W2 Lecture

• Accounting standards


  Best practice guidelines
• IAS 1


  The first accounting standard developed by the IASC (now the IASB), its main purpose is to allow decision makers to compare performance and it sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content
• Standard financial statements (in accordance with IAS 1)

  • Statement of financial position
  • Statement of profit or loss
  • Notes to the accounts
  • Statement of cash flows
  • Statement of changes in equity
• Elements that must be included in a set of financial statements

  • Equity
  • Income and expenses
  • Other changes in equity
  • Cash flows
• Fundamental elements that must be included in financial statements

  • Assets
  • Liabilities

  
• Assets = Liabilities + Equity
• Accounting standards are rules that govern how transactions are recorded, measured, presented, and disclosed in financial reports.
• There are two types of accounting standards: principles-based and rules-based.
• The International Financial Reporting Standards (IFRS) is an example of a rule-based standard.
• Rules-based standards specify detailed requirements for recording, measuring, presenting, and disclosing information in financial reports.
• Principles-based standards set out general objectives or concepts to guide the preparation of financial reports.
• Rules-based standards specify detailed procedures to follow when preparing financial statements.
• Principles-based standards focus on underlying concepts and principles rather than specific rules.
• Prudence principle requires conservatism when estimating future events and recognizing assets and liabilities.
• Consistency principle ensures comparability between periods by using consistent methods of measurement and presentation.
• Going concern assumption assumes that an entity will continue operating unless there are indications otherwise.
• Matching principle matches expenses with revenues generated by those expenses.
• Matching principle matches revenues with related costs to determine net income.
• Rules-based standards can be more prescriptive and restrictive compared to principles-based standards.
• Principles-based standards allow for greater flexibility and discretion in applying accounting policies.