Introduction to Financial Statements

Introduction to Financial Statements

• Every business uses an accounting system to gather financial data from transactions.
• This data is processed to show financial performance and position in financial statements and budgets.
• This information helps users make economic decisions.
• FAC1502 principles provide the foundation for this reporting.
• Financial statements are required to comply with regulatory framework.
• Standards ensure financial information is meaningful and comparable across different countries and entities.
• Countries established governing bodies to develop these standards.
• The Accounting Practices Board (APB) was established in South Africa in 1973 to develop standards.
• The APB issued South African Statements of Generally Accepted Accounting Practice (SA GAAP).
• SA GAAP was the reporting framework for all listed and unlisted South African companies.

Harmonization of Standards

• In the 1990s, South Africa aimed to align SA GAAP with international standards.
• The International Accounting Standards Board (IASB) and its predecessor issued International Accounting Standards (IASs).
• IASs are now part of International Financial Reporting Standards (IFRSs).
• Since January 2005, the Johannesburg Stock Exchange (JSE) requires all listed companies to use IFRS.
• The Financial Reporting Standards Council (FRSC), established in May 2011, is South Africa's governmental accounting standard-setting body.
• The South African Institute of Chartered Accountants (SAICA) is the technical advisor to the FRSC.

Application of IFRS

• IFRS standards are broadly used for preparing financial statements globally.
• IFRSs cover identification, recognition, measurement, presentation, and disclosure in general-purpose financial statements.
• Users of these standards include investors, shareholders, creditors, banks, SARS, and employees.
• Two reporting frameworks are currently available: full IFRS and IFRS for SMEs.

Conceptual Framework

• The Conceptual Framework for Financial Reporting is issued by the International Accounting Standards Board (IASB).
• Conceptual Framework document provides the frame of reference for financial accounting, especially financial reporting.
• It outlines the nature, function, and limits of financial accounting and financial statements.
• It assists IASB in making + revising IFRS that are based on consistent ideas.
• It is designed to help preparers form consistent accounting policies, and assist all parties in understanding IFRS.
• It is not an IFRS and doesn't override IFRS requirements and serves as a foundation for financial reporting standards.
• The IASB will highlight and explain any conflicts if a new pronouncement deviates from the framework.
• Qualitative characteristics enhance the usefulness of financial information.

Framework Purpose

• Framework has a reference for an investigation area, offering theoretical concepts and principles as grounds for establishing reporting practices.
• The Conceptual Framework helps to develop standards, harmonize laws, reduce accounting treatments, and assist users to interpret financial statements according to IFRS.
• It is not an IFRS and doesn't override IFRS requirements.
• It is a foundation for principle-based IFRSs.

Financial Reporting Objective

• General-purpose reporting aims to provide financial details about a reporting entity.
• Reporting helps potential investors, lenders, and government agencies make resource decisions.
• Decisions include buying, selling, or holding equity and debt, and providing loans.
• Investors seek returns, while creditors focus on principal and interest repayments.

Users

• Primary users of financial statements are potential investors, lenders, customers, and creditors.
• Additional users include shareholders, trade unions, management, government and SARS.

Qualitative Characteristics

• Statements should show useful qualitative traits if external parties are to use the information they provide.
• Fundamental qualitative traits consist of relevance and faithful representation.
• Information is relevant if it affects decisions, implying usefulness.
• Materiality is a factor of relevance that is influenced by the entity, used to define data usefulness.
• Material information is likely to influence user decisions.

Faithful Representation

• Transactions should be faithfully represented and must accurately represent economic reality instead of legal form.
• Fair financial statements should represent transaction essence but not legal details.
• Accounts should represent economic reality even if differs from legal form, for substance over form.
• Legal asset ownership isn't required for financial asset recognition if control and benefits exist.
• Accurate information should be complete, neutral, plus free from errors.
• Completeness demands information important for comprehension.
• Neutrality indicates unbiased financial information.
• Freedom from mistakes implies precision within financial data.

Enhancing Characteristics

• Comparability enables users to notice the similarities and differences between items.
• Information of an entity is more useful if compared with other entities for other dates and periods.
• Consistency, using same techniques on items across periods, is key to comparability.
• Differences between accounting policies are important for comparison.

Verifiability & Timeliness

• Accounting is verifiable if data and assumptions allow independent observer to produce the same result.
• Diverse knowledgeable leaders must concur that depiction is accurate.
• Timeliness involves offering information promptly for users to act and reporting data before obsolescence.

