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IFRS manual of accounting

IFRS manual of accounting:AIM

To ensure that students have a sound understanding of the techniques of double entry accounting and can apply its principles in recording transactions, adjusting financial records and preparing non-complex financial statements. On completion of this module, candidates will be:

 Proficient in the use of double entry accounting techniques and the maintenance of accounting records

 Able to identify and correct omissions and errors in accounting records and financial statements

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 Able to specify the components of financial statements, and prepare and present non-complex accounts for sole traders, partnerships and limited companies

IFRS manual of accounting

IFRS manual of accounting

IFRS manual of accounting

The purpose of accounting information

  • The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
  • To provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users in making economic decisions Conceptual Framework Para OB2 IAS 1 para 9
  • To show the results of management’s stewardship of the resources entrusted to it IAS 1 para 9
  • Assists users of the financial statements in predicting the entity’s future cash flows and, in particular, their timing and certainty IAS 1 para 9 3

IFRS manual of accounting: The regulation of accounting

  • A statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows, notes and (in certain circumstances) a revised statement of financial position from an earlier period IAS 1 para 10
  • Fair presentation/faithful representation IAS 1 para 15; Conceptual Framework paras QC12 – QC16

IFRS manual of accounting: The main financial statements

  • Information about the nature and amounts of an entity’s economic resources and claims can help users to assess the entity’s liquidity and solvency, its need for additional financing and how successful the entity is likely to be in obtaining that financing.Conceptual Framework para OB13
  • Information about a reporting entity’s financial performance is needed by users to understand the return that the entity has produced on its economic resources.

Information about the return the entity has produced provides an indication of how well management has discharged its responsibilities to make efficient and effective use of the reporting entity’s resources. Information about the variability and components of that return is also important, especially in assessing the uncertainty of future cash flows. Conceptual Framework para OB16

The qualitative characteristics of useful financial information:

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  • Fundamental qualitative characteristics: relevance and faithful representation.
  • Enhancing qualitative characteristics: comparability, venerability, timeliness and understand ability. Conceptual Framework paras QC6-QC34

IFRS manual of accounting: Objectives and scope of IAS 1

  • To prescribe the basis for presentation of general purpose financial statements, to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities IAS 1 para 1
  • To be applied to all general purpose financial statements prepared and presented in accordance with International Financial Reporting Standards (IFRSs) IAS 1 para 2
  • General purpose financial statements are those intended to meet the needs of users who are not in a position to demand reports tailored to meet their particular information needs. IAS 1 para 7 INSPECTION COPY 28 Accounting

IFRS manual of accounting: The purpose of financial statements

  • To provide information about the financial position, performance and cash flows of an entity that is useful to a wide range of users in making economic decisions IAS 1 para 9 – To show the results of management’s stewardship of the resources entrusted to it – To assist users in predicting the entity’s future cash flows and, in particular, their timing and certainty – To provide information about the entity’s assets, liabilities, equity, income and expenses (including gains and losses), other changes in equity and cash flows

IFRS manual of accounting: Components of financial statements

  • A statement of financial position at the end of the reporting period, a statement of profit or loss, an accounting policies note, a statement of changes in equity, a statement of cash flows, explanatory notes and a statement of financial position at an earlier date where there has been retrospective application, retrospective restatement or reclassification IAS 1 para 10

IFRS manual of accounting: Fair presentation (IAS 1)

  • The faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria in the Framework. The application of IASs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. IAS 1 para 15
  • Compliance with IASs must be explicit and complete. IAS 1 para 16
  • For there to be fair presentation: IAS 1 para 17 – Accounting policies must be selected and applied. – Information must be presented in a manner which provides relevant, reliable, comparable and understandable information. – To enable users to understand the impact of particular transactions, events and conditions on the entity’s financial position and performance additional disclosures may be required.
  • Use of an inappropriate accounting treatment cannot be rectified either by disclosure of accounting policies or notes/explanatory material IAS 1 para 18
  • In some circumstances departure from the IASs may be required to achieve a fair presentation IAS 1 para 23 9 Underlying assumptions
  • Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Assessment of whether the going concern assumption is appropriate must take into account all available information for at least 12 months from the end of the reporting period. Any uncertainty must be disclosed. IAS 1 para 25 and 26
  • An entity should prepare its financial statements using the accrual basis of accounting, recognising the elements of financial statements in line with the Framework. IAS 1 para 27 and 28
  • To maintain consistency, the presentation and classification of items in the financial statements should stay the same from one period to the next, unless there is significant change in the nature of the operations, or a review of the financial statements indicates a more appropriate presentation, or a change in presentation is required by an IAS.
  • Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions of users taken on the basis of the financial statements. Materialist depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or the nature of an item, or a combination of both, could be the determining factor. IAS 1 para 7
  • Each material class of similar items shall be presented separately in the financial statements. Items of a dissimilar nature or function shall be presented separately unless they are immaterial, but a specific disclosure requirement in an IAS need not be satisfied if the information is immaterial.

IFRS manual of accounting

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