INTERNATIONAL FINANCIAL REPORTING STANDARDS

Structure of IFRS

IFRS are considered a "principles based" set of standards in that they establish broad rules as well as dictating specific treatments.

International Financial Reporting Standards comprise:

• International Financial Reporting Standards (IFRS) - standards issued after 2001
• International Accounting Standards (IAS) - standards issued before 2001
• Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001
• Standing Interpretations Committee (SIC) - issued before 2001

There is also a Framework for the Preparation and Presentation of Financial Statements which describes of the principles underlying IFRS...

Framework

Objective of financial statements

A framework is the foundation of accounting standards. The framework states that the objective of financial statements is to provide information about the financial position, performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions, and to provide the current financial status of the entity to its shareholders and public in general.

Underlying assumptions

The underlying assumptions used in IFRS are:

• Accrual basis - the effect of transactions and other events are recognized when they occur, not as cash is gained or paid
• Going concern - the financial statements are prepared on the basis that an entity will continue in operation for the foreseeable future.
  

Qualitative characteristics of financial statements

The Framework describes the qualitative characteristics of financial statements as having Understandability

• Relevance
• Reliability
• Comparability
• Materiality
• Neutrality
• Substance over form
• Faithful representation
• Prudence
• Predictability
• Consistency
• Matching
• Going concern
• Accrual
• Financial capital maintenance in units of constant purchasing power or in nominal monetary units

Elements of financial statements

Recognition of elements of financial statements

An item is recognized in the financial statements when:

• it is probable that a future economic benefit will flow to or from an entity and
• when the item has a cost or value that can be measured with reliability.

Measurement of the Elements of Financial Statements

Measurement is how the responsible accountant determines the monetary values at which items are to be valued in the income statement and balance sheet. The basis of measurement has to be selected by the responsible accountant.Accountants employ different measurement bases to different degrees and in varying combinations. They include, but are not limited to:

• Historical cost
• Current cost
• Realizable (settlement) value
• Present value

Historical cost is the measurement basis chosen by most accountants.

Concepts of Capital and Capital Maintenance

Concepts of Capital

A financial concept of capital, e.g. invested money or invested purchasing power, means capital is the net assets or equity of the entity. A physical concept of capital means capital is the productive capacity of the entity.

Concepts of Capital Maintenance and the Determination of Profit

Accountants can choose to measure financial capital maintenance in either Nominal monetary units or units of constant purchasing power

Physical capital is maintained when productive capacity at the end is greater than at the start of the period.The main difference between the two concepts is the way asset and liability price change effects are treated.Profit is the excess after the capital at the start of the period has been maintained.

When accountants choose nominal monetary units, the profit is the increase in nominal capital. When accountants choose units of constant purchasing power, the profit for the period is the increase in invested purchasing power. Only increases greater than the inflation rate are taken as profit. Increases up to the level of inflation maintain capital and are taken to equity.

Features of IFRS

References

References to IFRS standards are given in the standard convention, for example (IAS1.14) refers to paragraph 14 of IAS1, Presentation of Financial Statements..

Content of financial statements

IFRS financial statements consist of (IAS1.8)

• a Statement of Financial Position
• Comprehensive income statement
• either a statement of changes in equity(SOCE) or a statement of recognised income or expense ("SORIE")
• a cash flow statement or statement of cash flows
• notes, including a summary of the significant accounting policies

Comparative information is provided for the previous reporting period (IAS 1.36). An entity preparing IFRS accounts for the first time must apply IFRS in full for the current and comparative period although there are transitional exemptions (IFRS1.7).

On 6 September 2007, the IASB issued a revised IAS 1 Presentation of Financial Statements. The main changes from the previous version are to require that an entity must:

• present all non-owner changes in equity (that is, 'comprehensive income' ) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity.
• present a statement of financial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of financial statements when the entity applies an accounting
• 'balance sheet' will become 'statement of financial position'
• 'income statement' will become 'statement of comprehensive income'
• 'cash flow statement' will become 'statement of cash flows'.

The revised IAS 1 is effective for annual periods beginning on or after 1 January 2009. Early adoption is permitted.