Understandability

• Understandability comes with classifying, characterizing, and clearly showing financial information.
• Entities should show business information in way that someone with financial knowledge can comprehend.

Reporting Constraints

• Cost constraints appear when reporting data in financial reports is too costly.
• Conceptual Framework allows the business not to report where benefit is outweighed by the reporting costs.

Financial Statement Objective

• Financial statements have insights into an entity's finances, debts, as well as wealth.
• It meets element definitions, that are outlined in framework 3.1.
• Objective - to give details on entity's assets, debts , equity as well as income and expenses.
• Reporting assists those using financial statements in assessing prospects for profit and cashflow.
• The reporting assesses how well the organization is managing resources with framework 3.2.

Reporting Insights

• Reports provide position insights to financial statement users.
• They offer details on revenue, expenditure and framework 3.
• Statements also use notes.
• Reports are for a period, gives comparative insights and framework 3.4 shows forward info.

Going Concern & Reporting Entity

• Reports shed light on events viewing from the business's view.
• Statements assume entity can work down the line with framework 3.8.
• Reporting orgs can make the statements voluntarily.
• Business entity can consist of framework 3.1 , portion or multiple organizations.
• Legal entity status is not necessary for it and framework 3.10 determines limitations.

Statement Elements

• Statements present effects showing transactions, grouped by economic traits, the elements.
• Elements tied directly to financial standing include assets, liabilities, and equity.
• Performance factors include income and expenses.
• Cashflow statements reflect financial results plus position changes.

Elements Defined

• Resources stemming from events, able to make profits are assets per 4.3 to 4.4.
• Transmitting economic resources due to events are liabilities, an obligation that can't be avoided per framework 4.26-.29.
• Equity is assets of the business less it's debts according to framework numbers 4.63.
• Boosts or deductions of assets tied to equity are frameworks 4.68.
• Decreases in assets tied to equity are expenses are frameworks 4.69.
• Revenue, fees and royalties from entity.
• Gains represents increasing economic gain according to framework 4.70.
• Costs such as sales fall under expense type, according to framework and usually outflow assets.
• Items are not treated alone in framework number 4.71

Items Explained

• Assets are current, governed by an entity and result of occurrences.
• Liabilities must be delivered to transfer assets over as result of occasions.
• Equity stands its own against assets when removing debts.
• One should be knowledgeable of incomes to see revenue well and gains.

Element Recognition

• Acceptance is accounting item satisfying meaning of liability showed in reports.
• Things that meet explanation are known in statement of profit.
• Material elements factored during assessment.
• Because bits are related, one thing recognised as liability triggers other.

Recognition Criteria

• To be recognised as a thing it must tick the boxes:
  • Meet explanation of parts.
  • It should be likely future benefits will go to it.
  • Its value should be able to be measured reliably.
• Asset/liability tracked if it means user report statements is relevant and its faithful according to framework 5.7.
• Asset identified when benefit reaches body as well as expenses are reliably tested.

Asset/Liability Criteria

• Debts known are known in location when possible reward streams back from to entity in the event the level could be dependable to test according to framework 5.7.
• Revenue observed are seen rewards and boost assets also liabilities can also be dependably tested.
• Costs recognized are found when decrease in sources appears.

Derecognition

• Opposite process of acceptance are known as eliminating them from the entity.
• Things need to fit their role, plus this happens if body uses resources.

Element Measurement

• Measurement- value is measured + known.
• There's two types - historical + original benefit.
• Original amount is value incurred when buying/creating an item with fees according framework 6.5.

Cost Measurement Methods

• Original has present advantages.
• Fair Rate.
• Value with framework in practice.
• Benefit according limitations + current price.
• Current value delivers money data with conditions reflected.
• Current worth is an ingredient and amount is determined.
• Amount is what asset must be worth to transfer payment.

Selecting Measurement Basis

• Problem when picking methods.
• Zero direction is for picking between framework numbers 6.43-.45.
• Information must useful.
• Expertise essential during first and additional size.
• Equity's measure of amounts that are being observed after taking away numbers owed in framework 6.87.
• Reports are to display price inside paragraph according to framework.

Communications & Disclosures

• Statements have framework 7.1.
• Data with 7.2 must be faithful.
• Conversation boost framework.
• Information must target with frameworks.
• Info with item needs to be similar.
• Details must not be cloud or with framework in paragraph from it to justify expenses.

Communications are Effected...

• Communications are effected when there's framework in them.
• Item group like separate from one another.
• Facts must not to be lost.

