1. International financial reporting standards
ApplIcatıon and Interpretatıon

2. Objective of the course
Identify standard setters
Describe IASB
Explain the standard making process at IASB
Explain difference between IAS and IFRS
Understand the applications of each standard

3. Standard setters
A standard setting body can be national or intenational organisations
Two key standard-setting bodies are IASB and FASB
Public Oversight Board in Turkey

4. About the FASB
Established in 1973, the Financial Accounting Standards Board (FASB) is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP).

5. About the IASB
The Board is an independent group of experts with an appropriate mix of recent practical experience in setting accounting standards, in preparing, auditing, or using financial reports, and in accounting education. 
In mid 1973, the IASC (International Accounting Standards Committee) was established; mandated with releasing new international standards, which would be rapidly accepted and implemented worldwide. The ISAC lasted 27 years until the year 2001, when it was restructured to become the International Accounting Standards Board (IASB).
The International Accounting Standards Board (IASB) is an independent, private-sector body that develops and approves International Financial Reporting Standards (IFRSs). The IASB operates under the oversight of the IFRS Foundation.

6. Standard-setting process

7. Ias-ifrs
A series of accounting standards, known as the International Accounting Standards, were released by the IASC between 1973 and 2000, and were ordered numerically. The series started with IAS 1, and concluded with the IAS 41, in December 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).

8. IAS stands for International Accounting Standards, while IFRS refers to International 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.
Principles of the IFRS take precedence if there’s contradiction with those of the IAS, and this results in the IAS principles being dropped.

9. IAS 1 Presentation of Financial Statements
Objective: to ensure comparabiliity both with the entity’s financial statements of previous periods and with the financial statements of other entities
Scope: An entity shall appy this Standard in preparing and presenting general purpose financial statements in accordance with IFRSs

10. Complete set of financial statements
A statements of financial position as at the end of the period
A statements of profit or loss and other comprehensive income for the period
A statement of changes in equity for the period
A statement of cash flows for the period
Notes, comprising a summory of significant accounting policies and other explanatory information
Comparative information in respect of the preceding period
A statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements

11. Financial position statements
Profit or loss statements
Cash flow statements
Changes in equity statements

12. Financial Position presentation
Current-non/current distinction
Liquidity distinction
An entiy presents current and non-current assets and current and non-current liabilities as separate classifications in its statement of financial postision except when a presentation based on liquidity provides information that is reliable.
When that exception applies, an entity shall present all assets and liabilities in order of liquidity.

13. Financial Position Statements
Current and Non-Current Distintion
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity

14. Current assets Items Cash and cash equivalent
Expected to be used within the normal operating cycle or within 12 months
Held primarily for the purpose of trading
All other assets are classified as non-current
Items
Trade and other receivabes
Inventory
Other current items

15. Current liabilities Items
Expected to settle the liability in the normal operating cycle or within 12 months
Held primarily for the purpose of trading
All other assets are classified as non-current
Items
Trade and other receivables
Short term financial liabilities
Short term provisions

16. Financial Position Statements of a Bank

18. Profit or loss statements
Option One:
A single statement of profit or loss and other comprehensive income with two sections.
Option Two:
Two separete financal statements are presented.
The profit or Loss Statements and
The comprehensive income statement.

19. Minumum disclosure requirements
Revenue
Finacne costs
Share of the profit or loss from associates and join ventures accounted for using the equity method
Tax expenses
Profit or loss from discounted operations

20. Definations
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.
Profit or loss is the total of income less expenses, excluding the components of other comprehensive income.
Other comprehensive income: comprises items of income and expense that are not recognised in profit or loss as required or permitted by other IFRSs.
Total comprehensive income comprises alll components of profit or loss and of other comprehensive income

21. Total comprehensive income
Income or Expense
P/L
OCI
TCI

22. Ilustration:
The company began a business with TL 10,000 cash. The followings transactions were done during the accounting period.
- Purchased a building worth TL 5,000 cash to use a selling store.
- Purchased 10 TV for TL 200 per each, and paid cash.
- Sold 5 TV for TL 300 cash per each.
At the end of the period, the company evaluted the building, and determined the evaluated building value was TL 7,000.

23. Profit or Loss Statements

24. Consider the following montly data for Big Inc
Consider the following montly data for Big Inc. for January through June:
Month
Revenue
Expenses
January
$30,000
$20,000
February
$35,000
$23,000
March
$27,000
$19,000
April
$34,000
$24,000
May
$40,000
June
$21,000
July
$29,000
$18,000
Assuming that the first quarter of 2xx6 includes the months of Januarry, February and March,
what would Big, Inc. report as revenue on its first quarter income satements?
What would Big, Inc. reports as expenses on its first quarter income satements?
What would Big, Inc. reports as profit (or loss) on its first quarter income satements?

