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Topic 1 - International Financial Reporting Standards

Financial Management

Financial Management
Topic 1:
International Financial Reporting Standards
(IFRS)

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International Financial Reporting Standards Topic 1 - 1.2

Scope and Coverage


This topic will cover:
International Financial Reporting Standards (IFRS)
- Development and background
- Rationale
- Application

Financial statements under IFRS:


- Statement of financial position
- Income statement
- Statement of cash flows.

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International Financial Reporting Standards Topic 1 - 1.3

Learning Outcomes for Topic 1


By the end of this topic students will be able to:
Explain the development and rationale of
International Financial Reporting Standards.
Discuss the application of IFRS.
Discuss the financial statements prepared under
IFRS.

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Topic 1 - International Financial Reporting Standards

Financial Management

International Financial Reporting Standards Topic 1 - 1.4

International Financial Reporting


Standards (IFRS)
Transnational rules on the preparation of published
financial statements.
Also known as International Accounting
g Standards
(IAS).
Developed by the International Accounting
Standards Board (IASB).

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International Financial Reporting Standards Topic 1 - 1.5

Development of IFRS
International Accounting Standards Board (IASB)
Independent standards-setting board overseen by
the IFRS Foundation.
Sets the IFRSs

IFRS Foundation
Independent organisation that aims to:
...to develop a single set of high quality, understandable,
enforceable and globally accepted IFRSs...
(IFRS Foundation, 2011)

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International Financial Reporting Standards Topic 1 - 1.6

Background to IFRS
Countries used to follow their own national or local
accounting rules.
- UK GAAP (Generally Accepted Accounting Practices)

International Accounting Standards Committee


(IASC) set first International Accounting Standard
(IAS) in 1973.
International Accounting Standards Board (IASB)
succeeded IASC in 2000.

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Topic 1 - International Financial Reporting Standards

Financial Management

International Financial Reporting Standards Topic 1 - 1.7

Rationale for IFRS


Increasing trend towards internationalisation of
business and integration of financial markets
Case for harmonisation of accounting rules.
Improved
p
comparability
p
y between companies
p
in
different countries.
Reduce burden on international companies to
produce different financial statements to comply
with accounting rules in different countries.

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International Financial Reporting Standards Topic 1 - 1.8

International Application of IFRS


Over 100 countries currently adopt IFRS, including:
-

Australia
Canada
European
p
Union
Hong Kong
South Africa

Many more countries apply the principles of IFRS


within their own local GAAP.

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International Financial Reporting Standards Topic 1 - 1.9

Application of IFRS in the UK


Not all organisations must comply with IFRS.

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Must comply with IFRS

Do not have to comply


with IFRS

Companies listed on UK
stock exchange

Non-listed companies.
Small companies.

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Topic 1 - International Financial Reporting Standards

Financial Management

International Financial Reporting Standards Topic 1 - 1.10

Terminology: UK GAAP and IFRS


UK GAAP
Balance sheet

Profit and loss account


C h flflow statement
Cash
Fixed assets
Stock
Debtors
Creditors

IFRS
Statement of financial
position
Income statement
Statement
S
off cash
h flows
fl
Non-current assets
Inventory
Receivables
Payables

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International Financial Reporting Standards Topic 1 - 1.11

Financial Statements under IFRS


IAS 1 Presentation of Financial Statements requires
the financial statements to consist of:
- Statement of financial position
- Income statement as part of larger statement of
comprehensive income
- Statement of changes in equity
- Statement of cash flows
- Notes on accounting policies and other explanatory
notes.

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International Financial Reporting Standards Topic 1 - 1.12

Statement of Financial Position


Equivalent to a balance sheet
IAS 1 does not prescribe specific layout for the
statement of financial position but does set out the
minimum information to be presented covering:
Assets (current and non-current)
Liabilities (current and non-current)
Equity (share capital and reserves)

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Topic 1 - International Financial Reporting Standards

Financial Management

International Financial Reporting Standards Topic 1 - 1.13

Income Statement
Equivalent to profit and loss account
Shown as part of a larger statement of
comprehensive income
No specified format but IAS 1 states the minimum
information to be presented should include:

Revenue
Finance costs
Tax expenses
Profit or loss

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International Financial Reporting Standards Topic 1 - 1.14

Statement of Cash Flows


Equivalent to the cash flow statement
Provides a summary of the cash receipts and
payments over the specified period.
Analyses
A l
th
the b
businesss
i
cash
h movements
t ffor a
specified period.
IAS 7 Statement of Cash Flows sets out
presentational requirements for this statement.

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International Financial Reporting Standards Topic 1 - 1.15

Statement of Changes in Equity


Aims to help users understand the changes in share
capital and reserves in a specified period
Reconciles share capital and reserves at beginning
and end of specified period.

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Topic 1 - International Financial Reporting Standards

Financial Management

International Financial Reporting Standards Topic 1 - 1.16

Summary
In this lecture we have looked at:

Development and background of IFRS


Rationale of IFRS
Application of IFRS internationally and in the UK
Financial statements under IFRS:
- Statement of financial position
- Income statement
- Statement of cash flows

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International Financial Reporting Standards Topic 1 - 1.17

Words You Should Know


International Financial Reporting Standards (IFRS)
transnational accounting rules for the preparation of
financial statements.
Local GAAP generally accepted accounting practices
for individual country.
Statement
St t
t off fifinancial
i l position
iti IFRS equivalent
i l t off th
the
balance sheet
Income statement IFRS equivalent of profit and loss
account
Statement of cash flows IFRS equivalent of cash flow
statement

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International Financial Reporting Standards Topic 1 - 1.18

References
IFRS Foundation (2011) About the IFRS
Foundation and the IASB. Available at:
http://www.ifrs.org/The+organisation/IASCF+and+IA
SB.htm [Accessed 14.02.2011]
McLaney, E. and Atrill, P. (2010) Accounting: An
Introduction, 5th Edition. Harlow, England: FT
Prentice Hall.

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Topic 1 - International Financial Reporting Standards

Financial Management

International Financial Reporting Standards Topic 1 - 1.19

Topic 1 - International Financial Reporting


Standards (IFRS)
Any Questions?

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