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“The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions.”
IIASB, Framework for the Preparation and Presentation of Financial Statements, par.12
Link between measuring performance for shareholders and measuring profit for tax purposes Looser in Anglo-Saxon tradition Greater impact on individual accounts (less on
consolidated group accounts) Impact of taxation on company accounting
also depends on ownership of the company, which is in turn an issue frequently linked to size
To be useful, accounting information should be both relevant and reliable
Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, present or future events or confirming or correcting their past evaluations Relevant information is timely Relevant information has predictive or
Accounting choices – Relevance versus reliability (cont.)
Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully what it purports (or is expected to) represent
Accounting choices may imply trade-offs between relevance and relaibility of information
Regulation of accounting designed to ensure that the markets can operate free from fraud and misrepresentation Accounting laws Commercial codes Government regulatory agencies
Regulation of accounting for tax collection purposes
International bodies International Accounting Standards Board (IASB)
Accepted as an international source of best practice Issues the International Financial Reporting Standards (IFRS)
International Organization of Securities Commissions (IOSCO) Represents the world’s stock exchange regulators Strives for a single, uniform set of accounting standards worldwide
Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) Under the auspices of the UN Conference on Trade and Development
(UNCTAD) Commissions research reports into current accounting problems
International Federation of Accountants (IFAC) International representative of the accounting profession
The IASB’s standard-setting procedures have to ensure that resulting IFRS are of high quality and are issued only after giving IASB’s constituencies opportunities to make their views known at several points in the standard-setting due process
An overview of the due process is presented in figure 1.2
Conceptual Framework CF Framework for the Preparation and Presentation of Financial Statements
Main standards
IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 7 Cash Flow Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events after the Balance Sheet Date IAS 11 Constructions Contracts IAS 12 Income Taxes IAS 14 Segment Reporting IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosures
Table 1.1 List of IASB rules as of September 2005 (cont.)
Main standards (continued)
IAS 26 Accounting and Reporting by Retirement Benefit Plans IAS 27 Consolidated and Separate Financial Statements IAS 28 Investments in Associates IAS 29 Financial Reporting in Hyperinflationary Economies IAS 30 Disclosure in the Financial Statements of Banks and Similar Financial Institutions IAS 32 Financial Instruments: Disclosure and Presentation IAS 33 Earnings per Share IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property IAS 41 Agriculture IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures
Table 1.1 List of IASB rules as of September 2005 - Interpretations
Interpretations
SIC 7 Introduction of the Euro (IAS 21) SIC 10 Government Assistance – No Specific Relation to Operating Activities (IAS 20) SIC 12 Consolidation – Special Purpose Entities (IAS 27) SIC 13 Jointly Controlled Entities – Non-Monetary Contributions By Venturers (IAS 31) SIC 15 Operating Leases – Incentives (IAS 17) SIC 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets (IAS 12) SIC 25 Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders IAS (12) SIC 27 Evaluating the Substance of Transactions involving the Legal Form of a Lease SIC 29 Disclosure – Service Concession Arrangements SIC 31 Revenue – Barter Transactions Involving Services SIC 32 Intangible Assets – Web Site Costs IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments IFRIC 3 Emission Rights (withdrawn by the Board in June 2005) IFRIC 4 Determining Whether an Arrangement contains a Lease
IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds