Summary
International Financial Reporting Standards (IFRS) summary
- Course
- Institution
Detailed summary of the concepts and lectures from the UvA course International Financial Reporting Standards (IFRS)
[Show more]
Seller
Follow
isameyn
Content preview
International Financial Reporting Standards (IFRS)Week 1
Chapter 1: The IASB and its Conceptual Framework
In 1973, the International Accounting Standards Committee (IASC) was formed by 16
national professional accounting bodies from 9 countries. However, the IASC was seen as
having a number of shortcomings:
- It had weak relationships with national standard setters;
- There was a lack of convergence between the IASC and those adopted in major
countries;
- The board was only part time;
- The board lacked resources and technical support.
In 1998, the committee responsible for overseeing the operations of the IASC began a review
of the IASC’s operations. The results of the review were recommendations that the IASC be
replaced with a smaller, full-time International Accounting Standards Board.
The IASB is an independent standard-setting board. The IFRS Interpretations Committee
(formerly IFRIC) issues interpretations of and guidance on the requirements of IFRS
Standards in relation to accounting for specific transactions or events.
The due process for issuing IFRSs comprises the following 6 stages: (1) setting the agenda, (2)
planning the project, (3) developing and publishing the discussion paper, (4) developing and
publishing the exposure draft, (5) developing and publishing the standard, and (6)
procedures involving consultation and evaluation after an IFRS has been issued.
The IFRS Interpretations Committee reviews newly identified financial reporting issues that
are not specifically dealt with in IFRS. When approved by the IASB, IFRIC Interpretations have
equivalent status to standards issued by the IASB; although IFRIC Interpretations are not
accounting standards, they form part of IFRSs such that compliance with IFRSs means
compliance with both accounting standards issued by the IASB and IFRIC Interpretations
approved by the IASB.
The IASB’s advisory boards: IFRS Advisory Council, Capital Markets Advisory Committee,
Emerging Economies Group, Global Preparers Forum, SME Interpretations Group.
The purpose of a conceptual framework is to provide a coherent set of principles;
- To assist standard setters to develop a consistent set of accounting standards for the
preparation of financial statements
- To assist preparers of financial statements in the application of accounting standards
and in dealing with topics that are not the subject of an existing applicable accounting
standard
- To assist auditors in forming an opinion about compliance with accounting standards
- To assist users in the interpretation of information in financial statements
The IASB’s Conceptual Framework deals only with the objective of general purpose financial
reporting; financial reporting intended to meet the information needs common to a range of
users who are unable to command the preparation of reports tailored to satisfy their own
particular needs.
,IFRS reflect a principles-based approach to developing accounting standards, rather than a
rules-based approach.
Qualitative characteristics of useful financial information:
- Relevance (predictive, confirmatory, material). Information is relevant if: it is capable
of making a difference in the decisions made by the capital providers as users of
financial information, it has predictive value, confirmatory value or both and if it is
capable of making a difference whether the users use it or not.
- Faithful representation (complete, neutral, free from error). A depiction is complete
if it includes all information necessary for faithful representation. Neutrality is the
absence of bias intended to attain a predetermined result.
,The Conceptual Framework identifies four enhancing qualitative characteristics:
- Comparability: the quality of information that enables users to identify similarities in
and differences between two sets of economic phenomena.
- Verifiability: a quality of information that helps assure users that information
faithfully represents the economic phenomena that it purports to represent.
- Timeliness means having information available to decision makers before it loses its
capacity to influence decisions.
- Understandability is the quality of information that enables users to comprehend its
meaning.
Going concern assumption (continuity assumption): financial statements are prepared
under the assumption that the entity will continue to operate for the foreseeable future. It is
assumed that an entity will continue to operate at least long enough to carry out its existing
commitments.
, Definition of elements in financial statements
Assets: an asset is defined as a resource controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to the entity. Three
characteristics:
1. the resource must have the potential to (directly or indirectly) contribute to the flow
of cash and cash equivalents to the entity.
2. the entity must have control over the future economic benefits in such a way that the
entity has the capacity to benefit from the asset in the pursuit of the entity’s
objectives, and can deny or regulate the access of others to those benefits.
3. there must have been a past event that gave rise to the entity’s control over the
future economic benefits.
Current asset when it satisfies one of the following criteria:
- it is expected to be recognized in the entity’s normal operating cycle
- it is held primarily for the purpose of trading
- it is expected to be realized within 12 months after the reporting period
- it is cash or a cash equivalent, unless it is restricted from being exchanged or used for
at least 12 months after the reporting period
All other assets are classified as a non-current asset
Liquidity approach: classification of assets and liabilities into current and non-current is
intended to give an approximate measure of an entity’s liquidity.
Operating cycle approach: classification is intended to identify those resources and
obligations of the entity that are continuously circulating.
Liabilities: a liability is defined as a present obligation of the entity to transfer an economic
resource as a result of past events.
A legal debt constitutes a liability, but a liability is not restricted to being a legal debt. A
liability must result in the giving up of resources embodying economic benefits that require
settlement in the future. A liability must have resulted from a past transaction or event.
Current liability when it satisfies one of the following criteria:
- it is expected to be settled in the entity’s normal operating cycle
- it is held primarily for the purpose of being traded
- it is due to be settled within 12 months after the BS date
- the entity does not have an unconditional right to defer settlement of the liability for
at least 12 months after the reporting period
All other liabilities are classified as a non-current liability
Equity: the residual interest in the assets of the entity after deducting all its liabilities.
Income: increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in increase in equity, other
than those relating to contributions from equity participants.
Expenses: decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or increases of liabilities that result in decreases in equity,
other than those relating to distributions to equity participants.
Asset recognition: an asset should be recognized in the statement of financial position when
it is probable that the future economic benefits will flow to the entity and the asset has a
cost or other value that can be measured reliably.
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 isameyn. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.22. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
67474 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now