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Issues in Financial Reporting

Issues
An important topic or problem for debate or
discussion.

Financial
A broad term used to describe many aspects
of finance or the financial industry, such
as financial instruments, financial
services, financial institution, financial
advisors, or financial planning.

Reporting
Give a spoken or written account of
something that one has observed, heard,
done, or investigated.

Financial Reporting
It is the process of producing statements that
disclose an organization's financial status to
management, investors and the government.

IASB & its Role

The International Accounting Standards Board (IASB) is the
independent, accounting standard-setting body of the IFRS
Foundation.
The International Financial Reporting Standards Foundation,
or IFRS Foundation, is a nonprofit accounting organization.
Its main objectives include the development and promotion of
the International Financial Reporting Standards (IFRSs) through
theInternational Accounting Standards Board (IASB), which it
oversees.

The IASB was founded on April 1, 2001, as the successor to

the International Accounting Standards Committee (IASC).
It is responsible for developing International Financial
Reporting Standards and promoting the use and application
of these standards.

The Standard Setting Process

International Financial Reporting Standards (IFRS) are developed
through an international consultation process, the "due process",
which involves interested individuals and organisations from around
the world.
The due process comprises six stages, with the Trustees of the IFRS
Foundation having the opportunity to ensure compliance at various
points throughout:
Setting the agenda
Planning the project
Developing and publishing the Discussion Paper, including public
consultation
Developing and publishing the Exposure Draft, including public
consultation
Developing and publishing the Standard
Procedures after an IFRS is issued

The Standard Setting Process

Setting the Agenda

The IASB, by developing high quality accounting standards, seeks to address a demand for high
quality information that is of value to all users of financial statements. High quality information will
also be of value to preparers of financial statements.
The IASB evaluates the merits of adding a potential item to its agenda, also know as the work
plan, mainly by reference to the needs of investors.
The IASB considers:

the relevance to users of the information and the reliability of information that could be provided;
whether existing guidance is available;
the possibility of increasing convergence;
the quality of the standard to be developed; and
resource constraints.

To help the IASB in considering its future agenda, its staff are asked to identify, review and raise
issues that might warrant the IASBs attention.
New issues may also arise from a change in the IASBs Conceptual Framework (In financial
reporting, a conceptual framework is a theory of accounting prepared by a standard-setting body
against which practical problems can be tested objectively). In addition, the IASB raises and
discusses potential agenda items in the light of comments from other standard-setters and other
interested parties, the IFRS Advisory Council and the IFRS Interpretations Committee, and staff
research and other recommendations.
The IASB receives requests from constituents to interpret, review or amend existing publications.
The staff consider all such requests, summarise major or common issues raised, and present them
to the IASB from time to time as candidates for when the IASB is next considering its agenda.

Planning the Project

When adding an item to its active agenda, the IASB also decides whether
to:
conduct the project alone; or
jointly with another standard-setter.

Similar due process is followed under both approaches.

After considering the nature of the issues and the level of interest among
constituents, the IASB may establish a Consultative group at this stage.
A team is selected for the project by the two most senior members of the
technical staff:
The Director of Technical Activities; and
The Director of Research.

The project manager draws up a project plan under the supervision of

those Directors. The team may also include members of staff from other
accounting standard-setters, as deemed appropriate by the IASB.

Developing and publishing the Discussion Paper,

including public consultation

Although a Discussion Paper is not mandatory, the IASB normally publishes it as its first publication on any
major new topic to explain the issue and solicit early comment from constituents.
If the IASB decides to omit this step, it will state why.
Typically, a Discussion Paper includes:
a comprehensive overview of the issue;
possible approaches in addressing the issue;
the preliminary views of its authors or the IASB; and
an invitation to comment.
This approach may differ if another accounting standard-setter develops the research paper.
Discussion Papers may result either from:
a research project being conducted by another accounting standard-setter; or
as the first stage of an active agenda project carried out by the IASB.
In the first case, the Discussion Paper is drafted by another standard-setter and published by the IASB.
Issues related to the Discussion Paper are discussed in IASB meetings, and publication of such a paper
requires a simple majority vote by the IASB.
If the Discussion Paper includes the preliminary views of other authors, the IASB reviews the draft
Discussion Paper to ensure that its analysis is an appropriate basis on which to invite public comments.
For Discussion Papers on agenda items that are under the IASBs direction, or include its preliminary views,
the IASB develops the paper or its views on the basis of analysis drawn from staff research and
recommendations, as well as suggestions made by the IFRS Advisory Council,Consultative groups and
standard-setters and presentations from invited parties.
All discussions of technical issues related to the draft paper take place in public sessions.