25. ILUSTRATION
Prepare a multi-step income statement for Big, Inc. for the year ending December 31, 2xx6 given the information below:
Account $
Revenues
500,000
R&D Expense
9,000
Interest Expense
8,000
Managerial Expense
20,000
Marketing Expense
30,000
Begining Inventory
80,000
Tax Expense
25,000
Interest Income
12,000
Ending Inventory
60,000
Inventory Purchases
250,000
Returns and Allowances
10,000
Prepaid Expense
14,000
Other Income
3,000
Profit Distrubiton
36,000

26. Other comprehensive ıncome
ocı
Changes in revaluation surplus (IAS 16 and IAS 38)
Remasurements of defined benefit plans (IAS 19)
Gains and losses aring from translating the financial statements of a foreign operation (IAS 21)
Gains and loses from investments in equity instruments measured at fair value through OCI in accordance with par of IFRS 9
The effective portion of gains and losses on hedging instruments in a cash flow hedge (IAS 39)
For particular liabilities designated as at fair value through profit or loss, the amount of the change in fair value that is attributable to changes in the liability’s credit risk (par of IFRS 9)

27. TCI
P/L
Continued
Operating
Investment
Finance
Discontinued
OCI

30. IAS 2 INVENTORY Be able to: Describe what inventories are
State how they should be measured
Explain how cost and net relisable values are calculated
State what methods may and may not be used when valuing items of inventory

31. Inventories: What are they
Held for sale in the ordinary course of business
Goods for resale
In the process of production for sale
Work in progress
Material/supplies used in the production process
Raw materials
Finished goods

32. Inventory: What are not they
Inventories excludes
Work in process arising under construction contracts
Financial instruments
Biological assets relating agriculture

33. How are inventories measured?
Each item of inventory is measured at the lower of: net realisable value (NRV) and cost.
NRV
Cost
Which ever is lower

34. How is NRV calculated
Net realisable is the net amount we expect to gain from sale of the inventory
Net Realisable Value
Expected selling price
Costs to complete items for sale
Costs to sell
 the Allowance for Reduction of Cost to Net Realizable Value
Loss from Reducing Inventory to Net Relizeable Value

35. Share of production overheads
How is cost calculated
Cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.
Purchase costs
Purchase price
Delivery costs
Import duties
Conversion costs
Direct labour
Direct expenses
Share of production overheads

36. Administrative overheads
Determine cost
Cost of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.
Cost: Excludes
Abnormal waste
Storage cost
Administrative overheads
Selling cost
Interest cost

37. Ilustration

38. Valuing identical inventories
Often entities hold identical items of inventory that has been purchased at different times and prices
We, therefore, need a method to value the inventory held
FIFO
WAM
LIFO

39. Disclosures Accounting policy for inventories
Carrying amount of any inventories carried at fair value less cost to sell
Carrying amount of inventories pledged as security for liabilities
Cost of goods sold

40. Valuation Rules of Items
Category
General Valuation Rule
Cash and Cash Equivalents
Fair market value
Marketable Securities or Short-term investments
Trading (Gains or Losses in income)
AVS (Gains or Losses in Equity)
Accounts Receivable
Net realizable value (estimated amount collectible)
Inventory
Lower cost or market
Perapid expenses
Historical cost
PPE
Historical cost less accumulated depreciation
Long-term investment
Historical cost, market value, equity methlod

41. IFRS 15 contracts wIth customers

42. The 5-step model Identify the contract with the customer
Identify the performance obligations in the contract
Determine the transaction price
Allocation the transcation price
Recognise revenue when a performance obligation is satisfied 1 2 3 4 5

43. 1.Identify the contract with the customer
The contract has been approved in writing, orally, or in accordance with other customary business practices and the parties are committed to perform their obligations in the contract
Each party’s rights regarding the goods or services to be transferred can be identified
The payment terms for the goods or services to be transferred can be identified
The contract has commercial substance (i.e. the risk, timing or amount of the vendor’s future cash flows is expected to change as a result of the contract)
It is probable that the consideration for the exchange of the goods or services that the vendor is entitled to will be collected. For the purposes of this criterion, only the customer’s ability and intention to pay amounts when they become due are considered

45. 2. Identify the performance obligations in the contract
Performance obligation is a promise to a customer to transfer:
A good or service (or a bundle of goods or services) that is distinct; or
A series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

47. 3.Determine the transaction price
The transaction price is the amount of consideration that a vendor expects to be entitled to in exchange for the goods or services. This will often be the amount specified in the contract. However, the vendor is also required to consider its customary business practices and, if these indicate that a lower amount will be accepted then this is the expected amount of consideration.
The vendor also needs to consider effects of the following:
Variable consideration (discounts, rebates, refunds, credits, incentives, performance bonuses, penalties)
Constraining estimates of variable consideration
The existence of a significant financing component in the contract
Non-cash consideration
Consideration payable to a customer.

