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28 Cards in this Set
- Front
- Back
- 3rd side (hint)
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The main elements affecting the financial position of a business are:
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- The economic resources it controls
- its financial structure - its liquidity and solvency - its capacity to adapt to changes in its environment |
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The purpose of the International Financial Reporting Framework is:
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- Assist in the development of future international financial reporting standard and in the review of current standards;
- provide a basis for reducing the number of alternative accounting treatments permitted by IFRS - assist national standard setting bodies in developing national standards - assist preparers of financial statements in applying IFRS and dealing with transactions that are not covered by IFRS - assist auditors in forming an opinion as to whether financial statements comply with IFRS - assist users in interpretation of the information contained in financial statements - provide information about the approach to the formulation of accounting standards |
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Harmonized financial reporting standards are intended to provide: |
- a platform for wider investment choice
- a more efficient capital market
- lower cost of capital
- enhanced business development |
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The formal objective of the IASB are to: |
- develop a single set of high quality global accounting standards
- promote the use and rigorous application of those standards
- bring about convergence of national accounting standards and IFRSs to high quality solutions |
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IFRS foundation
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- made up of 22 trustees
- trustees monitor and fund the IASB, the IFRS Advisory Council and the IFRS interpretations committee |
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IFRS Advisory Council
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- gives advice to the board and advise the trustees
- 50 members - meet at least 3 times a year and meetings are open to the public - is consulted by the IASB on all major projects - advises the IASB on prioritization of its work and on the implications of proposed standards for users and prepares of financial statements |
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IFRS interpretations committee
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- provide timely guidance on the application and interpretation of international financial reporting standards
- deals with newly identified financial reporting issues not specifically addressed in IFRSs or issues where unsatisfactory or conflicting interpretations have developed |
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Identify the 4 steps involved in developing an individual standard |
1 - IASB establishes an advisory committee to give advice on issues arising in the project. Consultation with the Advisory Committee and the standards Advisory Council occurs throughout the project
2 - develop and publish discussion papers for public comment
3 - develop and published an exposure draft for public comment
4 - issue a final International Financial Reporting standard |
Public comment 120 days |
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European commission
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The only organization to produce international standard of accounting practices which are legally enforceable in the form of directives which must be included in the national legislation of Member States
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International federation of accountants IFAC
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- private sector body established in 1977 now consists of over 100 professional accounting bodies from 80 different countries
- main objective is to coordinate the accounting profession on a global scale by issuing and establishing international standards on Auditing, management accounting, ethics, education and training |
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Organization for Economic Co-Operation and Development OECD
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- supports the work of the IASB but also undertakes its own research into accounting standards via ad hoc working groups
- works on behalf of developed countries to protect them from the extreme proposals of the UN |
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Inventory valuation under UK GAAP , US GAAP, and IFRS
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UK GAAP: LIFO is not permitted, must use FIFO
US GAAP: LIFO permitted; assuming prices are rising closing inventory would have a lower value IFRS: FIFO or weighted average permitted under IAS 2 for ordinarily interchangeable items |
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Development expenditure under UK GAAP, US GAAP and IFRS
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UK GAAP: should be written off in year of expenditure , except in certain circumstances where is maybe differed
US GAAP: must be written off to profit or loss under all circumstances IFRS: are capitalized under IAS 38 if certain criteria are met |
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Benefits of global harmonization
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- Simplified enforcement for local and national regulatory bodies
- easier to calculate investors tax liability MULTINATIONAL COMPANIES : - better access would be gained to foreign investor funds - improved management control - improved internal communication of financial information - straight forward appraisal of foreign entities for take overs and mergers - easier compliance with reporting requirements for overseas stock exchanges - increased ease of capital flow - possible reduction in audit costs - easier to transfer accounting staff across national borders |
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Barriers to global harmonization
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- different purposes of financial reporting.....tax assessment vs investor decision making
- different legal systems - different user groups....employees vs investors - cultural differences - unique circumstances ... hyperinflation, civil war, currency restriction, etc - lack of strong accountancy bodies |
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Deemed cost
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an amount used as a surrogate for cost or depreciated cost at a given date
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Fair Value
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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
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When making the transition to IFRS an entity should:
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- select accounting policies that comply with IFRS at the reporting date for the entity first financial stmt
- prepare an opening IFRS stmt of financial position - disclose the effect of the change in the financial statements |
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IFRS 1 requires that at least one year's comparative figures are presented in the first IFRS financial stmt. True or False
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True
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Date of transition to IFRS
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the beginning of the earliest period for which an entity presents full comparative information under IFRSs in its first IFRS financial statements
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Opening IFRS statement of financial position
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an entity's statement of financial position at the date of transition to IFRS
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In preparing the opening statement of financial position according to IFRS 1 an entity shall:
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- recognize all assets and liabilities required by IFRS
- not recognize assets or liabilities if IFRS does not permit - reclassify previous GAAP assets, liabilities or equities that are different under IFRS - apply IFRS when measuring all recognized assets and liabilities |
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How are the resulting adjustments for transitioning from previous GAAP to IFRS recognized in the financial statements
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directly in retained earnings at the date of transition
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Goodwill does not have to be tested for impairment at the transition date. True or False
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False - goodwill must be tested for impairment
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International organization of securities commission IOSCO
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- representative of the world securities market regulator
- active and encouraging in promoting the improvement and quality of IFRSs over the last 10 years |
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identify other international influences
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- european commission (EU)
- united nations (UN) - international federation of accountants (IFAC) - organization for economic cooperation and development (OECD) - international organization of security commission (IOSCO) - financial accounting standards board (FASB) |
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Scope and Application of IFRSs
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- not intended to be applied to immaterial items
- not retrospective - concentrate on the essentials and are not too complex - do not override local regulations on financial statements |
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Describe the IASB progress towards global harmonisation
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- IASB and national standard setters would coordinate their work plans so that when the IASB stats a project, national standard setters would also add it to their own work plans so that they can play a full part in developing international consensus
- national standards setters would not be required to vote for IASB's preferred solution in there national standards - the IASB would continue to publish its own exposure draft and other documents for public comment - national standard setters would publish their own exposure document at approximately the same time as IASB exposure drafts and would seek specific comments on any significant divergences between the two exposure documents - national standard setters would follow their own full due process which would integrate with the IASBs due process |
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