Essay, 8 pages (2000 words)

Ias – financial accounting

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REPORTDescription Financial statements are the reports done up at the end of a trading period ranging from monthly, to quarterly to yearly just as long as it coincides with the end of the business??™s trading period.

There are four main financial statements; they are the statement of income, statement of equity, cash flow statement and the balance sheet, each may be found between appendices 1 – 4. The external users of financial statements include investors and lenders, employees, customers and suppliers, governments, and the public. Although each of these groups has different reasons for using the financial information provided in the statements, there are commonalities in the information that can help to meet those needs. The main 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. There are two key assumptions underlying this objective.

First, statements are prepared using the accrual basis; and second, statements are normally prepared on the assumption that the entity is a going concern and will continue in operation for the foreseeable future. The usefulness of information in financial statements depends on meeting the key attributes or qualitative characteristics of consistency, relevance, reliability, and comparability: ??? Information needs to be consistent; ??? The relevance of financial information relates to its predictive value, as well as its usefulness in helping users confirms their previous predictions or evaluations. Materiality provides a threshold in determining whether information is relevant to users.

Based on the size and/or nature of the item, judgment is used to determine if the item would influence the decisions of users write my essay in 6 hours . ??? Reliability involves providing information that represents transactions or events faithfully, in accordance with their substance and economic reality rather than their legal form. To be reliable, information must be neutral (unbiased), prepared with prudence (conservatism), and complete, taking into account the principles of materiality and cost/benefit. ??? Comparability requires consistency in the use and application of accounting policies. This concept is fundamental if users are to be able to compare the financial statements of an entity over time (in order to identify trends) or the financial statements of different entities (in order to evaluate an entity in relation to other entities).

Preparers of financial statements must deal with constraints on relevant and reliable information, including the need to evaluate issues of costs versus benefits in gathering and presenting information, and the trade-off between providing information that is both reliable and timely. Balancing the qualitative characteristics requires professional judgment regarding the relative importance of the various characteristics in a particular situation. Financial statements portray the financial effects of transactions and other events by grouping them into elements according to their economic characteristics. The elements directly related to the measurement of financial position in the balance sheet are assets, liabilities, and equity.

The elements directly related to the measurement of performance in the income statement are income and expenses. The definitions of these elements are as follows:??? An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.??? A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.??? Equity is the residual interest in the assets of the entity after deducting all its liabilities.??? Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.??? Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

IAS 1 prescribes the basis for presentation of general-purpose financial statements, defined as???(Statements) intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.??? The definition includes both consolidated and separate financial statements. IAS 1 does not specifically apply to the form, structure, and content of interim financial statements, but many of the overall considerations (such as the need for fair presentation and consistency) do apply to interim statements. Reports and statements that are not part of financial statements (for example, environmental reports, management reviews, and value-added statements) are excluded from the financial statements of a business. A prescribed basis of presentation is necessary in order to ensure comparability, both with previous financial statements issued by the entity, and with the financial statements of other entities.

To achieve this goal of comparability, IAS 1 sets out overall requirements for the presentation of financial statements, guidelines for their structure, and minimum requirements for their content. IAS 1 outlines the purpose or objective of general-purpose financial statements. As a structured representation of the financial position and financial performance of an entity, the financial statements ??? provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management??™s stewardship of the resources entrusted to it.

??? These ties back to the needs of users of financial statements. To meet this objective, financial statements provide information about an entity??™sa) Assetsb) Liabilitiesc) Equityd) Income and expenses, including gains and lossese) Contributions by and distributions to owners in their capacity as ownersf) Cash flowsThis information, along with other information in the notes, assists users of financial statements in predicting the entity??™s future cash flows and, in particular, their timing and certainty. IAS 1 specifies the following general features that are required of financial statements. These features tie closely to the Framework/guidelines of Financial Accounting; particularly with respect to the objectives of financial statements and the qualitative characteristics of financial information that make it useful for decision-making purposes. i). IAS 1 requires management to assess the entity??™s ability to continue as a going concern. Further, management is to prepare financial statements on a going-concern basis unless they either intend to liquidate the entity or to cease trading or they have no realistic alternative but to do so. Disclosures are required if there are significant doubts about the entity??™s ability to continue as a going concern, or if the financial statements are not prepared on a going-concern basis.

ii). Accrual basis of accounting requires that the accrual basis of accounting be used in preparing financial statements, except for cash flow information. iii). Materiality and aggregation requires that each material class of similar items be presented separately. Items of a dissimilar nature or function can be aggregated only if they are immaterial.

