Worldwide Accounting Diversity & International Standards Presenter: Altaf Noor Ali, Chartered Accountant
Our session today- • Why countries have different accounting practices. • Ideal: Accounting & Cricket? • International Accounting Standards Board • IASB and 97 countries, improvement project & EU • Comparability, convergence, uniformity • Developing countries aspirations • Review of our Accounting Practices • Overview of IASB Literature: IFRS & IAS • Class Activity & Conclusion
Worldwide Diversity • Experience as a Society
Ideal: Accounting & Cricket • Same rules, regulations, conventions • Same currency??
International Accounting Standards Board • How it evolved? • What’s different? • Its constitution • Objective
International Accounting Standards Board Final Review • IASC Foundation funds the IASB. • The 19 Trustees of IASC Foundation appoint IASB Members. • IASB Members 1-1-05 = 14 [12 full-time] • The IASB is based in London. It began operations in 2001. • The IASB has sole responsibility for setting accounting standards.
International Accounting Standards Board Final Review • IASB Members 1-1-05 = 14 [12 full-time] • The IASB constitution requires that atleast 5 members have a background as practicing auditors, atleast 3 have a background in the preparation of financial statements, atleast 3 have a background as users of financial statements, and atleast one has an academic background.
97 Countries • Acceptability • Benchmarking with US
IASB Improvement Project • Major changes. • Presentation framework.
Stages in Diversity • Compatibility • Convergence • Uniformity
Developing Countries Aspirations • How many accountants from developing countries work in IASB? • Who represents them? • Is uniformity at all a realistic goal?
National Accounting Practices Review • Adopting IFRS & IAS, but not completely. • Rigorous requirement of following ‘all or nothing’ while preparing F/Statements • Technical Releases
Overview Accounting Standards • The pronouncements by IASB publishes are known as ‘International Financial Reporting Standards’ [IFRS]. • The term ‘International Financial Reporting Standards’ includes IFRS, IFRIC Interpretations, IASs and SIC Interpretations. • The IASB adopted the body of International Accounting Standards [IASs] issued by its predecessor, the Board of the International Accounting Standards Committee.
IFRS - Framework • Constitution • Framework for the Preparation and Presentation of Financial Statements. • The Due-Process of Developing Standards • Standards Format: Introduction + Statement + Basis of Conclusion
Framework for the Preparation and Presentation of Financial Statements • In case of conflict, the requirements of the International Accounting Standard prevail over those of the Framework. • Users and their financial needs • Investors • Employees • Lenders • Suppliers and other trade creditors3 • Customers • Government and their agencies • Public
Framework for the Preparation and Presentation of Financial Statements> • The Objective of Financial Statements • Underlying Assumptions > Accrual basis, going concern • Qualitative Characteristics of Financial Statements > Understandability, relevance [materiality], reliability [faithful representation, substance over form, neutrality, prudence, completeness], comparability, constraints [timeliness, balance between benefit and cost, balance between qualitative characteristics], True and fair view / fair presentation. • The elements of financial statements > financial position [assets, liabilities, equity, income, expenses] • Recognition, and Measurement, of the Elements of Financial Statements
Framework for the Preparation and Presentation of Financial Statements>> • The objective of financial statements is to provide information about the financial position, performance and change in financial position of an entity that is useful to a wide range of users in making economic decisions. [para 12] • The management of an entity has the primary responsibility for the preparation and presentation of the financial statements of the entity. [para 11] • If there is undue delay in the reporting of information it may lose its relevance. [para43]
International Financial Reporting Standards IFRS – 1-1-2005 • 1: First-time adoption of International Financial Reporting Standards • 2: Share-based payments • 3: Business Combinations • 4: Insurance Contracts • 5: Non-current Assets Held for Sale and Discontinued Operations • 6: Exploration for and Evaluation of Mineral Resources
International Accounting StandardsIAS at 1-1-05 • 1: Presentation of Financial Statements • 2: Inventories • 7: Cash Flow Statements • 8: Accounting Policies, Changes in Accounting Estimates and Errors • 10: Events after the Balance Sheet Date • 11: Construction Contracts • 12: Income Taxes
IAS Contd.. • 14: Segment Reporting • 16: Property, Plant & Equipment • 17: Leases • 18: Revenue • 19: Employee Benefits • 20: Accounting for Govt. Grants and Disclosure of Government Assistance
