCHANGE
» Key Concepts FOREIGN EXCHANGE
» Valuation of assets Disclosure
» What is an insurance contract?
» Scope of consolidated financial statements
» Special purpose entities FOREIGN EXCHANGE
» Basic approach FOREIGN EXCHANGE
» Reporting dates and consistent accounting policies
» The statement of financial position The statement of comprehensive income
» Gain or loss on net monetary position
» Introduction Statement of cash flows
» Initial application of IAS 29
» Identifying a business combination
» Acquisition method of accounting
» General principle FOREIGN EXCHANGE
» Specific issues FOREIGN EXCHANGE
» A business combination achieved in stages
» Subsequent accounting for contingent consideration
» Classifying and measuring the identifiable net assets acquired
» Initial recognition and subsequent adjustments
» Subsequent measurement FOREIGN EXCHANGE
» Recognition and measurement of goodwill
» Gain on bargain purchase Adjustments to provisional values
» Impairment losses FOREIGN EXCHANGE
» Jointly controlled operations FOREIGN EXCHANGE
» Proportionate consolidation Equity method
» Jointly controlled assets Investors separate financial statements
» Transactions between a venturer and a joint venture
» Operators of joint ventures Investors of a joint venture
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