48. 4. Allocation the transcation price

49. 5.Recognise revenue when a performance obligation is satisfied

50. IAS 16 Property, Plant, and Equipment
applied in accounting for PPE except when another Standard requires or permits a different accounting treatment
This Standard does not apply to:
PPE classifed as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations,
Biological assets related to agricultural activity,
The recognition and measurement of exploration and evaluation assets
Mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

51. Definitions of terms
Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses.
Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisiti,on or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs,
Depreciable amount is the cost of an asset.. or other amount substituted for cost, less its residual value.
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.
The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
Useful life is a) the period over which an asset is expected to be available for use by an entity; or b) the number of production or similar units expected to be obtained from the asset by an entity

52. Long-lived tangible and intangible assets hold the promise of providing economic benefits to an entity for a period greater than that covered by the current year’s financial statements. Accordingly, these assets must be capitilazed rather than immediatly expensed, and their cost must be allocated over expected periods of the benefit for the reporting entity.
Long-lived non-financial assets may be classified into two basic types:
- Tangible (have physical substance)
- Intangible (no physical substance)

53. Recognition
The cost of an item of ,property, plant and equipment shall be recognised as an
asset if. and only if:
(a) it is probable that future economic benefits associated with the item will
flow to the entity; and
(b) the cost of the item can be measured reliably.
Items such as spare parts, stand-by equipment . and servicing 'equipment are
recognised in accordance with this IFRS when they meet the definition of
property, plant and equipment. Otherwise, such items are classified as inventory.

54. Compound assets, such as buldings containing such as disparate components as heating, plant, roofs, and other structural elements are most commonly recorded in several separate accounts to faciliate the process of amortizing the different elements over varying periods.
Thus, a heating plant may have an expected useful life of 20 years, the roof a life of 15 years, and the basic structure itself a life of 40 years.

55. Measurement at recognition
An item of property. plant and equipment that qualifies for recognition as an asset shall be measured at its cost.
Elements of cost
Elements of costs include:
(a) its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
(c) Estimated costs of dismantling and removing the item and restoring the site.

56. Attributable costs Examples of directly attributable costs are:
(a) costs of employee benefits (as defined in lAS 19 Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment;
(b) costs of site preparation;
(c) initial delivery and handling costs;
(d) installation and assembly costs;
(e) costs of testing whether the asset is functioning properly. after deducting
the net proceeds from selling any items produced while bringing the asset
to that location and condition {such as samples produced when testing
equipment); and
(t) professional fees.

57. Examples of costs that are not costs of an item of property
Examples of costs that are not costs of an item of property. plant and equipment
are:
(a) costs of opening a new facility;
(b) costs of introducing a new product or service (including costs of advertising
and promotional activities);
(c) costs of conducting business in a new location or with· a new class of
customer (including costs of staff training); and
(d) administration and other general overhead costs.

58. Measurement of cost
The cost of an item of property. plant and equipment is the cash price equivalent
at the recognition date. If payment is deferred beyond normal credit terms. the
difference between the cash price equivalent and the total payment is recognised
as interest over the period of credit unless such interest is capitalised in
accordance with lAS 23.
The assets acquired in Exchange for a non-monetary asset or assets are measured at fair value.

59. Measurement after recognition
An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment

60. Depreciaiton of PPE
In accordance with one of the important the basic accounting rules, the matching principle, the cost of PPE are allocated through depreciation to the periods that will have benefited from use of the asset.
Whatever method of depreciation is chosen, it must result in the systmatic and rational allocation of the depreciable amount of the asset over the asset’s expected useful life.
The determination of the useful life must take a number of factors into consideration. These factors include:
Technological change, normal deterioriation, actual physical use, and legal or other limitations on the abilitiy to use the property.
The method of depreciation is based on whether the useful lief is determined as a function of time or as a function of actual physical usage.

61. Depreciation methods
The standard leaves the choice of method to entity, even though if it does cite:
Straight-line
Diminishing balance
Units of production methods

62. Depreciation methods based on time
Straight-line method
Accelerated methods
Dimishing balance
Sum-of-the years’ digits depreciaiton

63. Depreciaiton method based on actual physical use
It is also called units of production method