1. INTERNATIONAL FINANCIAL ACCOUNTING AND REPORTING
Fudan University School of Economics
INTERNATIONAL FINANCIAL ACCOUNTING AND REPORTING
Elena Kozeltseva
PhD, Associate professor
Moscow State University

2. International financial accounting and reporting
Introduction to International Accounting
Conceptual Framework
Presentation of financial statements
Revenue recognition
Inventories
Property, plant and equipment
Intangible assets
Provisions
Equity
Statement of cash flows

3. List of readings
International Financial Reporting Standards (IFRSs) – IASCF, 2008.
Alexander D., Britton A., Jorissen A.International Financial Reporting and Analysis. – 3rd edition, Thomson Learning, 2007.
Alexander D., Nobes C. Financial Accounting. An International Introduction. – Pearson Education Limited, 2001.
Keiso D., Weygandt J., Warfield T., Intermediate Accounting.- 12-th ed., John Wiley & Sons, Inc., 2008
Websites:

4. Introduction to International Accounting
Accounting is an information system that measures, processes, and communicates financial information about an identifiable economic entity to interested parties for making economic decisions.
Bookkeeping is the means of recording transactions and keeping records.

5. USERS OF ACCOUNTING INFORMATION
Those outside the business enterprise
Those who manage a business
With direct
financial
interest
With indirect
financial
interest

6. Comparing Financial accounting with Management accounting
Primary users of information
Types of accounting systems
Restrictive guidelines
Units of measurement
Focal point analysis
Frequency of reporting
Degree of reliability

7. standard-setting process
Financial accounting
standard-setting process
National level
Regional level
International
level
International Accounting Standards Committee Foundation (IASCF)
International Federation of Accountants (IFAC)
International Organization of Securities Commissions (IOSCO)
Organization for Economic Cooperation and Development (OECD)
US GAAP (Generally accepted accounting principles)
National GAAP
European
Community Asian & Pacific
region
Africa
South America

8. US GAAP development
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
Securities and Exchange Commission (SEC)
Government Accounting Standards Board (GASB)

9. FASB pronouncements Statements of Financial Accounting Concepts (SFAC)
Statements of Financial Accounting Standards (SFAS)
Interpretations/Staff positions
Technical Bulletins
Emerging Issues Task Force Statements (EITF)

10. FASB Emerging Issues Task Force Statements
US GAAP hierarchy A
FASB Standards and Interpretations
Accounting Principles Board Opinions
AICPA Accounting Research Bulletins B
FASB technical bulletins
AICPA Industry Audit and Accounting Guides
AICPA
Statements of Positions C
FASB Emerging Issues Task Force Statements
AICPA practice bulletins D
AICPA Accounting Interpretations
FASB Implementation Guides
Widely recognized and prevalent industry practice

11. Financial accounting regulation in Russia
Federal law on accounting
National accounting standards developed and issued by the Ministry of Finance
Normative acts regulating specific accounting issues
Accounting policy

12. Causes of differences between national accounting systems
Provision of finance
Legal systems
Link between accounting and taxation
Accounting profession
Cultural differences
Geographical position …

13. ACCOUNTING MODELS Continental European Anglo-American model model USA
Great Britain
Netherlands
Canada
Australia
India
South Africa…
France
Germany
Italy
Austria
Belgium…

14. European accounting directives
The Fourth Council Directive 78/660/EEC of 25 July of 1978 on the annual accounts of certain types of companies
The Seventh Council Directive 83/349/EEC of 13 June 1983 on consolidated accounts
…….
ec.europa.eu/internal market/accounting

15. International Accounting Standards Committee
(I A S C)
IASC was created in 1973 by agreement between the professional accountancy bodies in nine countries
Australia Netherlands
Canada Great Britain
France Ireland
Germany USA
Japan Mexico

16. IASB Structure (as a result of structural changes in 2001)
IASC Foundation (Trustees)
International Accounting
Standards Board (IASB)
Standards Advisory Council (SAC)
International Financial
Reporting Interpretations
Committee (IFRIC)

17. The objectives of the IASC Foundation are:
to develop a single set of high quality, understandable, enforceable and globally accepted international financial reporting standards (IFRSs) through its standard-setting body, the IASB;
to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and
to bring about convergence of national accounting standards and IFRSs to high quality solutions.

