Appunti International Accounting

L

2) A statement of profit or loss and other comprehensive income

for the period (presented as a single statement, or by presenting the profit or loss section in a separate

statement of profit or loss, immediately followed by a statement presenting comprehensive income

beginning with profit or loss)

Revenue -

Expenses

Profit

3) a statement of changes in equity for the period;

→

E E

0 1

4) a statement of cash flows for the period;

5) notes, comprising a summary of significant accounting policies and other explanatory notes comparative

information prescribed by the standard.

Contains for example risks and information important for management

Structure of financial statements IAS/IFRS

IAS 1 doesn’t disclose the exact structure, you will have to see IAS 6

IAS 1 (paragraphs 13 e 14) stimulates, outside the financial statements, the adoption of a financial review by

management that describes and explains:

• the main features of the entity’s financial performance and financial position

• and the principal uncertainties it faces including changes in the environment where the entity operates,

the entity’s responses to those changes and their effect, and the entity’s policy for investment to maintain

and enhance financial performance, including its dividend policy.

In any case, Reports and statements presented outside financial statements are outside the scope of IFRSs.

The International Financial Reporting Standards doesn't impose rigid schemes, but asks for a compulsory

minimal content to make more or less analytical in accordance to relevance of the information and in

relationship to the choice to supply more detailed information in the notes.

Usually, this decision is taken by the board of directors

Comparative information

IAS 1 requires that comparative information to be disclosed in respect of the previous period for all amounts

reported in the financial statements, both on the face of the financial statements and in the notes, unless another

Standard requires otherwise.

Comparative information is provided for narrative and descriptive where is relevant to understanding the

financial statements of the current period.

Statement of financial position

Meaning

The statement of financial position (or balance sheet) is the prospect in which is represented the financial

position, financial performance, assets or liabilities of an entity.

The Statement of Financial Position contains: assets, liabilities and equity.

In assessing whether an item meets the definition of an asset, liability or equity, attention needs to be given to

its underlying substance and economic reality and not merely its legal form, because of for IAS/IFRS the

substance prevails on the forms (i.e., financial leases contracts).

→

The first thing is to have a look at the equity, or my net richness E = A – L

Classification criteria

An entity must normally present a classified statement of financial position, separating current and non-

current assets and liabilities, unless presentation based on liquidity provides information that is reliable.

→ In either case, if an asset (liability) category combines amounts that will be received (settled) after 12

months with assets (liabilities) that will be received (settled) within 12 months, a note disclosure is required

that separates the longer-term amounts from the 12-month-period amounts.

Current assets are assets that: [IAS 1.66] Current liabilities are those: [IAS 1.69]

1) expected to be realized in the entity's normal 1) expected to be settled within the entity's normal

operating cycle; operating cycle held for purpose of trading;

2) held primarily for the purpose of trading; 2) due to be settled within 12 months;

3) expected to be realized within 12 months after the 3) for which the entity does not have an

reporting period; unconditional right to defer settlement beyond

cash and cash equivalents (unless restricted). 12 months (settlement by the issue of equity

All other assets are non-current instruments does not impact classification).

Other liabilities are non-current.

IAS 1 Par. 64: In applying paragraph 60, an entity is allowed to present some of its assets and liabilities using

a current/non-current classification and others in order of liquidity, when this provides information that is

reliable and more relevant.

The need for a mixed basis of presentation might arise when an entity has diverse operations.

I.e., criteria of liquidity is used by banks

For some entities, such as financial institutions, a presentation of assets and liabilities in increasing or

decreasing order of liquidity provides information that is reliable and more relevant than a current/non- current

presentation because the entity does not supply goods or services within a clearly identifiable operating cycle,

so that:

• assets have to be represented on the basis of the they reliability (realization), that is their aptitude to change

themselves in money or in another quickly convertible tool in money;

• the liabilities must be represented on the basis of their collectability, that is, their aptitude to be

transformable in payment by cash.

IAS 1 (par. 54) doesn’t request a rigid and definite content, but only a compulsory minimum structure, to make

eventually more analytical.

The followings voices, whose order doesn't have to be necessarily that suitable, have to be exposed

compulsory and in separate way.

