Part F: The Impact Of Changes And Potential Changes In Accounting Regulation

Question 1

An entities first IFRS financial statements must…

Answer 1

• be transparent for users and comparable over all periods presented
• provide a suitable starting point for IFRS accounting
• be generated at a cost that does not exceed the benefits

Question 2

The opening IFRS based SFP shall…

Answer 2

1. Recognise all assets and liabilities (where IFRS say they should)
2. Not recognise assets or liabilities (if IFRS says not to)
3. Reclassify items where required
4. Apply IFRS in measuring all recognised assets and liabilities

Question 3

IFRS adoption required disclosures

Answer 3

Needed to explain how the transition from previous GAAP to IFRSs affected the entity’s reported financial position, financial performance and cash flows

Question 4

The conceptual framework purpose is to…

Answer 4

• to help develop and revise IFRSs that are based on consistent concepts
• to help preparers develop consistent accounting policies for areas that are not covered by a standard or where there is choice of accounting policy
• to help everyone understand and interpret IFRSs

Question 5

The fundamental qualitative characteristics

Answer 5

Relevance

• capable of making a difference in the decisions made by users.
• has predictive value, confirmatory value, or both

Faithful Representation

• representation of substance of an economic phenomenon instead of representation of its legal form only
• seeks to maximise the underlying characteristics of completeness, neutrality and freedom from error.

Question 6

Enhancing qualitative characteristics of useful financial information

Answer 6

Comparability
- with other periods of time, entities

Verifiability

• helps to assure users that info represents faithfully the economic phenomena it purports to represent
• different observers could reach consensus that a particular depiction is a faithful representation

Timeliness

Understandability
- classifying, characterising and presenting information clearly and concisely makes it understandable

Question 7

Asset definition

Answer 7

A present economic resource controlled by the entity as a result of past events.

An economic resource is a right that has the potential to produce economic benefits

Question 8

Liability definition

Answer 8

A present obligation of the entity to transfer an economic resource as a result of past events

Question 9

Equity definition

Answer 9

The residual interest in the assets of the entity after deducting all its liabilities

Question 10

Historic Cost - Asset

Answer 10

Historical cost including transaction costs. Includes interest accrued on financing component

Question 11

Historical cost - liability

Answer 11

Historical consideration as yet owing in respect of goods and services received (net of transaction costs), increased by any onerous provision.

Includes interest accrued on financing component

Question 12

Value in use/ fulfilment value - asset

Answer 12

Present value of future cash flows from the continued use of an asset and from its disposal, net of transaction costs on disposal

Question 13

Value in use/ fulfilment value - liability

Answer 13

Present value of future cash flows that will arise in fulfilling the liability, including future transaction costs

Question 14

Current cost - asset

Answer 14

Consideration that would be given to acquire an equivalent asset at measurement date plus transaction costs. Reflects the current age and condition of the asset

Question 15

Current cost - liability

Answer 15

Consideration that would be received to incur an equivalent liability at measurement date minus transaction costs

Question 16

Fair value definition

Answer 16

The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

Excludes any potential transaction costs on sale or transfer

Question 17

The disclosure problem

Answer 17

The disclosure problem is the perception that financial statements:

• do not provide enough relevant info
• include too much irrelevant info
• communicate the info ineffectively

Question 18

The disclosure principles considered…

Answer 18

Principles of effective communication

Principles on where to disclose info

Question 19

Principles of effective communication

Answer 19

• entity-specific and tailored
• simple and direct language
• organised to highlight important matters
• properly cross-referenced to highlight relationships
• no duplication
• in a way that optimises comparability

Question 20

Principles on where to disclose info

Answer 20

• the role of the primary financial statements and of the notes
• location of info

Question 21

Information necessary to comply with the IFRS can be disclosed outside the financial statements if:

Answer 21

• it is disclosed within the entity’s annual report
• it’s disclosure outside the financial statements makes the annual report as a whole more understandable
• it is clearly identified and incorporated in the financial statements by means of a cross-reference that is made in the financial statements

Question 22

An entity can include non IFRS info in the financial statements but…

Answer 22

• must clearly identify as not being prepared in accordance with the standards and if applicable, as unaudited
• disclose in FSs a list of the info labelled as non-IFRS
• explain why the info is relevant and represents faithfully the economic events that it purports to represent

Question 23

Criteria for the presentation of APMs

Answer 23

• displayed with equal or less prominence than the totals/sub totals required by IFRS
• reconciled to the most directly comparable IFRS measures
• neutral, free from error and clearly labelled so they are not misleading
• classified, measured and presented consistently over time
• identified as to whether they form part of the FSs and whether they’ve been audited
• accompanied by certain explanations and comparative info

Question 24

3 categories of accounting policies

Answer 24

1 - always necessary to understand the financial statements
For example,
-when related to materials items, transactions or events
-Reflects a change form prev period
-developer by the entity in absence of specific requirements
-uses significant judgements or assumptions
-selected from alternatives in IFRSs

2 - not in category 1 but necessary to understand the FSs

3 - used in preparing the FSs but not in 1 or 2

1 and 2 must be disclosed

Question 25

Materiality definition

Answer 25

Material is material if omitting it or miss taking it could influence decisions that users make in the basis of the financial info

• IASB concedes that judgement is needed to see if info could reasonably be expected to influence decisions that its primary users make
• to see if something is material involves assessing qualitative and quantitative factors

Question 26

Elements of management commentary

Answer 26

• the nature of the business - including the external environment
• managements objectives and strategies
• entity’s most significant resources, risks and relationships
• results of operations and prospects
• critical performance measures and indicators that management uses to evaluate the entity’s performance against stated objectives