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Complete summary IFRS (book + notes + slides)

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Cours
IFRS (F000689A)

Établissement
Universiteit Gent (UGent)

This document is a complete summary of the course International Financial Reporting Standards (IFRS, prof. dr. Van Cauwenberge). It includes all chapters that you need to study for the exam.

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Publié le 20 janvier 2021
Nombre de pages 35
Écrit en 2020/2021
Type Resume

ifrs
master tew accountancy
income taxes
importance of measurement
iasb
ppe
financial instruments
derivatives
fvtoci
fvtpl
hedging
hedge accounting
fair val
international financial reporting standards

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A note on the importance of
measurement
Accounting = a set of rules determining recognition, measurement and display that defines mapping
a company’s financial position into its financial statements.

 Recognition: when do we recognize something?
 Measurement= how do we measure something to put it in the balance sheet?
 Display: how should the financial statements look like? (loose form)

INCOME-BASED APPROACH
 Make the balance sheet based on the income statement
 Starts from transactions that took place
 Relies on historical costs, accrual accounting and matching
 Advantages:
o Intuitively meaningful
o Element of reliability because of the observable transactions
 Disadvantage:
o Values of assets and equity are valued at historical cost (may be outdated)

BALANCE SHEET-BASED APPROACH
 Make the income statement based on the balance sheet
 Relies on current values of assets and liabilities
o What will the assets and liabilities will cost/generate in the future?
o Value of A & L = discounted value of expected future cash flows
 Determine current values through either market prices or estimates
o Clean surplus income = ALL value changes in A & L are included in the income state
calculation
 Income = ∆value assets - ∆value liabilities
 Disadvantage: huge impact on the calculation of ratios
 Increases volatility  decreases share price
o >< Dirty surplus accounting = value changes are directly booked in A & L, not via
income statement
 Advantage: less volatility, better for the companies (lobby)

HC  FV
Profit Equity

HC FV HC FV

Year 1 16,67 42,97 116,67 142,97

Year 2 19,17 7,15 138,48 150,12

Year 3 21,79 7,51 157,63 157,63

Sum 57,63 57,63

,RESIDUAL INCOME VALUATION
 Important to take into account that money that you put in equity of a company, can not be
used to invest somewhere else.

, Chapter 1: the IASB and its
conceptual framework
IFRS are set by the IASB (International Accounting Standard Board)

 Funded by contributions from major accounting firms, private financial institutions and
industrial companies, central and development banks, etc.
 They began to realize the importance of having common standards in all areas of the
financial reporting chain

ADVANTAGES OF IFRS
 Easier comparison
 Worldwide the same standard in case of subsidiaries
 Easier to raise capital abroad
 Higher quality of accounting but audit is still necessary

IFRS IN EUROPE: ALL LISTED COMPANIES HAVE TO
APPLY IFRS
 European Financial Reporting Advisory Group (EFRAG)
o Ensures that European views are taken into account when developing new standards
o Provides advice to the European Commission about the standards
 Endorsement process
o IASB adopts new standard, an amendment or a new interpretation
o EFRAG provides advice to the European Commission
o European Commission decides weather or not to endorse, drafts a regulation and
submits this to the ARC (Accounting Regulatory Committee)
o If ARC agrees, draft is sent to European Parliament and Council for 3 months scrutiny
period
o If everything is ok, the commission adopts the endorsing regulation

IFRS IN THE US
 Securities and Exchange Commission (SEC)
 Financial Accounting Standards Board (FASB)
 Convergence plan between IASB and FASB

DIFFERENCES BETWEEN IFRS AND US GAAP
 IFRS does not permit LIFO
 US GAAP requires development cost to be expensed when the incur (no capitalization)
 US GAAP does not allow for revaluations of tangible and intangible assets

THE PURPOSE OF THE CONCEPTUAL FRAMEWORK
 To assist in developing a consistent set of standards & dealing with topics not covered by a
standard
o To assist preparers of financial statements
o To assist auditors in forming an opinion
o To assist users in the interpretation of information

,  When a user is in doubt, go back to the framework to find guidance

QUALITATIVE CHARACTERISTICS OF USEFUL
INFORMATION
 Fundamental qualitative characteristics
o Relevance (have the ability to influence a decision)
o Faithful representation
 Enhancing qualitative characteristics
o Comparability
o Verifiability
o Timeliness
o Understandability

ASSUMPTIONS UNDERLYING FINANCIAL STATEMENTS
 Financial statements are prepares under the going concern assumption
o Allocation of depreciation over useful life
o Support inclusion of goodwill in statement of financial position
o Otherwise IFRS 5 (discontinues operations)

DEFINITION, RECOGNITION AND MEASUREMENT OF
ELEMENTS IN FINANCIAL STATEMENTS
Definition Recognition

Assets  Future economic benefits  Probable
 Entity must have control  Reliable
 There must be a past event

Liabilities  A present obligation  Probable
 Must result in giving up resources  Reliable
 Results from past transaction

Equity Assets – Liabilities  Probable
 Reliable
 Influenced by the measurement system
adopted (accounting system)

Income Increase in economic benefits (also A&L)  Probable
 Reliable

Expenses Decrease in economic benefits (also A&L)  Probable
 Reliable

Measurement involves assigning valuations on all elements reported in financial statements

 Measurement basis (no obligation, just overview of possibilities
o Historical cost
o Current cost

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