Minimum structure

a) property, plant and equipment;

b) investment property;

c) intangible assets;

d) financial assets (excluding amounts shown under (e), (h) and (i));

e) investments accounted for using the equity method;

f) biological assets;

g) inventories;

h) trade and other receivables;

i) cash and cash equivalents;

j) the total of assets classified as held for sale and assets included in disposal groups classified as held for

sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations;

k) trade and other payables;

l) provisions;

m) financial liabilities (excluding amounts shown under (k) and (l));

n) liabilities and assets for current tax, as defined in IAS 12 Income Taxes;

o) deferred tax liabilities and deferred tax assets, as defined in IAS 12;

p) liabilities included in disposal groups classified as held for sale in accordance with IFRS 5;

q) non-controlling interests, presented within equity; and

r) issued capital and reserves attributable to owners of the parent.

An entity shall present additional line items, headings, and subtotals in the statement of financial position

when such presentation is relevant to an understanding of the entity’s financial position.

An entity makes the judgment about whether to present additional items separately on the basis of an

assessment of:

a) the nature and liquidity of assets;

b) the function of assets within the entity; and

c) the amounts, nature, and timing of liabilities.

The use of different measurement bases for different classes of assets suggests that their nature or function

differs and therefore, an entity presents them as separate line items.

For example, different classes of property, plant, and equipment can be carried at cost or at revalued amounts

in accordance with IAS 16.

Convergence issues - not explained in class

IFRS requires that specific items to be reported on the statement of financial position. No such general standard

exists in U.S. GAAP.

However, under U.S. GAAP, public companies must follow U.S. SEC regulations, which require specific

items.

→ U.S. GAAP statement report current assets first, followed by non-current assets. Current liabilities, non-

current liabilities, and shareholders’ equity.

→ The use of the term “reserve” is discouraged in U.S. GAAP, there is no such prohibition in IFRS.

Subclassification - not explained in class In some countries, such as

Germany, companies often list

current assets first.

IAS 1 requires companies to distinguish current assets and liabilities from non-current ones, except in

limited situations.

Non-current assets: Current assets

• •

Long-term Investments Inventories

Securities (bonds, ordinary shares, long-term notes) Basis of valuation: lower-of.-cost-or-market

o Tangible assets not currently used in operations Cost flow assumption: FIFO, average cost

o •

(land held for speculation) Receivables: claims held against customers and

Special funds (sinking fund, pension fund, plant

o others for money, goods, or services.

expansion fund) • Prepaid expenses: cash payment, that is recorded as

Non-consolidated subsidiaries or associated

o an asset because the service or benefit will be

companies received in the future.

• Property, Plant, and Equipment Usually occur:

Physical property (land, buildings, machinery, Insurance

o

furniture, tools, wasting resources Supplies

o

Except land, a company can depreciates (buildings) or Advertising

o

depletes (oil reserves) Rent

o

• Intangibles Assets Equipment maintenance

o

•

Patents, copyrights, franchises, goodwill, trademarks, Short-term investments

trade names, and customer lists. • Cash and cash equivalents

→ Amortize limited-life intangible assets over their useful any money available “on demand”.

o

lives short-term highly liquid investments that mature

o

→ Periodically assess indefinite-life intangibles for within three months or less.

impairment

• Other Assets, can include:

Long-term prepaid expenses;

o Non-current receivables

o Assets in special funds

o Property held for sale

o Restricted cash or securities

o Equity section - not explained in class

Non-current liabilities Current liabilities

Obligations that a company does not reasonably Obligations that a company generally expects to

expect to liquidate within the longer of one year or settle in its normal operating cycle or one year,

the normal operating cycle. There are three types: whichever is longer. The concept includes:

• •

Obligations arising from specific financing Payables resulting from the acquisition of goods

situations. and services: accounts payable, wages payable,

• and so on.

Obligations arising from the ordinary operations •

of the company. Collections received in advance for the delivery

• of goods or performance of services, such as

Obligations that depend on the occurrence or unearned rent revenue.

non- occurrence of one or more future events to •

confirm the amount payable, the payee, or the Other liabilities whose liquidation will take place

date payable within the operating cycle or one year.

Notes to the financial statement - not explained in class

Accounting policies

Specific principles, bases, conventions, rules, and practices applied by a company in preparing and presenting

financial information.

The first note is generally titled, “Summary of