Class notes
Lecture notes advanced financial accounting
- Course
- Institution
Lecture notes of 116 pages for the course Advanced Financial Accounting at UVT
[Show more]
Seller
Follow
anoukreumkens
Reviews received
Content preview
Advanced Financial AccountingLecture 1: Setting the Scene
1. Focus on International Financial Reporting Standards (IFRS)
What are IFRS?
➢ Globally accepted set of standards for financial reporting
➢ Developed by the International Accounting Standards Board (IASB)
o Set up in 2001 succeeding the International Accounting Standards Committee (IASC)
that was set up in 1973
➢ An independent private organization in London
➢ Funded by contributions from both private and public sector
➢ Very elaborate and transparent due process to safeguard independence and high quality
IFRS organization structure
➢ Public oversight (on process, not content) by Monitoring Board comprising securities
regulators and European Commission
➢ Independent oversight by Foundation Trustees
➢ Various advisory bodies
➢ Interpretations Committee to address upon
2. Changing role of Financial reporting
Value relevance of accounting information
Earnings Relevance
➢ Relevance has decreased over time. Mostly for new companies.
➢ Potential causes
o Increasing importance of sometimes unrecognized intangible assets
▪ R&D
▪ Branding
▪ Software
▪ People
o Alternative real-time sources of financial information
o Growing importance of non-financial information
,Changing role of annual report
Importance of non-financial information
➢ Externalities
o Effect on people, environment, society
➢ Internalisation of externalities
o Carbon pricing
o Penalties
o Customer behaviour
o Reputational risks
➢ Sustainability goals
o Paris agreement
➢ Shift from Financial capitalism to inclusive capitalism
o Coalition for inclusive capitalism set up by Lady Lynn Forester de Rothschild
➢ Diversity and inclusiveness
➢ Paying your fair share of tax
➢ Impact investment (e.g. EU sustainability taxonomy)
➢ Stewardship
What we have seen over the years
➢ All sorts of requirements for non-financial information in financial statements or in annual
report
o Remuneration management
o Corporate governance
o Country-by-country reporting of tax payments
o Sustainability information
o Health and safety information
o Diversity information
o Inequality
➢ Annual report is considered by government / regulators as a convenient mailbox for
disclosures by organizations
➢ Disadvantages: piecemeal, ‘flavor of the day’, no integration, no clear link with strategy, value
chain or performance.
o More difficult for companies to understand.
Initiatives
➢ Corporate Reporting
o ‘Core and More’ principle (Accountancy Europe)
▪ Webpage, where you start with headlines and can see more and more
information.
➢ Integrated reporting
o International Integrated Reporting Council (IIRC)
, ▪ Focus on investors
o Global Reporting Initiative (GRI)
▪ Broader range of stakeholders
o In some countries (like South-Africa) integrated reporting is mandatory
➢ Strategic report (UK)
➢ Non-Financial Reporting Directive (European Union)
Call for consolidation
➢ Different focus
o Investors only
o Or wider stakeholder group
➢ Different geographical area
o Global
o US
o EU
➢ Different topics
o Climate-risk
o Carbon
o All
➢ Initiatives for coordination
o Corporate reporting dialogue
o Merger of IIRC and SASB
How does sustainability reporting relate to financial reporting?
➢ Large Five Sustainability Standard Setters issued
statement of Intent in September 2020: Statement-of-
Intent-to-Work- Together-Towards-Comprehensive-
Corporate-Reporting
➢ Capital market perspective versus multistakeholder
perspective
Strategic direction of new sustainability standards board
➢ Trustees agreed in March 2021 on following strategic
direction SSB:
o Investor focus for enterprise value
▪ So no multi-stakeholder view
o Sustainability scope, prioritizing climate
▪ Sustainability in a broad sense (so the whole of Environment, Social and
Governance, ESG)
o Build on existing frameworks
▪ In particular FSB’s TCFD as well as the alliance of leading standard-setters in
sustainability reporting focused on enterprise value (SASB, GRI, IIRC, CDP,
CDSB)
o Building block approach
▪ Setting a globally consistent and comparable sustainability reporting baseline
▪ Providing flexibility for coordination and reporting requirements that capture
wider sustainability impacts
, Structure ISSB Exposure Drafts
➢ Draft IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial
Information
o Requires an entity to disclose material information about all of the significant
sustainability-related risks and opportunities to which it is exposed
o assessment of materiality shall be made in the context of the information necessary
for users of general purpose financial reporting to assess enterprise value
o If no specific IFRS Disclosure Standard on the topic, refer to other standards and to
other frameworks
o Information to be provided in the same package of reporting together with financial
reporting
➢ Draft IFRS S2 - Climate-related Disclosures
o Requires an entity to disclose information about its exposure to climaterelated risks
and opportunities, enabling users of an entity’s general purpose financial reporting:
▪ to assess the effects of climate-related risks and opportunities on the entity’s
enterprise value;
▪ to understand how the entity’s use of resources, and corresponding inputs,
activities, outputs and outcomes support the entity’s response to and
strategy for managing its climate-related risks and opportunities; and
▪ to evaluate the entity’s ability to adapt its planning, business model and
operations to climate-related risks and opportunities.
How does this affect IFRS and the work of the IASB?
➢ Compliance with IFRS accounting standards from the IASB does not require compliance with
IFRS sustainability disclosure standards from the ISSB
➢ Nor does compliance with ISSB standards mean compliance with IFRS
➢ But the two sets of standards affect each other
o Both may refer to management commentary for (required) disclosures
➢ Consistency financial statements with the commitments made in the management
commentary
➢ IASB considering effect on own agenda:
o Management Commentary Practice Statement
o Intangibles
o Asset retirement obligations
o Climate-risk related financial disclosures
➢ Joint projects with ISSB
How about the European Union?
➢ Financial Reporting
o Endorsement of IFRS (limited exceptions)
o Required for all listed entities
▪ Member States may allow or require other entities to apply endorsed IFRS
o Requires reasonable assurance by the financial auditor
➢ Sustainability disclosures
o EU has its own law (draft Corporate Sustainability Reporting Directive)
o EU is drafting its own technical standards for sustainability reporting
o Mandatory phase-in from 2024
o Will require limited assurance, later on reasonable assurance (not clear yet who can
provide assurance)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller anoukreumkens. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.83. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53340 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now