Contd: IAS • 21: The Effects of Changes in Foreign Currency Rates. • 23: Borrowing Costs • 24: Related Party Disclosures • 26: Accounting and Reporting by Retirement Benefit Plans • 27: Consolidated and Separate Financial Statements • 28: Investments in Associates
Contd. IAS • 29: Financial Reporting in Hyperinflationary Economies • 31: Interests in Joint Ventures • 32: Financial Instruments: Disclosure & Presentation • 33: Earnings per Share • 34: Interim Financial Reporting • 36: Impairment of Assets • 37: Provisions, Contingent Liabilities & Contingent Assets
Contd. IAS • 38: Intangible Assets • 39: Financial Instruments: Recognition and Measurement. • 40: Investment Property • 41: Agriculture
International Financial Reporting Interpretations Committee IFRIC - Interpretations • 1: Changes in Existing Decommissioning, Restoration and Similar Liabilities. • 2: Members’ Share in Co-operative Entities and Similar Instruments. • 3: Emission Rights • 4: Determining whether an Arrangement contains a Lease • 5: Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
International Financial Reporting Interpretations Committee IFRIC - Interpretations • SIC7: Introduction of the Euro • SIC10: Government Assistance – No Specific Relation to Operating Activities. • SIC12: Consolidation – Special Purpose Entities • SIC13: Jointly Controlled Entities – Non-monetary Contributions by Venturers
International Financial Reporting Interpretations Committee IFRIC - Interpretations • SIC15: Operating Leases – Incentives • SIC21: Income Taxes – Recovery of Revalued Non-Depreciable Assets • SIC25: Income Taxes – Changes in the Tax Status of an Entity or its Shareholders • SIC27: Evaluating the Substance of Transactions Involving the Legal Form of a Lease
International Financial Reporting Interpretations Committee IFRIC - Interpretations • SIC29: Disclosure – Service Concession Agreements • SIC31: Revenue – Barter Transactions Involving Advertising Services • SIC32: Intangible Assets – Web Site Costs
Class Activity: AA • Accounting policies • Assets • Accrual Basis • Associate
Class Activity: AA • Accounting policies> The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. • Assets> A resource: • Controlled by an entity as a result of past events; and • From which future economic benefits are expected to flow to the entity.
B • Basic Earning per Share • Bookvalue • Borrowing Costs
B • Business combination> The bringing together of separate entities or businesses into one reporting entity. IFRS 3.A
C • Cash Flows • Consolidated Financial Statements • Capitalisation • Contingent Liability • Curtailment
C • Cash Flows> Inflows and outflows of cash and cash equivalents. IAS 7.6 • Carrying amount> The amount at which an asset is recognised after deducting any accumulated depreciation [amortisation] and accumulated impairment losses thereon. IAS 38.8
D • Defined benefits obligation • Defined contribution plans
D • Defined benefits obligation>> The present value, without deducting any plan assets, of future payments required to settle the obligation resulting from employee service in the current and prior periods. IAS 19.7 • Defined contribution plans>> Post-employment benefit plans under which an entity pays fixed contributions into a separate entity [a fund] and will have no legal or constructive obligation to pay further contributions.
E • Equity • Expenses • Events after the Balance Sheet Date
E • Equity>> The residual interest in the assets of the entity after deducting all its liabilities. [F.49c] • Expenses>> Decrease in economic benefits during the accounting period in the form of outflows or depletions of assets or liabilities incurred that result in decrease in equity. [F.70b]
F • Fairvalue • Financial Asset
F • Financial position. • Fairvalue. • Financial Asset.
F • Financial Position>> The relationship of the assets, liabilities, and equities of an entity, as reported in the balance sheet. F.47 • Fairvalue>> The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. • Financial Asset>> Any asset that is cash, an equity instrument of another entity, a contractual right, or a contract that will or may be settled in the entity’s own equity instrument.
G • Going Concern • Goodwill
G • Going Concern>> The entity is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. IAS14.9 • Goodwill>> Future economic benefits arising from assets that are not capable of being individually identified and separately recognised. IFRS 3A
H • Historical Cost • Held to Maturity
H • Historical Cost>> Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstance [for example, income taxes], at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. F100a
I • Impairment Loss • Intangible
J • Joint venture • Jointly controlled entity
K • Key Management Personnel
L • Loans & Receivables
M • Matching Costs with Revenue
N • Non-current Assets