Developing and publishing the Exposure Draft,

including public consultation

Publication of an Exposure Draft is a mandatory step in due process.

Irrespective of whether the IASB has published a Discussion Paper, an
Exposure Draft is the IASBs main vehicle for consulting the public.
Unlike a Discussion Paper, an Exposure Draft sets out a specific proposal in
the form of a proposed Standard (or amendment to an existing Standard).
The development of an Exposure Draft begins with the IASB considering:
issues on the basis of staff research and recommendations;
comments received on any Discussion Paper; and
suggestions made by the IFRS Advisory Council, Consultative groups and
accounting standard-setters, and arising from public education sessions.

After resolving issues at its meetings, the IASB instructs the staff to draft
the Exposure Draft.
When the draft has been completed, and the IASB has balloted on it, the
IASB publishes it for public comment.

Developing and publishing the

Standard

The development of an IFRS is carried out during IASB meetings, when the IASB considers
the comments received on the Exposure Draft.
After resolving issues arising from the Exposure Draft, the IASB considers whether it should expose
its revised proposals for public comment, for example by publishing a second Exposure Draft.
In considering the need for re-exposure, the IASB:

identifies substantial issues that emerged during the comment period on the Exposure Draft that it had not
previously considered;
assesses the evidence that it has considered;
evaluates whether it has sufficiently understood the issues and actively sought the views of constituents;
and
considers whether the various viewpoints were aired in the Exposure Draft and adequately discussed and
reviewed in the basis for conclusions.

Drafting the IFRS

The IASBs decision on whether to publish its revised proposals for another round of comments is
made in an IASB meeting. If the IASB decides that re-exposure is necessary, the due process to be
followed is the same as for the first Exposure Draft.
When the IASB is satisfied that it has reached a conclusion on the issues arising from the Exposure
Draft, it instructs the staff to draft the IFRS.

Procedures after an IFRS is issued

After an IFRS is issued, the staff and the IASB members hold regular
meetings with interested parties, including other standard-setting bodies,
to help understand unanticipated issues related to the practical
implementation and potential impact of its proposals.
The IFRS Foundation also fosters educational activities to ensure
consistency in the application of IFRSs.
After a suitable time, the IASB may consider initiating studies in the light
of:
its review of the IFRSs application;
changes in the financial reporting environment and regulatory requirements;
and
comments by the IFRS Advisory Council, the IFRS Interpretations Committee,
standard-setters and constituents about the quality of the IFRS.

Those studies may result in items being added to the IASBs work plan.

Trustee of IFRS

Its administration is responsible to a Board of Trustees composed of nineteen

members ( Trustee ) , chosen by a special Nominating Committee in order to
provide a smooth representation of different geographical areas and different
professionals interested in the development of international accounting standards.
The members of the IASC Foundation shall remain in office for three years, with
one possibility of renewal ; themselves provide for the appointment of a president.
Decisions are made collectively, by a majority relative or absolute , simple or
qualified according to the greater or lesser importance of the object , or any
Trustee carries one vote, which may be exercised only in a direct way, without any
power of attorney.
The primary duties ascribed to the IASC Foundation include the definition and
periodic review of the strategic plans of the entire organization, raise the funds
necessary to keep it operational, the appointment of members of employee
organizations , namely the International Accounting Standards Board (IASB ) , the
Standards Advisory Council ( SAC ) and the International Financial Reporting
Interpretations Committee (IFRIC) , monitoring the activities carried out by the
Board , approval of the budget and the annual accounts IASB.

SAC
The Standards Advisory Council ( SAC ) is the body
through which all organizations (public and private )
and all stakeholders in the development of
international accounting standards can provide its
advice to the Trustee and , above all, to the Board.
Among the main functions of the SAC include the
definition in favor of the Board of suggestions about
the priorities to be followed in the development of the
new IFRS and comments on the implications that their
adoption may have on businesses and the main users
of financial statements .

IFRIC
Finally , the International Financial Reporting
Interpretations Committee (IFRIC ) is the
interpretative functions with that of IFRS by
the end of 2001, replacing the former
Standing Interpretations Committee (SIC).
In addition to the functions of interpretation ,
IFRIC is also responsible for the definition of
timely solutions to all issues not specifically
addressed by the IFRS accounting .