18. International Financial Reporting Standards (IFRSs)
Framework for the Preparation and
Presentation of Financial Statements
International Accounting Standards (IAS 1- 41)
International Financial Reporting Standards
(IFRS 1-8)
Interpretations originated by the IFRIC (or its
predecessor, the former Standing Interpretations
Committee –SIC)

19. Standard – setting due process
1. Setting the agenda
2. Project planning
3. Development and publication of a discussion paper
4. Development and publication of an exposure draft
5. Development and publication of an IFRS
IFRSs
6. Procedures after an IFRS is issued

20. Use of IFRS For 172 jurisdictions for domestic listed companies:
IFRSs not permitted — 33 jurisdictions
IFRSs permitted — 25 jurisdictions
IFRSs required for some — 5 jurisdictions
IFRSs required for all — 90 jurisdictions
No stock exchange — 19 jurisdictions

21. Convergence between IFRSs and US GAAP
2002
The “Norwalk Agreement”
2006
Memorandum of Understanding (MoU)
that described a programme to achieve improvements in accounting standards, and substantial convergence between IFRSs and US generally accepted accounting principles (GAAP)
2007
SEC issued its final rule on Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to US GAAP

22. Harmonization of financial accounting and reporting in Europe
1995
Accounting Harmonization: a new strategy vis-à-vis international harmonization
1998
IAS allowed for consolidated financial statements in several European countries (Germany, France etc.)
1999
EU Financial Reporting Strategy: the way forward. Communication from the Commission to the Council and the European Parliament
2000
Amendments to EU Accounting Directives
19 July 2002
Regulation (EC) No 1660/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards

23. IFRSs endorsement mechanism in Europe
Legal level
Accounting Regulation Committee – ARC
Technical level
European Financial Reporting Advisory Group – EFRAG)

24. CONCEPTUAL FRAMEWORK

25. Framework for Preparation and Presentation of Financial Statements
The objective of financial statements
Underlying assumptions
The qualitative characteristics that determine usefulness of information in financial statements
The definition, recognition, and measurement of the elements from which financial statements are constructed
Concepts of capital and capital maintenance

26. Underlying assumptions
Accrual basis of accounting
The effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid), and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.
Going concern
The financial statements are normally prepared on the assumption that the entity has neither intention nor need to liquidate or curtail materially the scale of its operations, but will continue in operation for the foreseeable future.

27. Basic principles and concepts (accounting practice)
Double entry
Money measure
Separate entity/Economic entity
Cost principle/Historical cost
Periodicity/Accounting period …

28. Qualitative characteristics of financial statements
Usefulness of information in financial statements
Relevance
Reliability
Comparability
Understandability
materiality
faithfulness
substance over form
neutrality
prudence
completeness
Constraints
timeliness
balance between benefit
and cost
balance
between qualitative
characteristics

29. Elements of financial statements
Assets. An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Liabilities. Liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Equity. Equity is the residual interest in the assets of the entity after deducting all its liabilities.

30. Elements of financial statements
Income. Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Expenses. Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decrease in equity, other than those relating to distributions to equity participants.

31. Recognition of the elements of financial statements
An item that meets the definition of an element should be recognized (i.e., incorporated in the financial statements) if:
it is probable that any future economic benefit associated with the item will flow to or from the entity; and
the item has cost or value that can be measured with reliability.

32. Measurement of the elements of financial statements
Historical cost
Current cost
Realizable/Settlement value
Present value

33. Measurement of the elements of financial statements
Historical cost.
Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition.
Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income tax), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

34. Measurement of the elements of financial statements
Current cost.
Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently.
Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.

35. Measurement of the elements of financial statements
Realizable (settlement) value.
Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal.
Liabilities are carried at their settlement values; that is, the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.

36. Measurement of the elements of financial statements
Present value.
Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business.
Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.

37. The basic accounting equation
Assets = Liabilities + Owner’s equity
Owner’s equity = Assets – Liabilities
Owner’s equity2 = Owner’s equity1
+ Revenues
– Expenses
+ Owner’s Investments
– Owner’s Withdrawals

38. The accounting cycle
Identification and measurement of transactions and other events
Journalizing (General journal and special journals)
Posting (the procedure of transferring journal entries to the ledge accounts)
Trial balance preparation (list of all open accounts and their balances)
Adjustments (entries made at the end of an accounting period to bring all accounts up to date on an accrual basis)
Adjusted trial balance
Preparing of financial statements
Closing (nominal accounts)

39. Types of accounts Statement of financial position Income statement
Permanent/ real accounts
assets accounts
liability accounts
owner’s equity accounts
Temporary/nominal accounts
revenue accounts
expense accounts
Statement of financial position
Income statement

40. General journal Date Debit Credit Telephone expense Accounts payable
Page 1
Date
Accounts Titles and Explanation
Ref.
Debit
Credit
20х7
Jan.30
Telephone expense
Accounts
payable
Received bill for telephone expense
513
212 70

41. General Ledger Accounts payable Account No.212 Date Debit Credit
Ref.
Debit
Credit
Balance
20х7
Jan.30 ….
J 1 70

42. Types of adjusting entries Accruals Prepayments
Accrued revenues Revenues earned but not yet received in cash or recorded.
Accrued expenses
Expenses incurred but not yet paid in cash or recorded.
Prepaid expenses Expenses paid in cash and recorded as assets before they are used and consumed.
Prepaid revenues Revenues received in cash and recorded as liabilities before they are earned.

