Lecture 1 - Basics of Financial Reporting Flashcards
IFRS vs. Swiss GAAP FER
IFRS
- Principle-based - True and Fair view principle
- Standards in constant evolution
- Detailed guidance, specific accounting treatment
- International recognition
Swiss GAAP FER
- Principle-based - True and Fair view principle
- Stability of standards
- Standards are simple and pragmatic
- National recognition
The Int’l Accounting Standards Board (IASB)
IFRS: published from 2003 onwards by IASB
IAS: published 1973-2003 by the IASC.
The principles of the IFRS take precedence in case of contradiction.
Members are responsible for the following:
- the development and publication of IFRS Standards
- & approving interpretations of IFRS as developed by IFRIC
Mission Statement:
1. To develop, in the public interest, a single set of high-quality, understandable, and enforceable global standards that require high-quality, transparent, and comparable information.
2. To promote the use and rigorous application of those standards.
3. To account for the special needs of SMEs and emerging countries.
4. To bring convergence of national accounting standards and IAS and IFRS to high-quality solutions.
The IASB: Towards a global standard setter?
Convergence with US GAAP:
Norwalk Agreement 2022: IASB and US FASB will work together. Aim to eliminate differences between IAS/IFRS and US GAAP.
SEC Decision 2007: Acceptance by the SEC of IFRS by listed companies on American stock exchange without reconciliation to US GAAP
SEC Report: 2012: Consideration of incorporating IFRS into the reporting system of US-issuers
Today: ongoing convergence projects
To what extent is this feasible?
IFRS Accounting Standards as global standards may be possible if we mean de jure standardization, as all
countries could individually decide to adopt IFRS Accounting Standards as their financial reporting standards
> Achieving de facto standardization is already difficult, if not impossible, within one country. It is even less likely
across different countries because of differences in:
- Business practices
- Regulation systems
- Sources of finance
- Economic development
- However, this is no reason not to try to achieve de jure global standardization
Objectives of the Conceptual Framework
- To assist the Board in the development of future IFRSs and review of existing
- To assist the board in the harmonization of standards and procedures
- To assist national standard-setting bodies in developing national standards
- To assist preparers of FS in applying IFRS
- To assist auditors in forming an opinion on the compliance with IFRS
- To assist users of FSs in interpreting information correctly
- To provide those interested with more information about their approach to formulating the standards
The Framework of 2010
Recognition Criteria
- Recognition is the process of capturing for inclusion in the FS an item that meets the definition of one of the elements (asset, liability, equity, income, or expenses)
- Recognition involves depicting the item in words and by a monetary amount
- Recognition is relevant if it results in both relevant information and a faithful representation of those items.
Derecognition Criteria
- the removal of a recognized assets or liability
- Normally occurs when that item no longer meets the definition
- For an asset: occurs when the entity loses control of the asset
- For a liability: when the entity no longer has the present obligation
Measurement Basis
To quantify in monetary terms.
Possible measurement bases are:
- Historical Cost-> information derived from the transaction price or other event that gave rise to them. Unlike CV, it does not reflect a change in value.
-
Current Value-> Information updated to reflect conditions at the measurement date. Current value bases include:
-> Fair Value
-> Value in Use (assets) and fulfillment value (liabilities)
-> Current Cost
The factors to be considered when selecting a measurement basis are:
- Relevance
- Faithful Representation
Presentation & Disclosure
A reporting entity communicates information about its ALEIE by presenting and disclosing information in its FS.
Effective communication of information in FS require:
- focus on presentations and disclosure objectives and principles rather than focusing on rules
- classifiying information in a manner that groups similar items and separated dissimilar items
- Aggregating information in such a way that is not obscured either by unnecessary detail or by excessive aggregation.
To facilitate effective communication, a balance is needed between:
- giving entities the flexibility to provide relevant info that faithfully represents the entity’s ALEIE
- requiring information that is comparable, both period to period for between entities.
ALE
IE - Income Statement
Statement of Changes in Equity
Statement of Cash Flows