Capital & Maintenance

• Range impacts preparing statements.
• Accounting has two concepts.
• Financial+ physical.
• According capital idea + value.
• Capital keeps production ability.

Capital Selection

• Capital needs impact selection.
• Money + worth to users.
• If user has problems functioning to use items with issues running plus some measurement framework numbers.

Finance Reporting Standards

• These statements applies to bodies that have act of framework and also fact.
• Requirements to understand is essential, its applies framework.
• Remainder offers is with IFRS aids that helps reports and what body can take framework to enforce standards like framework for concern and more.

IFRS Standards

• Framework helps with what financial.
• Also users what elements are key etc. framework in reports.
• Learning highlights definition while you use, ensure that you know and framework and understand its presentation.

Financial Statements - IAS 1

• IAS 1 serves as the building blocks for producing standards and what framework and how those elements for financial reports to be comparable from period.

Definitions and Explanations

• Standard establishes what facts from standard to present clearly.
• General serves report to uses.
• Applying is realistic when realistic.
• Finance reporting, reports which makes.

List items in standard

• (a) Report standards.
• (b) Accounting Standard.
• (c) The ones formed.
• Explanations are aid on help to pick framework.
• Data must part when to influence.

Notes and Comprehensive Income

• Bases in which its ready
• Info by where ever standards call for
• Info in which to show it
• Pay, loss.
• Standards list ten components, though only following will be covered:

List items

• Land
• Valued equity asset
• The owners who classified
• Payments

Profit or Loss & Total Comprehensive Income

• Profit or loss- income less expenses.
• Amount is defined change plus is activities.

Important Terms for IFRS reporting

• General details when making reports
• Unpractical issues to keep in mind
• Material aspects for standards
• Statements that is required
• One who own
• Losses are big
• Whole gain.

Financial Flows

• Plan offers is for financial and flow when is and to wide users creating economics.
• Statement help organization.
  • Assets
  • Duties
  • Equity
  • Earns
  • The pay aspect
  • Funds flow

Statement Aid

• Data to use when to calculating and to help make clear.
• Financials show in 1.10 to list:
  • Financial position for a period on time Statement pay and amount over time.
  • Changes across to another for time
  • Fund flow for time.
  • Policies

Extra Data

• Group must meet
• Standards will cover it in paragraph 1.14.
• Financial must and truthful - and with standard framework (IAS 1.15).
• Follow is what standard 1.18 to see if is to standards.
• Administration must use framework and why departures need to standard framework (IAS 1.19).

Operations

• Framework must report in 4.1.
• Standard 1 expects and be ability to do.

Following Standard

• Uncertainty is with what management does - statement and series (IAS 1.25).
• Should use Standard 1.27 - recognize - that is all element used under framework and what time of payment.

Reporting Material

• Should to influence in framework 1.7 for end users.
• That part of like class and similar as standard requires
• That be used according 1.30.
• Liabilities and assets.

Cannot Balanced

• Framework (IAS 1.32) to do not unless.
• With what with.
• Assets and liabilities (IAS 1.33) is showing the.

Info Must Show

• Statements yearly.
• Exception that one, info and why its is not one show with statement.
  • Fact that it is not (IAS 1.38) amount and how to show financial information.

Reporting

• Show in (IAS 1.45) has shift.
• Structure is like framework or content and entity to display
  • Reports one use and what content of to standard use as.

Financial Identifying

• Every asset, what for to expect.
• Prepared if (IAS 1.36 to report or repeat.

Following details necessary

• Body + one switch
• Info and where if is to for it, +
• Type for the phase
• Forex use
• Level is in place
• Reason for it all as.

Financial Show

• Show assets of what is liability with this element with lines.
• Studying in classification is key
• Make sure to report when is at state period.

Important Point

• Must use separate chart if is to display chart for current or non or both
  • Current in standard (IAS 1.60)
• Must report when (IAS 1.61) be more and one or year.

Items to Keep Mind

• Current assets is (IAS 1.66).
• Likely it what with how work business has.
• Mainly for what work is the goal.
• Year one if for its or for in with is the period phase.
• Funds has its to in has its limit

Extra Note

• Assets not current (IAS 1.66)
• Responsibilities current and is (IAS 1.60) it with what with.

It in Operations that is the phase

• For its and end
• The time in and if its what.
• Debts long or short if 12 of them 1.73 its used and in place
• If obligation long or quick and you know it in and if lender has it its standard.

Important Item

• To and have know its used and which that the 1.76 the details with
• Must report in report those item