Accounting Standards Flashcards
Learn the Accounting standards
IAS1
Identifies:
1. The purpose of financial statements
2. Complete set of financial statements
Requires compliance with:
a. Accruals
b. Going concern
c. Consistency – of presentation & classification from one period to the next
d. Offsetting – assets and liabilities should not be offset unless required or permitted (i.e. bank current AC and bank overdraft represented separately)
e. Materiality and aggregation – each material class should be presented separately
IAS2
Deals with the classification and valuation of inventories
Lower of:
Cost And Net realisable value
Where goods are not interchangeable value at FIFO, AVCO, or LIFO (LIFO not allowed under IAS 2)
IAS 7
Provides guidelines for the presentation of the statement of cash flows
IAS 10
Identifies events after the reporting period and before statements authorised
Adjusting events - Provide evidence of conditions that existed at the end of the reporting period, if material should be included
Non-adjusting events do not confirm existence of conditions at the period end but if material, should be disclosed Dividends declared or proposed after reporting period end
Going concern - If an event after the year end results in the entity no longer being a going concern, therefore accounts shouldn’t be prepared as going concern
IAS 12
Income taxes - Deals with the amount of tax recognised at the end of the year, provisions for tax, and under/over provisions for tax
IAS 16
PPE - Deals with the recognition of these assets, initial measurement, measurement post acquisition and derecognition.
PPE covers any tangible assets that are:
- Held for use
- Expected to be used for more than one accounting period
Recognition - To recognise an asset, it must meet the definition of an asset then it must meet:
- Probable that future economic benefits associated with the item will flow to the entity; and
- The cost of the item can be measured reliably
Initial measurement - All assets should initially be measured at cost - Cost is the purchase price plus all directly attributable costs
Subsequent expenditure -Split into two types of cost:
Expenses – repairs/maintenance but be expensed in P&L Enhancement – expenditure which results in an enhancement to performance can be added to the asset in SOFP
Measurement post acquisition -Measured one of two ways:
1. Cost model – asset is carried at cost less accumulated depreciation
2. Revaluation model – asset carried at fair value less any subsequent accumulated depreciation
IF USED: all assets in that class must be held at fair value FREQUENCY: not specified but should be made with sufficient frequency so that the carrying amount doesn’t differ materially from fair value
Derecognition Assets should be derecognised when:
It is disposed of
No future economic benefits are expected from use or disposal
Disclosures - In the financial statement notes there should be a note which reconciles the opening position to the closing position in terms of: Cost/valuation, Depreciation & Carry amount by asset class
IAS 36
Impairment of assets - Impairment considers the effect of a fall in the value of an asset and how we account for this
Used for: intangibles with indefinite lives, goodwill acquired, intangibles not yet available for use, and any asset with indicators of impairment
Indicators of impairment:
External sources
- Significant fall in market value of asset
- Adverse effect on the business in the technological, market, economic or legal environment
- Increased market interest rates that reduce value in use
Internal sources
- Evidence of obsolescence or physical damage
- Asset not used as much as once was
Internal evidence that assets performance will be worse than expected
Impairment disclosure - Any impairment loss must be disclosed in the notes to the financial statements indicating which line it is shown in SPL
IAS 37
Provisions and contingents - States that a provision is a liability of uncertain timing or amount, and does not apply to depreciation and irrecoverable debts. A provision is a type of liability
Recognition -
Present obligation: Probable that an outflow of economic resources will be required Reliable estimate of the amount
Contingent liabilities: Where an obligation is only possible (<50%) or cannot be reliably measured Must be disclosed in the notes with estimation of financial effect and an indication of timing
Contingent assets - An asset arising from past events whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly in control of the entity
Disclosure required, with a brief description Identifies
Account for: Liabilities and Provisions
Disclose: contingent liabilities and assets
Certain = asset/liability
Probably (>50%) = provision, contingent asset
Possible (<50%) = contingent liability
Remote = no recognition
IAS 38
Intangible assets - Sets out the accounting treatment on acquiring, developing, maintaining, or enhancing intangible assets.
R&D - Research and development treated as separate items
Research – must be expensed through P&L as the entity cannot be certain that projects will generate any future economic benefit
Development – can be recognised in SOFP if it meets all PIRATE criteria
Subsequent measurement - Cost – cost less accumulated amortisation or Revaluation – carried at fair value less any accumulated amortisation – rarely used as difficult to determine
IFRS 3
Identifies - Provides key definitions as well as rules to follow for goodwill.
IFRS 10
Identifies - Consolidated financial statements are produced by the parent in addition to their single entity statements and are for the shareholders Need to use uniform accounting policies
Identifies how we establish control and therefore a ‘group’
IFRS 15
Revenue – income arising in the course of an entity’s ordinary activities
Adopts 5 stage process for recognising revenue:
1. Identify the contract with customer
Supply goods/services or an element of both
Only falls inside IFRS 15 if:
o Contracts approved and commitment to carry out
o Rights and payment terms identified
o Commercial substance
o Probable entities will collect consideration they are entitled to
2. Identify the separate performance obligations
Goods and services only split if the company can benefit from either item individually (“distinct”), i.e., a mobile phone and line contract “bundle arrangement”
3. Determine the transaction price
4. Allocate the transaction price
5. Recognise revenue as each performance obligation is satisfied Control either passes at a point in time (usual for goods) or over time (usual for services)
IFRS 16
Identifies - Leases governs how to account for leasing
The means by which a company obtains the right to use NCAs IFRS 16 states cars are NOT low value assets
