IFRS 1 Financial Reporting PDF

## Financial Reporting ### Regulatory and Conceptual Framework **1. Regulatory Framework** * **Statutory** * **Companies Act 2014 (Republic of Ireland)** * Relates to all limited companies * Companies financial statements must be filed with Registrar of Companies * Prescribes use of...

## Financial Reporting ### Regulatory and Conceptual Framework **1. Regulatory Framework** * **Statutory** * **Companies Act 2014 (Republic of Ireland)** * Relates to all limited companies * Companies financial statements must be filed with Registrar of Companies * Prescribes use of IFRS or Local GAAP * Disclosure of information * FS must be true and fair * EU Laws and Regulations (including for listeds) **2. Regulatory Framework** * **Non-Statutory** * **Standards and Concepts** * International Financial Reporting Standards (IFRS) requirement is to "present fairly" (= "true and fair") * Sets out the information and activities that should be included in the FS and how they should be presented **3. Financial Reporting Conceptual Framework** * The IFRS Conceptual Framework forms the theoretical basis for determining which events should be accounted for, how they should be measured and how they should be communicated to the user. * A framework is a real or conceptual structure intended to act as a support or guide. * Conceptual framework, is not a Financial Reporting Standard, it does not override specific standards. ### IASB framework: key headings * Financial statements and the reporting entity * Elements of financial statements * Recognition and de-recognition * Measurement * Presentation and disclosure * Concepts of capital and capital maintenance * Each chapter flows logically from the objective of general purpose financial reporting ### Objective of general-purpose financial reporting * Provide financial information about the reporting entity that is: * Useful to existing and potential investors, lenders and other creditors * In making economic decisions about * Providing resources to the entity ### Objective * Provide information * About the financial position / economic resources and claims of a reporting entity * About the effects of transactions and other events that change an entity's financial position * How efficiently and effectively the entity's management have discharged their responsibilities - stewardship ### Changes in economic resources * Arise from: * Financial performance – based on accrual accounting * Other events and transaction - issue of debt / equity – which have implications for the future ### Accrual accounting * Accrual accounting depicts the effects of transactions on a reporting entity's economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period. * Financial performance also reflected by past cash flows ### Financial Reports limitations * These cannot provide all of the information that users need. * Users need pertinent information from other sources for example general economic conditions and expectations, political events, political climate, industry and company outlooks. * These are not designed to show the value of the reporting entity but provide information to estimate its value. * Financial reports are based on estimates, judgements and models rather than exact depictions. * The Framework establishes the concepts that underlie these estimates, judgements and models. ### Qualitative characteristics * Attributes that make **information** provided in financial statements **useful** to others. * Fundamental characteristics, relevance and faithful representation (previously reliability) * Enhancing characteristics, comparability, verifiability, timeliness and understandability ### Relevance * Relevant financial information is capable of making a difference in the decisions made by users, if it has predictive or confirmatory value or both. * Predictive value, if it can be used as an input to processes employed by users to predict future outcomes. * Confirmatory value, provides feedback about previous evaluations, it confirms or changes these. * Predictive value and confirmatory value are interrelated, revenue for current year can be used to predict revenue for future years and can be compared with revenue predictions that were made in the past. ### Materiality * Relevant: consider **materiality** * Information is material if omitting, misstating or obscuring it could influence decisions that users make on the basis of financial information about a specific reporting entity. * It is an entity-specific aspect of relevance based on the nature or magnitude or both. * No uniform quantitative threshold. ### Faithful representation * Financial reports represent economic phenomena/events in words and numbers. * Financial information must faithfully represent the events that it purports to represent. * In many circumstances the substance of an economic event and the legal form are the same, if not substance over form. * Three characteristics, complete, neutral and free from error. ### Complete and Neutral * A complete depiction may include information necessary for a user to understand the events being depicted, including all necessary descriptions and explanations. * Neutral, A neutral depiction is without bias in the selection or presentation of financial information. Neutrality is supported by the exercise of prudence ### Prudence * Prudence is described as caution when making judgements under conditions of uncertainty. * Uncertainties surround many events and circumstances, the collectability of doubtful receivables, probable useful life of plant, the number of warranty claims. * Uncertainties recognised by the disclosure of their nature and extent and by the exercise of prudence. ### Free from error * The nature and limitations of the estimating process are explained. * No errors have been made in selecting and applying a process for developing the estimate. * Consider impairment of an asset, value in use, future cash flows, discount rate. ### Measurement uncertainty * When monetary amounts in financial statements cannot be observed directly and must be estimated measurement uncertainty arises. * A representation of an estimate can be faithful if The amount is described clearly and accurately as being an estimate. ### Enhancing qualitative characteristics - comparability * Information about a reporting entity is more useful if it can be compared with similar information about other entities and. * With similar information about the same entity for another period or date. ### Consistency * Consistency (not the same as comparability) refers to the use of same methods for the same items. * Permitting alternative accounting methods for the same economic event diminishes comparability. ### Verifiability * Verifiability helps assure users that information faithfully represents the economic phenomenon it purports to represent. * Verifiability means that different knowledgeable and independent observers could reach consensus that a particular depiction is a faithful representation. * To help users decide whether they want to use information, it would normally be necessary to disclose the underlying assumptions, the methods of compiling the information and other factors that support the information. * Verification can be direct, cash count or indirect inventory checking quantity and costs. * For forward looking information it would normally be necessary to disclose underlying assumptions and methods of compiling the information. ### Timeliness and understandability * Timeliness means having the information available to decision makers in time to be capable of influencing their decisions, the older the information the less useful. * Understandability, classifying, characterising and presenting information clearly and concisely makes it understandable. * Main constraint to providing useful information is cost. ### Financial statements: objective and scope * To provide financial information about the reporting entity's assets, liabilities, equity, income and expenses (ALICE). * Useful to users in assessing prospects for future net cash inflows and management stewardship. * Normally prepared on a going concern basis, entity will continue in operation for the foreseeable future, the entity does not intend or need to liquidate or curtail materially the scale of its operations. ### Information provided in * Statement of financial position * Statement of financial performance * In other statements and notes by presenting and disclosing information * About recognised assets, liabilities etc * Assets and liabilities that have not been recognised including information about their nature and risks * Also provide information about events after the end if necessary to meet objective ### Reporting entity * An entity that is required or chooses to prepare financial statements. It can be a single entity or a portion of an entity or can comprise more than one entity. * Parent and subsidiaries = consolidated financial statements. * Parent = unconsolidated financial statements.