International Financial Reporting Standards

Examples of International Financial Reporting Standards in the following topics:

• Objectives of Accounting

  • The objective of business financial reporting is to provide information that is useful for making business and economic decisions.
  • The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1 states the objective of business financial reporting, which is to provide information that is useful for making business and economic decisions.
  • 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.
  • 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)

• Disadvantages of LIFO

  • LIFO is facing pressures from international standards boards that may result in its possible complete elimination.
  • 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.
  • Foreign public firms are now permitted to file using the International Financial Reporting Standards (IFRS) without reconciliation to U.S.
  • GAAP and financial statement requirements (SEC, 2007).

• Differences Between GAAP and IFRS and Implications of Potential Convergence

  • Although, the standards setting board in a principle-based system can clarify areas that are unclear.
  • 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).
  • 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.
  • Today, approximately 113 countries require or allow the use of IFRS for the preparation of financial statements by publicly held companies.
  • State the difference between Generally Accepted Accounting Principles and International Financial Reporting Standards

• 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 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.
  • The Conceptual Framework for Financial Reporting states the basic principles for IFRS.

• Usage of Accounting Information

  • Accounting is the vehicle for reporting financial information about a business entity to many different groups of people.
  • A reporting system that communicates relevant financial information to interested persons, allowing them to assess performance, make decisions, and/or control the economic resources in the organization.
  • Today, accounting is referred to as "the language of business" because it is the vehicle for reporting financial information about a business entity to many different groups of people.
  • Accounting that concentrates on reporting to people inside the business entity is called management accounting.
  • The International Financial Reporting Standards, or IFRS, provides another set of accounting rules.

• Reporting of Financial Statement Analysis

  • The reporting of financial statement requires conformity to GAAP in the US and IFRS internationally.
  • These principles are set forward by the FASB, or the Financial Accounting Standards Board.
  • Its mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. " To achieve this, FASB has five goals:
  • Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting.
  • Promote international convergence of accounting standards concurrent with improving the quality of financial reporting.

• Why an accounting system is important

  • "Financial accountancy is governed by both local and international accounting standards".
  • Also, note that financial accounting reports must be prepared in accordance with national and international accounting standards.
  • In the United States the Financial Accounting Standards Board (FASB) has been the designated independent entity for established accounting reporting standards since 1973.
  • Since so many organizations are global in scope, a relatively new entity, the International Accounting Standards Board (IASB) has come upon the scene.
  • According to their website, their mission "is to develop, in the public interest, a single set of high quality, understandable and international financial reporting standards (IFRSs) for general purpose financial statements" (IASB 2009).

• Impact of Inflation on Financial Statement Analysis

  • General price level changes creates distortions in financial statements.
  • Accountants in the United Kingdom and the United States have discussed the effect of inflation on financial statements since the early 1900s .
  • General price level changes in financial reporting creates distortions in financial statements such as:
  • Reported profits may exceed the earnings that could be distributed to shareholders without impairing the company's ongoing operations.
  • For example, in countries such as these the International Accounting Standards Board requires corporate financial statements to be adjusted for changes in purchasing power using a price index.

• Defining the Statement of Cash Flows

  • A statement of cash flows is a financial statement showing how changes in balance sheet accounts and income affect cash & cash equivalents.
  • In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
  • International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements.
  • The cash flow statement has been adopted as a standard financial statement, because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
  • Indicate the purpose of the statement of cash flows and what items affect the balance reported on the statement

• Limitations of Financial Statements

  • Financial statements can be limited by intentional manipulation, differences in accounting methods, and a sole focus on economic measures.
  • High-profile cases in which management manipulated figures in financial statements to indicate inflated economic performance highlighted the need to review the effectiveness of accounting standards, auditing regulations, and corporate governance principles.
  • An audit of the financial statements of a public company is usually required for investment, financing, and tax purposes, and these are usually performed by independent accountants or auditing firms and included in the annual report.
  • Recently there has been a push toward standardizing accounting rules made by the International Accounting Standards Board (IASB).
  • Another limit to financial statements as a window into the creditworthiness or investment attractiveness of an entity is that financial statements focus solely on financial measures of health.