International Accounting Standards

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  • International Accounting Standards
    • IAS 7 - CASH FLOW STATEMENTS
      • requires that a cash flow statement is included as part of the financial statements of an entity
        • cash flows make use of information from both the balance sheet and the income statement to show the cash inflows and outflows of a business during an accounting period. the cash flow focuses on liquidity of the business.
      • sets out the format of cash flow statements, stating they must be divided in to three sections showing: operating activities, investing activities, and financing activities
    • IAS 36 - IMPAIRMENT OF ASSETS
      • deals with the definition of impairments and the recognition of impairment losses, along with indicators of impairments and impairment reviews
      • non-current assets need to be reviewed at each financial period to assess whether there are any impairments
        • where there is an impairment loss the assets recoverable amount should be recorded in the balance sheet and the impairment loss should be recorded as an expense in the income statement
      • the standard provides indicators of impairments, which can be either internal or external.
        • example of external: a significant fall in the assets market value
        • example of internal: obsolescence or damage of the asset
      • AN IMPAIRMENT REVIEW
        • 1. assess the carrying amount (cost less depreciation and impairment losses)
        • 2. assess the recoverable amount (the higher of fair value less selling costs, or value in use i.e. the present value of the future cash flows from an assets continued use including the cash from its sale)
        • 3. if the assets carrying amount is greater than its recoverable amount it is impaired
    • IAS 2 - INVENTORIES
      • sets out the accounting policies to be used when valuing inventory
      • states that inventories are to be valued at the lower of cost or net realisable value
        • cost = the cost of the inventory plus any costs incurred in bringing the product to its present location and condition
        • net realisable value = the selling price of the inventory less any costs required to bring the product in to saleable condition
      • states that the inventory valuation rule must be applied to each item of inventory or each group of similar inventories separately
      • states that one of two methods can be used to calculate the cost price of inventory: FIFO or AVCO
    • IAS 37 - PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES
      • aims to ensure a consistent accounting treatment for provisions, contingent assets, and contingent liabilities
      • a provision is a liability of uncertain timing or amount where: the company has an obligation as a result of past events, settlement of the obligation is probable, a reliable financial estimate can be made of the obligation
        • provisions must be shown as liabilities in the balance sheet and expenses in the income statement
        • the amount of provision must be reviewed at every financial period and adjusted to reflect the current best estimate
        • provisions must be probable i.e. have a more than 50% likelihood of occurrence in order to be recognised
        • details of the provision must be provided in the notes to financial statements
          • should include: an indication of the uncertainties associated with any resulting expenditure, a description of the provision, the movements in the amount of provisions during the year
      • a contingent liability is either a possible obligation arising from past events whose outcome is based on uncertain future events, or it is an obligation which is not recognised because its not probable or it can't be measured reliably
        • a contingent liability must be possible i.e. have a less than 50% likelihood of occurrence
        • a contingent liability should not be recognised in the financial statements however details of it should be provided in the notes to the financial statements
          • however, if remote rather than possible no note is required in the financial statements
          • the note should describe the contingent liability, estimate its financial effect, and provide an indication of the uncertainties associated with any resulting expenditure
      • a contingent asset is a possible asset arising from past events whose existence is confirmed by uncertain future events  not wholly in the control of  an entity
        • contingent assets should not be recognised in the financial statements as its not prudent to recognise income which may never realise
        • contingent assets may be disclosed in the notes to the financial statements. this should include a description of the contingent asset and its estimated financial effect
          • notes are not required where the contingent asset is considered to be either possible or remote
          • a contingent asset is disclosed only when an inflow of economic benefits from it is probable
    • IAS 8 - ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
      • defines accounting policies as the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements
        • states that once policies have been adopted by an entity they must be applied consistently unless the change is required by an accounting standard or the change results in the financial statements providing more reliable and relevant information (any changes must be applied retrospectively i.e. the figures in the FS's must be altered for previous periods also so that comparisons can still be made)
        • errors are defined as omissions and misstatements in the financial statements arising from a failure to use, or the misuse of reliable information
          • states that errors should be dealt with by amending them and restating and comparing the incorrect information along side the correct information in the next set of financial statements
    • IAS 16 - PROPERTY, PLANT AND EQUIPMENT
      • deals with recognition, measurement, and depreciation of non-current tangible assets
      • an asset is to be recognised when it is probable that future economic benefits will flow in to the business and when its cost can be measured reliably
      • NCA's should initially be measured at cost (cost plus any additional costs in bringing the asset to its present location and condition). After acquisition they should be valued at either cost less any depreciation and impairment losses or revaluation (i.e. their fair value, which equals the amount at which an asset could be exchanged between knowledgeable willing parties) less any depreciation and impairment losses
      • depreciation is to be charged on all NCA's bar land
        • depreciation should either be calculated through the straight line or reducing balance method
        • entities should choose a depreciation method based on whether it best reflects the way in which the assets economic benefits are consumed
        • the depreciation method used should be reviewed annually to ensure it remains the most appropriate method
    • IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS
      • objective = to provide information regarding the financial position, financial performance, and cash flow of an entity that is useful to a wide range of users in making economic decisions. to prepare such information in a way which allows comparability between financial periods and other entities.
