International Accounting Standard

Examples of International Accounting Standard in the following topics:

• Introduction to IFRS

  • Many countries use or are moving towards using the International Financial Reporting Standards (IFRS), which were established and maintained by the International Accounting Standards Board (IASB).
  • They are progressively replacing the many different national accounting standards.
  • They are occasionally called by the original name of International Accounting Standards (IAS).
  • The IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC).
  • On April 1, 2001, the new IASB took over the responsibility for setting International Accounting Standards from the IASC.

• Objectives of Accounting

  • With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a given jurisdiction.
  • These standards may be the generally accepted accounting principles of a respective country, which are typically issued by a national standard setter, or International Financial Reporting Standards, which are issued by the International Accounting Standards Board.
  • Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or Standard accounting practice.
  • International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.
  • Describe the objectives of accounting, distinguishing between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)

• Expense Recognition

  • Expense recognition is an essential element in accounting because it helps define how profitable a business is in an accounting period.
  • In terms of the accounting equation, expenses reduce owners' equity.
  • The International Accounting Standards Board defines expenses as follows: "Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. "
  • Therefore, the accounting standards institute has established clear guidelines to minimize any subjective judgment regarding when to recognize expenses.
  • Generally, cash basis accounting is reserved for tax accounting, not for financial reports.

• Defining Liabilities

  • Probably the most accepted accounting definition of a liability is the one used by the International Accounting Standards Board (IASB).
  • The following is a quotation from the International Financial Reporting Standards (IFRS) Framework: "A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. "
  • Liabilities can also include deferred revenue accounts for monies received that may not be earned until a future accounting period.
  • An example of a deferred revenue account is an annual software license fee received on January 1 and earned over the course of a year.
  • For the current fiscal year, the company will earn 5/12 of the fee and the remaining amount (7/12) stays in a deferred revenue account until it is earned in the next accounting period.

• Cost of Equipment

  • Fixed assets, according to International Accounting Standard (IAS) 16, are long range assets whose cost can be measured reliably.
  • It is disclosed on the income statement and appears as a contra-asset account on the balance sheet.
  • Since accounting standards state that an asset should be carried at the net book value, equipment is listed on the balance sheet at its historical cost amount.

• Differences Between GAAP and IFRS and Implications of Potential Convergence

  • The convergence of accounting standards refers to the goal of establishing a single set of accounting standards that will be used internationally, and in particular the effort to reduce the differences between the US Generally Accepted Accounting Principles (US GAAP), and the International Financial Reporting Standards (IFRS).
  • Convergence in some form has been taking place for several decades, and efforts today include projects that aim to reduce the differences between accounting standards.
  • The goal of and various proposed steps to achieve convergence of accounting standards has been criticized by various individuals and organizations.
  • The growing acceptance of International Financial Reporting Standards (IFRS) as a basis for U.S.financial reporting represents a fundamental change for the U.S. accounting profession.
  • State the difference between Generally Accepted Accounting Principles and International Financial Reporting Standards

• Disadvantages of LIFO

  • LIFO is facing pressures from both the International Reporting Standards Board in cooperation with the SEC and the U.S.
  • On November 15, 2007, the Securities and Exchange Commission (SEC) exempted foreign firms from including reconciliation from International Financial Reporting Standards (IFRS) to U.S.
  • Generally Accepted Accounting Principles (U.S.
  • Foreign public firms are now permitted to file using the International Financial Reporting Standards (IFRS) without reconciliation to U.S.
  • On June, 18, 2008, the SEC issued a press release stating that the world’s securities regulators are uniting to increase their oversight of international accounting standards.

• Defining Accounting

  • The principles of accountancy are applied to business entities in three divisions of practical art: accounting, bookkeeping, and auditing.
  • In "Summa Arithmetica," Pacioli introduced symbols for plus and minus for the first time in a printed book, symbols that became standard notation in Italian Renaissance mathematics.
  • This development resulted in a split of accounting systems for internal (i.e., management accounting) and external (i.e., financial accounting) purposes, and subsequently also in accounting and disclosure regulations, following a growing need for independent attestation of external accounts by auditors.
  • The body of rules that governs financial accounting in a given jurisdiction is called Generally Accepted Accounting Principles, or GAAP.
  • Other rules include International Financial Reporting Standards (IFRS), U.S.

• Advantages of LIFO

  • Using LIFO accounting for inventory, a company generally pays lower taxes in periods of inflation.
  • Since the 1970s, some U.S. companies shifted towards the use of LIFO, which reduces their income taxes in times of inflation, but with International Financial Reporting Standards banning the use of LIFO, more companies have gone back to FIFO.
  • Since the 1970s, some U.S. companies shifted towards the use of LIFO, which reduces their income taxes in times of inflation, but with International Financial Reporting Standards banning the use of LIFO, more companies have gone back to FIFO.
  • Which method an accountant selects can have a significant effect on net income and book value and, in turn, on taxation.
  • Due to LIFO's potential to skew inventory value, UK GAAP and IAS have effectively banned LIFO inventory accounting.

• Loss Restoration

  • Under International Financial Reporting Standards, once a fixed asset has been revalued its book value can be adjusted periodically to market value using the cost model or the revaluation model.
  • A revaluation that increases or decreases an asset's value can be accounted for with a journal entry.
  • The asset account is debited (increased) for the increase in value or credited (decreased) for a decrease in value.
  • The revaluation surplus account accounts for increases in asset value, and it also offsets any downward revisions, such as an impairment loss, in asset value.
  • Only assets accounted for under the revaluation model can have their book value adjusted to market value.