IAS Notes

Seite 1

IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

Set out how financial statements should be presented to ensure comparability with previous accounting periods and with other companies

THE PURPOSE OF FINANCIAL STATEMENTS IS TO "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"

Definitions

Financial Position - is reported through the balance sheet

Financial Performance - is reported through the income statement

Cash Flows - are reported through the cash flow statement

Entity - an organisation, such as a limited company

Wide range of users - financial statements are used by a member of user groups

Economic Decisions - information from the financial statements is used to help in making decisions about investment in the company

What is included in Financial statements:

Income Statement

Balance sheet

Statement of changes in equity

Cash Flow Statement

Accounting policies and Expanatory notes

What accounting concepts comply with IAS 1?

Goings concern

Accuals

Consistency

Materiality

Bedrock of accounting?

Prudence

Business Entity

Realisation

Historical costs - all financial transactions are recorded using the actual cost of purchase.

Money Measure - only transactions that can be measured in money terms can be included in financial records/statements.

Duality - every accounting transaction has a dual aspect, one aspect considers the assets of the company, the other considers any claims against the asset.

Other Considerations to take into accounts when preparing company financial accounts

Offsetting - Generally its not permitted to set-off assets and liabilites, and income and expenses against each other in order to show a net figure, eg cash at bank is not to be netted off against a bank overdraft

Comparative infomation - its a requirement to show the figures from previous time period in the financial statements in order to help users of the statements.

IAS 2 - INVENTORIES

Applies to all types of inventories

Used to set out the accounting techniques to be used when valuing inventories

Companies often have inventories in various forms:

Raw material, for use in a manufacturing business

work-in-progress (partly manufactured goods) and finished goods (ready for sale) of a manufacturing business

Products brought for resale by a retailer

service items, such as stationary, brought for use within business

The overriding principle of inventory valuation, as set out in IAS 2, is that inventories are to be valued at "the lower of cost and net realisable value".

thus 2 different values are compared:

Cost, which means the purchase price, plus any other cost incurred to bring the product to its present location and condition

Net realisable value, which is the estimated selling price less the estimated costs to get the product into a condition necessary to complete the sale

The lower of these 2 values is taken, and different items or groups of inventory are compared separately.

IAS 7 - CASH FLOW STATEMENTS

Ias 7 requires that a cash flow statement is included as part of a company's financial statements

It complements the income statement and balance sheet as follows:

Income statement reports the financial performance of the company

Balance sheet reports the financial position of the company

Cash flow statement focuses on cash inflow and outflows, and reports on changes in the financial position of the company

A Cash Flow statement uses information from the accounting records (including income statement and balance sheet) to show an overall view of money flowing in and out of a business during an accounting period.

IAS 7 provides the format for cash flow statements, divided into 3 sections:

Operating activities - the main revenue-producing activities of the business, together with the payment of intrest and tax

Investing activities - the acquisition and disposal of long-term assets, and other investments

Financing activities - reccipts from the issue of new shares, payments to repay shares, changes in long-term borrowings, and dividends paid

IAS 8 - ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS

This accounting standard defines accounting policies as "the specific principles, bases, conventions, rules and practices applied by an entity (eg. a Company) in preparing and presenting financial statements"

Included in the definition are accounting principles and accounting bases:

Accounting principles are the broad concepts that are applied in the preparation of financial statements, eg. going concern, accuals, consistency

Accounting bases are the methods used for applying accounting principles to financial statements, which are intended to reduce subjectivity by identifying the acceptable methods, eg. the use of historic cost or revaluation to value assets

Accounting policies are the specific accounting bases selected by the directors and followed by a company, such as the method of depreciation.

once adopted by a company, accounting policies are applied consistently for similar transactions - unless an accounting standard allows differing policies to be applied to categories of items.

Errors

It defines errors as "ommisions from, and misstatements in, the entity's financial statements for one or more prior arising from a failure to use, or misuse of, reliable information that:

was available when financial statements for those periods were authorised for issue; and

could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements

IAS 10 - EVENTS AFTER THE REPORTING PERIOD

Favourable or unfavourable events which occur, or information that becomes available after the end of the financial year that need to be reflected in the financial statements. For example, if a customer becomes insolvent after the year end and the amount owed is material, it may be necessary to make changes in the financial statements for the year to reflect this.

Alteration can only be made:

After the end of the financial year, and

Before the financial statements are authorised for issue (usually by the board of directors)

One the financial statements are authorised for issue, no alterations can be made.

IAS 10 distinguishes between

Adjusting events, and

non-adjusting events

IAS 1

IAS 2

IAS 7

IAS 8

IAS 10