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Intermediate Accounting IFRS summary
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Intermediate Accounting 3rd Edition, by Gordon, Raedy & Sannella,
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Manual of Intermediate Accounting IFRS 2nd edition
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Chapter 1: Financial Reporting and Accounting StandardsGlobal Markets
The essential characteristics of accounting are:
1. The identification, measurement, and communication of financial information about
2. Economic entities to
3. Interested parties.
Financial accounting is the process that culminates in the preparation of financial reports on the enterprise for
use by both internal and external parties.
Managerial accounting is the process of identifying, measuring, analyzing, and communicating financial
information needed by management to plan, control, and evaluate a company’s operations.
Financial statements are the principal means through which a company communicates its financial information
to those outside it. The most frequently provided are:
1. The statement of financial position,
2. The income statement (or statement of comprehensive income),
3. The statement of cash flows, and
4. The statement of changes in equity.
Accountants must measure performance accurately and fairly on a timely basis, so that the right managers and
companies are able to attract investment capital.
To facilitate efficient capital allocation, investors need relevant information and a faithful representation on
that information to enable them to make comparisons across borders.
Objective of Financial Reporting
Q: What is the objective (or purpose) of financial reporting?
A: The objective of general-purpose financial reporting is to provide financial information about the reporting
entity that is useful to present and potential equity investors, lenders, and other creditors in making
decisions about providing resources to the entity.
General-purpose financial statements provide financial reporting information to a wide variety of users.
General-purpose financial statements provide at the least cost the most useful information possible.
Important focus of general-purpose financial reporting: identifying investors and creditors as the primary user
group for general-purpose financial statements.
An entity perspective: companies are viewed as separate and distinct from their owners (present
shareholders). It is consistent with the present business environment where most companies engaged in
financial reporting have substance instinct from their investors.
A perspective that financial reporting should be focused only on the needs of the shareholders – proprietary
perspective – is not considered appropriate.
Investors are interested in financial reporting because it provides information that is useful for making decisions.
→ Decision-usefulness approach
When making decisions, investors are interested in assessing:
1. The company’s ability to generate net cash inflows, and
2. Management’s ability to protect and enhance the capital providers’ investments.
,Accrual-basis accounting: it ensures that a company records events that change its financial statements in the
periods in which the events occur, rather than only in the periods in which it receives or pays cash.
→ A company recognizes revenues when it provides the goods or performs the services rather than when
it receives cash.
→ It recognizes expenses when it incurs them rather than when it pays them.
Standard-Setting Organizations
The main international standard-setting organization is called the International Accounting Standards Board
(IASB), and it issues International Financial Reporting Standards (IFRS), which are used on most foreign
exchanges.
The International Organization of Securities Commissions (IOSCO) is an association of organizations that
regulate the world’s securities and futures markets. It does not set accounting standards, but it is dedicated to
ensuring that the global markets can operate in an efficient and effective basis.
The standard-setting structure internationally is composed of the following four organizations:
1. The IFRS Foundation provides oversight to the IASB, IFRS Advisory Council, and IFRS Interpretations
Committee.
2. The International Accounting Standards Board (IASB) develops, in the public interest, a single set of
high-quality, enforceable, and global international financial reporting standards for general-purpose
financial statements.
3. The IFRS Advisory Council provides advice and counsel to the IAS on major policies and technical
issues.
4. The IFRS Interpretations Committee assists the IASB through the timely identification, discussion, and
resolution of financial reporting issues within the framework of IFRS.
The purpose of the Monitoring Board is to establish a link between accounting standard-setters and those
public authorities that generally oversee them.
The IASB due process has the following elements:
1. An independent standard-setting board overseen by a geographically and professionally diverse body
of trustees;
2. A thorough and systematic process for developing standards;
3. Engagement with investors, regulators, business leaders, and the global accountancy profession at
every stage of the process; and
4. Collaborative efforts with the worldwide standard-setting community.
The characteristics of the IASB reinforce the importance of an open, transparent, and independent due process:
• Membership. The board consists of 13 full-time members.
• Autonomy. The IASB is not part of any other professional organization.
• Independence. Full-time IASB members must sever all ties from their past employer.
• Voting. Seven of 13 votes are needed to issue a new IFRS.
The IASB issues three major types of pronouncements:
1. International Financial Reporting Standards.
2. Conceptual Framework for Financial Reporting: form a cohesive set of interrelated concepts that will
serve as tools for solving existing and emerging problems in a consistent manner.
3. International Financial Reporting Standards Interpretations. These interpretations cover:
a. Newly identified financial reporting issues not specifically dealt with in IFRS, and
b. Issues where unsatisfactory or conflicting interpretations have developed, or seem to
develop, in the absence of authoritative guidance.
Fair representation is assumed to occur if a company follows the guidelines established in IFRS.
,Financial Reporting Challenges
Considering the economic consequences of many accounting rules, special interest groups are expected to
vocalize their reactions to proposed rules.
The expectations gap: what the public thinks accountants should do and what accountants think they can do.
Some major challenges facing the accounting profession relate to the following items:
• Nonfinancial measurement: how to report significant key performance measurements.
• Forward-looking information: how to report more future oriented information.
• Soft assets: how to report on intangible assets.
• Timeliness: how to report more real-time information.
, Chapter 2: Conceptual Framework for Financial Reporting
Conceptual Framework
A conceptual framework establishes the concepts that underlie financial reporting. It is a coherent system of
concepts that flow from an objective.
Q: Why do we need a conceptual framework?
A: Rule-making should build on and relate to an established body of concepts.
A soundly developed conceptual framework thus enables the IASB to issue more useful and consistent
pronouncements over time, and a coherent set of standard should result.
Standard-setting that is based on personal conceptual frameworks will lead to different conclusions about
identical or similar issues that it did previously.
→ Standards will not be consistent with one another, and past decisions may not be indicative of future
ones.
As a result of soundly developed conceptual framework, the profession should be able to more quickly solve
new and emerging practical problems by referring to an existing framework of basic theory.
An overview of the conceptual framework:
The first level identifies the objective of financial reporting: the purpose of financial reporting.
The second level provides the qualitative characteristics that make accounting information useful and the
elements of financial instruments.
The third level identifies the recognition, measurement, and disclosure concepts used in establishing and
applying accounting standards and the specific concepts to implement the objective.
The objective of financial reporting is the foundation of the Conceptual Framework.
The objective of general-purpose financial reporting is to provide financial information about the reporting
entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions
about providing resources to the entity.
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