An item that is not sufficiently material to warrant separate presentation in those statements may warrant separate presentation in the notes. iv). Frequency of reporting Entities have to present a complete set of financial statements (including comparative information) at least on an annual basis. If financial statements are presented for a period longer or shorter than one year, this is disclosed, along with the rationale and a caution regarding the potential lack of comparabilityv).

Comparative information Previous-period comparative information is to be disclosed for all amounts reported in the current period??™s financial statements. Comparative amounts are reclassified to reflect the current presentation and disclosures are required regarding the nature, amounts, and reasons for reclassifying. vi). Consistency of presentation – Entities are required to be consistent in their presentation and classification of items in the financial statements from one period to the next unless a change is required by an IFRS or another presentation. The balance of IAS 1 deals with the structure and content required in the various financial statements (including the notes to the financial statements). IAS 1 deals with the statement of financial position (balance sheet), the income statement (if presented separately) and statement of comprehensive income, and the statement of changes in equity.

It should be noted that IAS 1 uses the term ??? disclosure??? in a broad sense to mean presentation in either the statements or in the notes; IAS 1 views the notes as part of the complete set of statements. With respect to its statements, the entity must clearly identify??? the financial statements (distinguishing them from other information in the same published document)??? the reporting entity??? whether the statements are for the individual entity or for a consolidated group??? the date or period covered??? the currency used for presentation??? the level of rounding used (thousands or millions of dollars, and so on)Statement of financial position (balance sheet)As a minimum, the statement of financial position must include line items that present the following amounts: a) property, plant, and equipmentb) investment propertyc) intangible assetsd) financial assets [excluding amounts shown under (e), (h), and (i)]e) investments accounted for using the equity methodf) biological assetsg) inventoriesh) trade and other receivablesi) cash and cash equivalentsj) the total of assets classified as held for salek) trade and other payablesl) provisionsm) financial liabilities [excluding amounts shown under (k) and (l)]n) liabilities and assets for current tax, o) deferred tax liabilities and deferred tax assets, p) liabilities included in disposal groups classified as held for saleq) minority interest, presented within equityr) issued capital and reservesAdditional line items, headings, and subtotals are needed if relevant to the understanding of the entity??™s financial position, and further sub-classifications are required in the statements or notes, appropriate to the entity??™s operations. IAS 1 requires separation of current and non-current assets and liabilities except when a presentation based on liquidity provides information that is reliable and is more relevant. However, IAS 1 does not prescribe the order of presentation; for example, current assets can be presented before or after non-current assets. This allows flexibility for presentation and accommodates the preferred approach of different jurisdictions.

Current assets include cash and cash equivalents (unless restricted); assets expected to be realized, sold, or consumed within the normal operating cycle or within 12 months after the reporting period; and assets held primarily for trading. All other assets are non-current. Current liabilities are those expected to be settled in the normal operating cycle or due within 12 months after the reporting period; liabilities held primarily for trading; and liabilities for which the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting period. All other liabilities are non-current.

IAS 1 was amended in 2009 to clarify that even if the entity could be compelled by the holder of the liability to settle the obligation by the issue of equity instruments, it would not affect the underlying substance ??” a liability exists. Under IAS 1, long-term debt that is due within or after the next year, but is expected to be refinanced at the discretion of the entity under an existing loan facility. With respect to share capital and reserves, an entity must disclose the following, either in the statement of financial position or the statement of changes in equity.??? The number of each class of shares authorized, issued and fully paid, and issued but not fully paid??? The par value per share, or that the shares have no par value??? A reconciliation of the number of shares outstanding at the beginning and at the end of the period??? The rights, preferences, and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital.??? Treasury shares and shares held by the entity??™s subsidiaries or associates??? Shares reserved for issue under options and contracts, including terms??? A description of the nature and purpose of each reserve within equityStatement of comprehensive incomeAs noted previously, an entity is allowed to present all components of comprehensive income in a single statement or split between an income statement and a statement of comprehensive income. As a minimum, the statement of comprehensive income (including the income statement, if separate) is required to include line items that present the following amounts for the period: a) Revenueb) Finance costsc) Share of the profit or loss of associates and joint ventures accounted for using the equity methodd) Tax expensee) A single amount comprising the total of: i) The post-tax profit or loss of discontinued operations andii) The post-tax gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operationf) Profit or lossg) Each component of other comprehensive income classified by nature [excluding amounts in (h)]h) Share of the other comprehensive income of associates and joint ventures accounted for using the equity methodi) Total comprehensive incomei

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