      • states that a complete set of financial statements consists of: balance sheet, income statement, statement of changes in equity, cash flow statement, accounting policies and notes to the financial statements
      • states that financial statements must comply with several accounting concepts: consistency, duality, accruals, going concern, materiality, prudence, cost, money measurement, business entity, realisation, objectivity
        • duality = every transaction has a dual aspect (considering the asset of the company, considering any claims against the asset)
        • consistency = using the same accounting principles from one period to the next to allow for comparability. change can occur but only where there is sound reasoning for it.
          • objectivity = the financial statements should not be subjective to the person preparing them, they should be objective
        • accruals =  incomes and expenses are matched to the period in which they occur
        • going concern = FS are prepared  on the assumption that the business will continue operating in to the foreseeable future
        • materiality = all items are recorded separately, however items of a similar nature or of immaterial value can be aggregated in to a group
        • prudence = a conservative approach should be taken where there is any doubt in the reporting of profits and the valuation of assets. i.e. profits should not be anticipated for - they should only be recognised when it's reasonably certain they will be made, whereas all known liabilities should be anticipated for
        • cost = all transactions are recorded at their actual (historical) cost value, unless there is sound reasoning for revaluation
        • money measurement = transactions should only be recorded where they can be measured in actual monetary terms
        • business entity = personal incomes, expenses,  assets and liabilities should be recorded separately to the businesses. the only links between the owner and the entity should be drawings and capital
        • realisation =  transactions should only be recorded when legal title passes between buyer and seller
      • states that offsetting should not occur in financial statements and that comparative information must be included from the previous financial period in the financial statements
      • states that additionally financial statements must be clearly shown separately in the report, that the financial period covered should be detailed, the company name shown,  the currency of figures shown, and the level of rounding used shown.
      • notes should include details on the accounting policies used in the preparation            and presentation of the financial statements, any additional information which is relevant to the understanding of the financial statements, any other information which is required by IAS but not already included in the financial statements
    • IAS 38 - INTANGIBLE ASSETS
      • deals with the definition, recognition and measurement of intangible assets
      • defines intangible assets as identifiable non-monetary assets without physical substance
      • intangible assets arise either from being purchased or from being internally generated
        • they are recognised in the financial statements when it is probable that future economic benefits which are attributable to them will flow to the business and when their cost can be measured reliably. however, goodwill which is internally generated is not recognised as an asset or recorded in the financial statements.
      • intangible assets are initially recorded in the financial statements at cost, however after acquisition they can be recorded at either cost or revaluation
        • they can be recorded at cost less amortisation and impairment losses
        • or they can be recorded at revaluation (fair value) less amortisation and impairment losses
      • intangible assets are depreciated in the same way in which tangible assets are
    • IAS 10 -  EVENTS AFTER THE REPORTING PERIOD
      • events after the reporting period are those which have occurred after the financial statements have been prepared but before they have been authorised for issue. the objective of this standard is that such events must be reflected in the financial statements, however any such changes can only occur during this period; after this period no alterations can be made for any such events
      • with regards to events which occur after the reporting period but before the authorisation of issue the standard makes a distinction between adjusting and non-adjusting events
        • non-adjusting events refer to conditions which arose after the reporting period. no changes should be made to reflect such events in the financial statements, instead they are disclosed in the notes
          • the notes would explain the nature of the event and give the likely financial consequences of the event
        • adjusting events refer to conditions which existed at the end of the reporting period. for such events changes should be made in the financial statements to reflect them.
    • IAS 18 - REVENUE
      • its objective is to ensure that revenue is correctly shown in the income statement
      • defines revenue as the inflow of economic benefits arising from the normal operating activities of the entity i.e. sales of goods and services or royalties, dividends or interest.
        • the rules for the recognition of sales of goods and services is set out so that revenue from this is only recognised when:
          • 1) the significant risks and rewards of the ownership of the goods/services have been passed from seller to buyer 2) the seller retains no effective control over the goods of services 3) the revenue can be measured reliably 4) the costs incurred on the sale can be measured reliably 5) it's probable that economic benefit will flow to the seller
        • the rules for the recognition of interest, royalties and dividends is set out so that revenue is recognised by/when:
          • for interest - using a time basis to calculate the interest, for royalties - using an accrual basis in accordance with the royalties agreement, for dividends - when the shareholders rights to receive payment are established
      • revenue should only be recorded when legal title passes between buyer and seller and should be recorded at the fair value of monies received or receivable
    • *assets are defined as resources controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity*
    • *liabilities  are defined as present obligations of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits*
  • consistency = using the same accounting principles from one period to the next to allow for comparability. change can occur but only where there is sound reasoning for it.
    • objectivity = the financial statements should not be subjective to the person preparing them, they should be objective

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