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International financial reporting standards 1 samenvatting week 1 tm week 8
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International financial reporting standards 1 – summary including questions per weekSubjects throughout the weeks:
Week 1: introduction to IFRS
Week 2: Accounting for assets
Week 3: Group Accounting
Week 4: Financial instruments
Week 5: Employee benefits
Week 6: Recent developments in IFRS
Week 1 – introduction to IFRS
The objective of financial statements is to provide financial information about the reporting entity
that is useful to present and potential equity investors, lender and other creditors in making
investment decisions.
Two main objectives of financial reporting:
Backward looking: how well did the management allocate their resources? (stewardship)
Forward looking: are we going to make profit in the future? (Economic relative)
International financial reporting standards: Principle based standards
US GAAP: Rule based standard
Enhancing qualitative characteristics
Comparability
Verifiability
Timeliness
Understandability
Main underlying assumption: going concern (entity will continue in operation for foreseeable future
when preparing the accounts)
Assets: Resources controlled by the entity as a result of past events and from which future economic
benefits are expected. Assets can be current or non-current. Current assets are assets on the
balance sheet which can either be converted to cash or used to pay current liabilities within 12
months. Non-current assets are assets of a business intended for continuing use (remaining useful
life > 12 months).
Liabilities: Present obligation of the entity which arose from past events; their settlement will lead
to an outflow of resources embodying economic benefits. Current liabilitities are the debts that a
company owes that must be paid within 12 months. Non-current liabilities are all liabilities not
classified as current.
Equity: The residual interest in the assets of the entity after deducting all its liabilities (i.e., the
residuum of assets and liabilities).
Use of equity: to vote for directors of the company, right to share in assets after liquidation and right
to share proportionate in any new issues of shares
Different forms of share capital: ordinary shares and preference shares
Equity changes through time as a result of transaction with shareholders and via gains/losses
,Overall gains and losses in shareholders equity are called Total comprehensive income = result in
income statement + result in OCI
Basic Earnings Per Share: earnings attributable to ordinary shareholders divided by weighted average
number of ordinary shares outstanding
Diluted Earnings Per Share: Adjustments to earnings and number outstanding due to dilutive
securities
income: Represents an increase in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases in liabilities that result in increases in equity
Expense: Represents a decrease in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases in equity.
Elements of recognition:
-Future benefit: recognize elements once it is probable that any associated future benefit will flow to
or from the entity
-Reliability: Recognize element only if cost or any other value can be measured with reliability.
IFRS Committees:
IFRS Interpretations Committee: reviews newly identified financial reporting issues
Advisory bodies: IFRS Advisory Council, Capital Markets Advisory Group, Emerging Economic Groups,
Global Preparers Forum, SME Interpretation Group
Principal objectives of the IFRS Foundation:
A. Develop a single set of high quality IFRS through the IASB
B. Promote use of those standards
C. Take into account the financial reporting needs of emerging economics and SME’s
D. Promote and facilitate adoption of IFRS’s
IASB uses the Conceptual Framework as a guidance on developing future standards and
promotion harmonization of standards. Conceptual Framework is not an IFRS and is there to
, “assist”.
Two types of financial statements:
Consolidated f/s (treating parent and subsidiaries as single economic entity);
Parent company f/s (reflects activities of parent and treats subs as financial investments.
IFRS 8 – an entity shall disclose information to enable users of its financial statements to evaluate the
nature and financial effects of the business activities in which it engages and the economic
environments in which it operates. Segment information gives a better understanding of the entity
past performance, better assess the entity’s past performance and makes more informed judgement
about the entity as a whole.
Operating segment is defined as a component of the entity that:
engages in business activities from which it may earn revenues and incur expenses;
whose operating results are regularly reviewed by chief operating decision makers to make
decisions about allocating resources to be allocated to the segments and assess its
performance;
for which discrete financial information is available.
Direct cash flow statement starts with cash received from customers, indirect starts with profit and
adjusts the non-cash items
Week 2 – Accounting for Assets
Assets: Resources controlled by the entity as a result of past events and from which future economic
benefits are expected. Assets can be current or non current. Current assets are assets on the balance
sheet which can either be converted to cash or used to pay current liabilities within 12 months. Non-
current assets are assets of a business intended for continuing use (remaining useful life > 12
months).
, Liabilities: Present obligation of the entity which arose from past events; their settlement will lead
to an outflow of resources embodying economic benefits. Current liabilities are the debts that a
company owes that must be paid within 12 months. Non-current liabilities are all liabilities not
classified as current.
Recognition of assets and liabilities
- Probable future economic benefits flowing to or from the entity
- Its cost or value can be reliably measured
IAS 16 PPE
Defines Property, Plant & Equipment as:
- Tangible items
- With a specific use within the entity
- That are expected to be used during more than one period
Not included: assets held for sale, Biological assets and mineral rights/reserves
Recognition of the asset
Cost recognized as an asset if:
- It is probable that economic benefits will flow to the entity and;
- The costs can be reliably measured
Note: conceptual framework states that cost or value can be measured reliably, but IAS 16 states on
recognition of PPE that: cost can be measured reliably.
(Where future economic benefits are not expected to flow to the entity, costs incurred should be
expensed)
Initial measurement of the asset
The cost included in the initial recognition (conform IAS 16 paragraph 16):
A) Purchase price (at fair value)
B) Directly attributable costs required to bring the asset to the location and condition necessary for it
to operate; and (Directly attributable costs: 1 borrowing cost are interest and other cost associated
with the borrowing of funds. 2 Borrowing cost that are directly attributable to the acquisition
construction or production of a qualifying asset must be capitalized as part of the cost of the asset. A
qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended
use or sale.
C) initial estimate of costs of dismantling, removing the item or restoring the site.
Measurement subsequent to initial recognition
IAS 16 allows two measurement models: (the class that is chosen must be applied to the whole class
of assets)
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