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Gripping IFRS. The Pillars of Accounting. Chapter 1 The Pillars of Accounting. More about the Standards and their Interpretations. The Pillars. The Framework. Example 2: An inflow — income or liability? Example 3: Staff costs — an asset? Chapter 1. Contents continued …. IAS 1: Presentation of financial statements: an overview.
IAS 1: Presentation of financial statements: general features. Example 5: Items with different natures, but immaterial size. Example 6: Items that are material in size, but not in nature or function. IAS 1: Presentation of financial statements: structure and content.
Current liabilities versus non-current liabilities. Example Classification of liabilities. Refinancing of financial liabilities. Example Liabilities and refinancing of due payments Example Refinancing of a loan.
Breach of covenants and the effect on liabilities. Example Breach of covenants. The statement of comprehensive income. Example two layouts compared. Example reclassification adjustments. A typical statement of comprehensive income. The statement of changes in equity. The statement of cash flows. The notes to the financial statements. Structure of the notes. Disclosure of accounting policies. Sources of estimation uncertainty. Example Sources of estimation uncertainty.
Capital management. Other disclosure required in the notes. Accounting, science and languages. Believe it or not, accounting has much in common with. Through the ages, very many languages developed; Latin, English, French, Spanish and Zulu, to name but a few. Now English, for instance, is used to communicate information and opinions to other English-speaking people or to those who are at least able to understand it. Accounting is also a language, but one that is used by accountants to communicate financial information and opinions to other accountants and, of course, to those other interested parties who are able and willing to try to understand it.
These rules are set out in detail and are commonly referred to as statements of generally accepted accounting practice GAAP. Technology, such as phones, faxes, email, jet engines and the internet, has made it possible to communicate instantly with people in countries that are thousands of miles away and to physically visit them within a matter of hours.
And this includes communication amongst accountants and amongst businesses! The problem is that with so many different languages, communication between different nationalities can sometimes become almost impossible; picture the scene where an English- speaking New Zealander and a Swahili-speaking East African are trying to have a conversation. Even when speaking the same language, there are some accents that make a conversation between, for instance, an English-speaking American and an English-speaking Briton, just as amusing.
Accounting, as a language, is no different. Almost every country has its own accounting language. The language GAAP used in one country is often vastly different to that in another country; so different, in fact, that it is like comparing French with Ndebele. These differences, however small, will still result in miscommunication. Whereas miscommunication on street level often leads to tragedies ranging from divorce to war, miscommunication between businesses often leads to court cases and sometimes even final liquidation of the businesses.
To avoid this miscommunication, accountants all over the world are joining together to develop a single global accounting language. Its basic objective is to produce a language that is understandable and of a high quality.
The process of harmonisation involves discussion amongst standard setters in any country wishing to be part of the process, during which the reporting processes currently used by these standard setters their local statements of GAAP are considered and then the best processes are selected to constitute or form the basis of the new international standard going forward. Although most countries participating countries as at 5 November , www.
This project is therefore expected to be a long and politically volatile one, but one which, in the end, will hopefully enable accountants all around the globe to communicate in one language. All countries that adopt the global accounting language, must comply with these rules IFRSs in their financial statements for financial periods beginning on or after 1 January The standards.
The idea of a single global accounting language is not new. Over the years, this committee developed 41 global accounting standards, referred to as International Accounting Standards IAS. This new board adopted all 41 IASs and started the development of more global accounting standards. So far, the newly created IASB.
We now, therefore, have a total of 49 global accounting standards IFRS :. Many global accounting standards have had to be interpreted.
These interpretations are developed when accountants and auditors notify the board of difficulties in understanding and applying certain parts of a standard.
This committee developed 34 interpretations SIC 1 — SIC 34 , only 11 of which still stand, with the rest having been gradually withdrawn as a result of the harmonisation process. When these boards and committees develop the global accounting standards a term that refers to both the standards and their interpretations , it requires members of the IASB and the IFRIC to consult with national standard-setters from all of the participating countries to ensure that all of their ideas have been considered.
In considering which ideas or combination of ideas to adopt as the new standard, they use what is referred to as the Framework. This framework sets out the basic objectives, characteristics, concepts, definitions, recognition and measurement criteria relevant for a good set of financial statements. The Framework and.
A tabular summary of the above is as follows:. Previously produced by. Now produced by. There are 22 trustees. There are approx 40 members who meet three times a year. There are 12 full-time and 2 part-time members. The 12 members are unpaid but have expenses reimbursed. They meet every second month. Develop and pursue the technical agenda, issue interpretations, basis for conclusions with.
They need 9 votes out of 14 to get standards, exposure drafts and interpretations published. They make interpretations and consider public comments and get final approval from IASB.
During the process of harmonisation, new ideas develop that result in changes having to be made to some of the existing standards and their interpretations. This is what is referred to as the Improvements Project. Before a new standard is issued, an exposure draft is first issued. The exposure draft may only be issued after approval by at least nine of the fourteen members of the IASB and is issued together with:. Any interested party may comment on these drafts.
The comments received are thoroughly investigated after which the draft is adopted as a new standard either verbatim or with changes having been made for the comments received or is re-issued as a revised exposure draft for further comment.
Legally, financial statements must generally comply with the national statutory requirements of the relevant country. The problem is that most statutes laws of many countries currently require compliance with either generally accepted accounting practice or the statements of generally accepted accounting practice.
In addition to the requirements of the legal statute of the country, IAS 1 Presentation of Financial Statements requires that where companies do comply with international financial reporting standards and the interpretations thereof in their entirety , disclosure of this fact must be made in their financial statements.
By implication, those companies that do not comply, may not make such a declaration. It is obviously beneficial to be able to make such a declaration since it lends credibility to the financial statements, makes them understandable to foreigners and thus encourages investment.
If you feel that there may be cracks in your foundation, right now is the time to fix them by revising your work from prior years.
Please read this chapter very carefully because every other chapter in this book will assume a thorough understanding thereof. There are two areas of the global standards that make up these pillars:.
The Framework is technically not a standard but the foundation for all standards and. It sets out the:. It therefore does not override any of the IFRSs but should be referred to as. IFRSs are designed to be used by profit-orientated entities commercial, industrial and business entities in either the public or private sector when preparing general purpose financial statements i.
IAS 1 builds onto the Framework and in some areas tends to overlap a little. The objectives of financial statements.
Introduction 1. The Pillars 3. The Framework 4. Example 2: An inflow income or liability? Example 3: Staff costs an asset?
Gripping-IFRS VOL1-Complete (2008 EDITION).pdf
Gripping IFRS Complete