43. IAS 1 Presentation of Financial Statements

44. Complete set of general purpose financial statements
Statement of financial position
Statement of comprehensive income
Statement of changes in equity
Statement of cash flows
Notes, comprising a summary of significant accounting policies and other explanatory notes

45. Overall requirements for the presentation of financial statements
Fair presentation and compliance with IFRSs
Going concern
Accrual basis of accounting
Materiality and aggregation
Offsetting
Comparative Information
Consistency of presentation
Frequency of reporting
Стандарт должен применяться к любой отчетности общего назначения, подготовленной и представленной в соответствии с МСФО.
Финансовая отчетность общего назначения отвечает интересам разных категорий пользователей.
Она может быть представлена отдельно или в составе годового отчета.
Стандарт не применяется в отношении промежуточной отчетности (МСФО 34).
Стандарт применяется в равной степени ко всем компаниям, независимо от того, составляют ли они консолидированную отчетность или индивидуальную отчетность.
Дополнительные требования в отношении формирования отчетности банков и других финансовых учреждений содержатся в МСФО 30.
Терминология, используемая в стандарте, ориентирована на коммерческие организации. Все другие организации могут адаптировать требования к представлению финансовой отчетности.

46. Presentation of financial statements
Identification of financial statements
Financial statements should be clearly identified from other information in the same published document.
Reporting period
Financial statements should be presented at least annually.
the name of the reporting entity
the separate or consolidated financial statements
the date of the end of the reporting period or the period
covered
the presentation currency
the level of rounding used in presenting amounts

47. Statement of financial position
Current/non-current distinction
Current and non-current assets and liabilities
should be classified separately on the face of the statement of financial position
(except in circumstances when a liquidity-based presentation provides more reliable and relevant information)

48. Current/non-current assets
An entity shall classify an asset as current when:
it expects to realize the asset, or intends to sell or consume it, in its normal operating cycle;
it holds the asset primary for the purpose of trading;
it expects to realize the asset within twelve months after the reporting period; or
the asset is cash or cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
An entity shall classify all other assets as non-current.

49. Current/non-current liabilities
An entity shall classify a liability as current when:
it expects to settle the liability in its normal operating cycle;
it holds the liability primary for the purpose of trading;
the liability is due to be settled within twelve months after the reporting period; or
the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.
An entity shall classify all other liabilities non-current.

50. The minimum line items that should be included in the statement of financial position
Property, plant and equipment Investment property Intangible assets Financial assets Investments accounted for using the equity method Biological assets Inventories Trade and other receivables Cash and cash equivalents Provisions Financial liabilities Liabilities and assets for current tax Deferred tax liabilities and deferred tax assets Non-controlling interest (presented within equity) Issued capital and reserves

51. Statement of comprehensive income
An entity shall present all items of income and expense recognized in the period:
in a single statement of comprehensive income, or
in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit and loss and displaying components of other comprehensive income (statement of comprehensive income).

52. Statement of comprehensive income
Total comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners.
Total comprehensive income comprises all components of “profit and loss” and of “other comprehensive income”.
Other comprehensive income comprises items of income and expenses that are not recognized in profit or loss.

53. Classification of expenses
An entity shall present an analysis of expenses recognized in profit or loss using classification based on either their nature or their function within the entity whichever provides information that is reliable and more relevant.
The choice between the function of expense method and the nature of expense method depends on historical and industry factors and the nature of the entity.

54. Example of classification using the nature of expense method
Revenue Other income Changes in inventories and finished goods and work in progress Raw materials and consumables used Employee benefits expenses Depreciation and amortization expense Other expenses Total expenses Profit before tax

55. Example of classification using the function of expense method
Revenue Cost of sales Gross profit Other income Distribution costs Administrative expenses Other expenses Profit before tax

56. Statement of changes in equity
An entity shall present a statement of changes in equity showing in the statement:
total comprehensive income for the period;
for each component of equity, a reconciliation between carrying amount at the beginning and at the end of the period, separately disclosing changes resulting from:
profit and loss;
each item of other comprehensive income;
transactions with owners in their capacity as owners.

57. Notes
The notes shall:
present information about the basis of preparation of the financial statements and other accounting policies used;
disclose the information required by IFRSs that is not presented in the financial statements; and
provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.

58. An entity normally presents notes in the following order..
statement of compliance with IFRSs
summary of significant accounting policies applied, supporting information for items presented in the statement of financial position and of comprehensive income, and in the statement of changes in equity and of cash flows
other disclosures