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International Financial Accounting
1. International Financial Reporting
National accounting standards made sense when companies operated in their home
countries, but with globalization (1960-70) it was needed a Global Set of accounting
• There must be a reconciliation of the earnings obtained in the different accounts presented in every country.
IASB: International Accounting Standards Board IAS/IFRS: International Accounting Standards/International Financing Reporting Standards.
The great importance of the US (Stock Markets, MNEs...) has meant that the US GAAP (which is a very detailed set of rules and best-known internationally), have greatly influeced rule-making worldwide.
International financing reporting can be: Positive Negative Patterns of share partnership World Politics Economic Globalization Taxation Providers of finance Profession Differences in the strength, size and competence of the accounting/auditing profession.
Nature and Growth of MNE’s Legal System Common Law (does not prescribe general rules. Company law is kept to a minimum and detailed regulation is in hands of private sector vs. Code Law accounting standards are often embroiled in the company law Culture Individualism vs. Collectivism Large vs. Small Power distance Strong vs. Weak uncertainty avoidance Masculinity vs. Femininity 1 International Financial Accounting Conceptual Framework The Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements. It is a practical tool that assists the IASB when developing and revising IFRSs. The objective of the Conceptual Framework project is to improve financial reporting by providing the IASB with a complete and updated set of concepts to use when it develops or revises standards.
The agreed concepts that underlie the IFRS financial reporting: I.
Financial Reporting Objectives 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.” Assumptions: Accrual Basis: revenues and expenses are recognized at the moment they are compromised, not when the cash arrives Going concern: an entity is viewed as continuing in business for the foreseeable future II.
Qualitative Characteristics and Constraints of Financial Reporting Information 2 International Financial Accounting III.
Definition, Recognition, and Measurement of Elements of Financial Statements Elements Asset -Controlled by the entity -Result of past event -Expected inflow of economic benefits Liability -Present obligation -Arising from past event -Expected outflow of economic benefits Equity Assets less liabilities Income -Recognized increased in liability in current reporting period Expense -Recognized decreased in asset/increase in liability in current reporting period Measurement: is the process of determining monetary amount at which elements are recognized and carried Framework is weak―only lists some measurement methods used in practice: o Historical cost: cash paid or fair value of consideration given o Current cost: cash that would be paid if acquired now – realizable (settlement) value: cash that could be obtained by selling the asset now o Present value: present discounted value of future net cash inflows that the item is expected to generate o Market value: listed but not described in Framework. For fair value see IFRS 13 Fair Value Measurements IV.
Common misunderstandings V.
Does Framework help me understand IFRS’s? Yes, the starting point for understanding all IFRS information is the objective and the concepts that flow logically from that objective: – IASB uses Framework to set IFRSs – Teachers/Trainers use Framework-based teaching to prepare students to make judgements that are necessary to apply IFRSs – Preparers use Framework to make the judgements that are necessary to apply IFRSs – Auditors and regulators assess those judgements – Investors, lenders and others consider those judgements when using IFRS financial information to inform their decisions 3 ...