UNIT 13: FINANCIAL REPORTING UNIT CODE: K/508/0526 CREDIT VALUE: 15

UNIT 13: FINANCIAL REPORTING Learning Outcome 3.Evaluate financial reporting standards and theoretical models and concepts

THE BASIC SYLLABUS 1. Analyse the context and purpose of financial reporting. 2.Interpret Financial statements 3.Evaluate financial reporting standards and theoretical models and concepts 4. Evaluate international differences in financial reporting

LEARNING OUTCOMES Evaluate financial reporting standards and theoretical models and concepts P5: Explain the benefits of International Accounting Standards(IAS) and International Financial Reporting Standards (IFRS).

OVERVIEW An accounting standard is a principle that guides and standardizes accounting practices. An accounting standard is a guideline for financial accounting, such as how a firm prepares and presents its business income, expenses, assets and liabilities.

FINANCIAL REPORTING STANDARDS Accounting standards are a set of principles companies follow when they prepare and publish their financial statements, providing a standardised way of describing the company’s financial performance. Publicly accountable companies (those listed on public stock exchanges) and financial institutions are legally required to publish their financial reports in accordance with agreed accounting standards.

FINANCIAL REPORTING STANDARDS The objective of financial reporting standards is to bring transparency, accountability and efficiency to financial markets around the world by developing International Financial Reporting Standards(IFRS).The work serves the public interest by fostering trust, growth and long-term financial stability in the global economy.

FINANCIAL REPORTING STANDARDS IFRS Standards bring transparency by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.

FINANCIAL REPORTING STANDARDS IFRS Standards strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money. The Standards provide information needed to hold management to account. As a source of globally comparable information, IFRS Standards are also of vital importance to regulators around the world.

FINANCIAL REPORTING STANDARDS IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. Use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs for businesses.

FINANCIAL REPORTING STANDARDS Accounting standards issued by the IASB (International Accounting Standards Board) are known as International Accounting Standards. Companies that are locally listed on the stock exchange, as well as those that are not, are under obligation to use their financial statements in the countries that have accepted those standards.

FINANCIAL REPORTING STANDARDS A series of accounting standards, known as the International Accounting Standards, were released by the International Accounting Standard Council(IASC) between 1973 and 2000, and were ordered numerically. The series started with IAS 1, and concluded with the IAS 41, in December 2000.

FINANCIAL REPORTING STANDARDS At the time when the IASB was established, they agreed to adopt the set of standards that were issued by the IASC, i.e. the IAS 1 to 41, but that any standards to be published after that would follow a series known as the International Financial Reporting Standards (IFRS).

FINANCIAL REPORTING STANDARDS The question of the differences between the IAS and IFRS has arisen on a number of occasions in accounting circles, and in fact, some would question if there is any difference at all.

FINANCIAL REPORTING STANDARDS One of the major differences is that the series of standards in the IAS were published by the International Accounting Standards Committee (IASC) between 1973 and 2001, whereas, the standards for the IFRS were published by the International Accounting Standards Board (IASB), starting from 2001.

FINANCIAL REPORTING STANDARDS When the IASB was established in 2001, it was agreed to adopt all IAS standards, and name future standards as IFRS. One major implication worth noting, is that any principles within IFRS that may be contradictory, will definitely supersede those of the IAS.

FINANCIAL REPORTING STANDARDS Basically, when contradictory standards are issued, older ones are usually disregarded. Summary: IAS stands for International Accounting Standards, while IFRS refers to International Financial Reporting Standards.

FINANCIAL REPORTING STANDARDS IAS standards were published between 1973 and 2001, while IFRS standards were published from 2001 onwards. IAS standards were issued by the IASC, while the IFRS are issued by the IASB, which succeeded the IASC.

FINANCIAL REPORTING STANDARDS Principles of the IFRS take precedence if there’s contradiction with those of the IAS, and this results in the IAS principles being dropped.

ROLES AND USE OF IFRS The IFRS Foundation is the legal entity under which the International Accounting Standards Board (IASB) operates. Objectives of the IFRS Foundation - to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles.

ROLES AND USE OF IFRS These standards should require high quality, transparent and comparable information in financial statements and other financial reporting to help investors, other participants in the world’s capital markets and other users of financial information make economic decisions.

ROLES AND USE OF IFRS The main role and use of the IFRS includes: to promote the use and rigorous application of those standards. in fulfilling the above objectives, to take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings. to promote and facilitate adoption of International Financial Reporting Standards (IFRSs), being the standards and interpretations issued by the IASB, through the convergence of national accounting standards and IFRSs.

ROLES AND USE OF IFRS The objective of IFRS in Financial Statements are as follows: to develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent and comparable information in financial statements and other financial reporting to help participants in the world's capital markets and other users make economic decisions;

ROLES AND USE OF IFRS (b) to promote the use and rigorous application of those standards; and (c) in fulfilling the objectives associated with (a) and (b), to take account of, as appropriate, the special needs of small and medium-sized entities and emerging economies; and (d) to bring about convergence of national accounting standards and International Accounting Standards and International Financial Reporting Standards to high quality solutions.

ROLES AND USE OF IFRS Advantages of converting to IFRS Well, globalization to start with for sure. By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide.

ROLES AND USE OF IFRS Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad.

ROLES AND USE OF IFRS Despite a belief by some of the inevitability of the global acceptance of IFRS, others believe that U.S. GAAP is the gold standard, and that a certain level of quality will be lost with full acceptance of IFRS. Further, certain U.S. issuers without significant customers or operations outside the United States may resist IFRS because they may not have a market incentive to prepare IFRS financial statements. They may believe that the significant costs associated with adopting IFRS outweigh the benefits.

ROLES AND USE OF IFRS Some other challenges could be: The market valuation concepts may be a challenge in quite a few situations. Not being rule based, it may develop challenges at certain stages of implementation. First time adoption needs to be planned quite in advance, any delays will delay deployment.

REFERENCES Staff, I. (2017). http://www.investopedia.com/terms/a/accounting-standard.asp [Accessed 30 Oct. 2017]. Ifrs.org. (2017). IFRS. [online] Available at: http://www.ifrs.org/about-us/who-we-are/ [Accessed 30 Oct. 2017]. http://www.differencebetween.net/business/difference-between-ias-and-ifrs/ [Accessed 30 Oct. 2017]. Iasplus.com. (2017). IFRS Foundation. [online] Available at: https://www.iasplus.com/en/resources/ifrsf/governance/ifrsf [Accessed 30 Oct. 2017].

REFERENCES  What is the core objective of IFRS in Financial Statements? - Bayt.com Specialties. [online] Available at: https://www.bayt.com/en/specialties/q/322095/what-is-the-core-objective-of-ifrs-in-financial-statements/ [Accessed 30 Oct. 2017]. Singhal, A. (2017). IFRS Introduction – Advantages / disadvantages - The Finance, Accounts and Outsourcing Blog. [online] The Finance, Accounts and Outsourcing Blog. Available at: http://faoblog.com/intro06/ [Accessed 30 Oct. 2017].