Chapter 2 IASB International Accounting Standards PDF

Chapter 2 About IASB, International Accounting Standards, The Framework IASB (International Accounting Standards Board) Establish in 2001,the International Accounting Standards Board (IASB) is an Independent private sector body. To achieve convergence in the accounting principle...

Chapter 2 About IASB, International Accounting Standards, The Framework IASB (International Accounting Standards Board) Establish in 2001,the International Accounting Standards Board (IASB) is an Independent private sector body. To achieve convergence in the accounting principles that are used by businesses and other organizations for financial reporting around the world.  Monitoring Board Approve and oversee trustees IFRS Foundation 22 trustees. Appoint, oversee, raise funds. Board 16 members (maximum 3 part- time) Set technical agenda, approve Standards, exposure drafts and Interpretations. IFRS Advisory IFRS Council Interpretation Approx 40 s Committee members 14 members Working groups for major agenda projects  Monitoring Board Monitoring Board is to serve as a mechanism for formal interaction between capital market authorities. Participating in the process for appointing trustees and approving the appointment of trustees according to the guidelines set out in the IFRSF constitution; and Reviewing and providing advice to the trustees on their fulfilment of the responsibilities set out in the IFRSF constitution. The trustees will make an annual written report to the Monitoring Board. IFRS Foundation  Formerly IASC Foundation, is an independent, not-for profit private sector organization working in the public interest.  International Accounting Standards Board Is the independent standard-setting body of the IFRS Foundation. Its members are responsible for the development and publication IFRSs. The IFRS Advisory Council  The IFRS Advisory Council (formerly Standards Advisory Council) has 40 members and provides a forum for organizations and individuals with an interest in international financial reporting to participate in the standard setting process. The IFRS Interpretations Committee  The IFRS Interpretations Committee (formerly called the IFRIC) is the interpretative body of the IASB.  The mandate of the Interpretations Committee is to review on a timely basis widespread accounting issues that have arisen within the context of current IFRSs and to provide authoritative guidance (IFRICs) on those What are Accounting Standards? Accounting Standards are authoritative statements of how particular types of transaction and other events should be reflected in financial statements. Accordingly, compliance with accounting standards will normally be necessary for the fair presentation of financial statements. Are International Financial Reporting Standards Mandatory?  IASB has no authority to require compliance with its accounting standards because it is not a government institution. PHILIPPINE ASC MOVES TO IAS Support of IAS by Philippine organizations Increasing Internationalization of business Improvement of IAS Increasing recognition of IASB standards THE FRAMEWORK Purpose and Status This framework, framework for the preparation and presentation of financial statements sets out the concepts that underlie the preparation and presentation of financial statements for external users. Scope The framework deals with the objective of financial statements; the qualitative characteristics that determine the usefulness of information in financial statements; the definition, recognition and measurement of the elements from which financial statements are constructed; and concepts of Users and Their Information Needs (Financial Statement) Investors need information to help them determine whether they should buy, hold or sell. Employees are interested in information about the stability and profitability of their employers. Lenders are interested in information that enables them to determine whether their loans and the related interest will be paid when due. Suppliers and other trade creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Customers have an interest in information about the continuance of an enterprise, especially when they have a long-term involvement with, or are dependent on, the enterprise. Government and their agencies are interested in the allocation of resources and, therefore, the activities of the enterprises. They also require Objective of Financial Statements is to provide information about the financial position, performance, and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Stewardship  Steward  Financial statements also show the results of the stewardship of management, that is the accountability of management for the resources entrusted to it by the owner(s). Underlying Assumption Accrual Basis The effects of transactions and other events are recognized when they occur and not as cash is received or paid. This means that the accountant records revenues as they are earned and expenses as they are incurred.  Cash Basis The accountant does not record a transaction until cash is received or paid.  Going Concern The financial statements are normally prepared on the assumption that an enterprise is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations. Qualitative Characteristics of Financial Statements Materiality-Threshold Quality  A Threshold quality (or a cut off point) is one that needs to be considered before considering the other qualities of information.  Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. What makes financial information useful? Information that is not Threshold Materiality material cannot be useful quality More of one may Relevance mean less of the Reliability other Primary Qualitative Characteristics Relating to Content Relevance Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events, confirming, or correcting, their past evaluations. Financial information has a predictive role when it is used to make predictions of, for instance future cash flows or income. What makes information relevant? Information that Influences decisions Predictive Confirmator Choice of value y value attribute Inter- relate d  Reliability Faithful Representation Substance over form Neutrality Prudence/Conservatism Completeness What makes information reliable? Information that is free from error or bias Completen ess Faithful Prudence Representati Neutrality on Substance over Form Primary Qualitative Characteristic Relating to Presentation Comparability Understandability What qualities make the presentation of financial information useful? Understandabili Comparability ty Aggregation Consistency Disclosure User’s Abilities e.g. accounting and policies and Classification corresponding figures  Constraints on Relevant and Reliable Information Timeliness Balance between Benefits and Cost Balance between Qualitative Characteristics What limits the application of the qualitative Characteristics? Balance Constraints between Benefit and Cost Timeliness Characteristics  Fair Presentation  Elements of Financial Statements The elements directly related to the measurement of financial position in the balance sheet are asset, liabilities, and equity. The elements directly related to the measurement of performance in the income statement are income and expenses. Recognition of the Elements of Financial Statements It is probable that any future economic benefit associated with the item will flow to or from the enterprise; and  The item has a cost or value that can be measured with reliability. Measurement of the Elements of Financial  Measurement isStatements the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement. Measurement of the Elements of Financial Statements Historical Cost Current Cost Realizable (Settlement) Value Realizable Value Settlement Value  Present Value Concepts of Capital and Capital Maintenance  Financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the enterprise.  Physical Concept of capital, such as operating capability, capital is regarded as the productive capacity of the enterprise based on, for THANK YOU!!