Part F: The Impact Of Changes And Potential Changes In Accounting Regulation Flashcards
An entities first IFRS financial statements must…
- 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
The opening IFRS based SFP shall…
- Recognise all assets and liabilities (where IFRS say they should)
- Not recognise assets or liabilities (if IFRS says not to)
- Reclassify items where required
- Apply IFRS in measuring all recognised assets and liabilities
IFRS adoption required disclosures
Needed to explain how the transition from previous GAAP to IFRSs affected the entity’s reported financial position, financial performance and cash flows
The conceptual framework purpose is to…
- 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
The fundamental qualitative characteristics
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.
Enhancing qualitative characteristics of useful financial information
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
Asset definition
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
Liability definition
A present obligation of the entity to transfer an economic resource as a result of past events
Equity definition
The residual interest in the assets of the entity after deducting all its liabilities
Historic Cost - Asset
Historical cost including transaction costs. Includes interest accrued on financing component
Historical cost - liability
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
Value in use/ fulfilment value - asset
Present value of future cash flows from the continued use of an asset and from its disposal, net of transaction costs on disposal
Value in use/ fulfilment value - liability
Present value of future cash flows that will arise in fulfilling the liability, including future transaction costs
Current cost - asset
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
Current cost - liability
Consideration that would be received to incur an equivalent liability at measurement date minus transaction costs
Fair value definition
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
The disclosure problem
The disclosure problem is the perception that financial statements:
- do not provide enough relevant info
- include too much irrelevant info
- communicate the info ineffectively
The disclosure principles considered…
Principles of effective communication
Principles on where to disclose info
Principles of effective communication
- 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
Principles on where to disclose info
- the role of the primary financial statements and of the notes
- location of info
Information necessary to comply with the IFRS can be disclosed outside the financial statements if:
- 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
An entity can include non IFRS info in the financial statements but…
- 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
Criteria for the presentation of APMs
- 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
3 categories of accounting policies
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
Materiality definition
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
Elements of management commentary
- 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