Framework for the Preparation &

Presentation of Financial Statements
The IFRS Framework describes the basic concepts
that underlie the preparation and presentation of
financial statements for external users.
The IFRS Framework serves as a guide to the
Board in developing future IFRSs and as a guide
to resolving accounting issues that are not
addressed directly in an International Accounting
Standard or International Financial Reporting
Standard or Interpretation.

Scope of IFRS
The IFRS Framework addresses:
the objective of financial reporting
the qualitative characteristics of useful financial
information
the reporting entity
the definition, recognition and measurement of
the elements from which financial statements are
constructed
concepts of capital and capital maintenance

Objective of Financial Reporting

The primary users of general purpose financial reporting
are present and potential investors, lenders and other
creditors, who use that information to make decisions
about buying, selling or holding equity or debt instruments
and providing or settling loans or other forms of credit.
The primary users need information about the resources of
the entity not only to assess an entity's prospects for future
net cash inflows but also how effectively and efficiently
management has discharged their responsibilities to use
the entity's existing resources.
The IFRS Framework notes that general purpose financial
reports cannot provide all the information that users may
need to make economic decisions. They will need to
consider pertinent information from other sources as well.

Qualitative Characteristics of Useful

Financial Information

The qualitative characteristics of useful financial reporting identify the types of information are
likely to be most useful to users in making decisions about the reporting entity on the basis of
information in its financial report. The qualitative characteristics apply equally to financial
information in general purpose financial reports as well as to financial information provided in
other ways.
Financial information is useful when it is relevant and represents faithfully what it purports to
represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely
and understandable.
Relevance and faithful representation are the fundamental qualitative characteristics of useful
financial information.

Relevant financial information is capable of making a difference in the

decisions made by users. Financial information is capable of making a
difference in decisions if it has predictive value, confirmatory value, or both.
The predictive value and confirmatory value of financial information are
interrelated.
General purpose financial reports represent economic phenomena in words
and numbers, To be useful, financial information must not only be relevant, it
must also represent faithfully the phenomena it purports to represent. This
fundamental characteristic seeks to maximize the underlying characteristics of
completeness, neutrality and freedom from error.

Reporting Entity
It will be considered as part of the IASB's
comprehensive project on the framework.

The Elements of Financial Statements

Financial statements portray the financial effects of transactions
and other events by grouping them into broad classes according to
their economic characteristics. These broad classes are termed the
elements of financial statements.
The elements directly related to financial position (balance sheet)
are
Assets
Liabilities
Equity

The elements directly related to performance (income statement)

are
Income
Expenses

The cash flow statement reflects both income statement elements

and some changes in balance sheet elements.

Recognition of the Elements of

Financial Statements
Recognition is the process of incorporating in
the balance sheet or income statement an
item that meets the definition of an element
and satisfies the following criteria for
recognition:
It is probable that any future economic benefit
associated with the item will flow to or from the
entity; and
The item's cost or value can be measured with
reliability.

Recognition of the Elements of

Financial Statements

Based on these general criteria:

An asset is recognized in the balance sheet when it is probable that the future economic
benefits will flow to the entity and the asset has a cost or value that can be measured
reliably.
A liability is recognized in the balance sheet when it is probable that an outflow of
resources embodying economic benefits will result from the settlement of a present
obligation and the amount at which the settlement will take place can be measured
reliably.
Income is recognized in the income statement when an increase in future economic
benefits related to an increase in an asset or a decrease of a liability has arisen that can
be measured reliably. This means, in effect, that recognition of income occurs
simultaneously with the recognition of increases in assets or decreases in liabilities (for
example, the net increase in assets arising on a sale of goods or services or the decrease
in liabilities arising from the waiver of a debt payable).
Expenses are recognized when a decrease in future economic benefits related to a
decrease in an asset or an increase of a liability has arisen that can be measured reliably.
This means, in effect, that recognition of expenses occurs simultaneously with the
recognition of an increase in liabilities or a decrease in assets (for example, the accrual
of employee entitlements or the depreciation of equipment).

Capital & Capital Maintenance

Capital is Wealth in the form of money or assets,
taken as a sign of the financial strength of an
individual, organization, or nation, and assumed
to be available for development or investment.
Capital Maintenance is an accounting concept
based on the principle that income is only
recognized after capital has been maintained or
there has been a full recovery of costs.