Wiley IFRS

Practical Implementation Guide and Workbook

Abbas A. Mirza, Graham Holt, Liesel Knorr

• Publisher: Wiley
• Year: 2011
• Print ISBN: 9780470647912
• eBook ISBN: 9781118017647
• Edition: 3
• Topic: Business
• Subtopic: Accounting Standards
• Index: Business

A one-stop resource for understanding and applying current International Financial Reporting Standards

As the International Accounting Standards Board (IASB) makes rapid progress towards widespread acceptance and use of IFRS ® (formerly named International Accounting Standards) worldwide, the need to understand these new standards increases. Now fully revised and updated, IFRS ® Practical Implementation Guide and Workbook, Third Edition is the straightforward handbook for understanding and adapting the IFRS ® standards.

This quick reference guide includes easy-to-understand IAS/IFRS ® outlines, explanations, and practical insights that greatly facilitate understanding of the practical implementation issues involved in applying these complex standards.

Clearly explaining the IASB standards so that even first-time adopters of IFRS ® will understand the complicated requirements, the Third Edition presents:

• Ten recently issued and revised IFRS ® standards including business combinations, financial instruments and newly issued IFRS ® for SMEs
• New International Financial Reporting Interpretations Committee (IFRIC) projects
• Multiple-choice questions with solutions and explanations to ensure thorough understanding of the complex IFRS ® /IAS standards
• Case studies or "problems" with solutions illustrating the practical application of IFRS ® /IAS
• Excerpts from published financial statements around the world

Designed with the needs of the user in mind, IFRS ® Practical Implementation Guide and Workbook, Third Edition is an essential desktop reference for accountants and finance professionals, as well as a thorough review guide for the IFRS ® /IAS certification exam.

Chapter 1
INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

INTRODUCTION

Need for a Common Set of Accounting and Financial Reporting Standards

As the oft quoted verse from the world-renowned works of Shakespeare (Romeo and Juliet) goes: “What’s in a name? That which we call a rose by any other name would smell as sweet.” One wonders if the same can be said of financial statements prepared in different jurisdictions of the world. Not too far in the distant past, countries and economic regional blocs, such as Europe, would not be swayed by the thought of converging to a single set of global accounting standards and, due to nationalistic approaches to accounting standard setting, a financial statement issued in Japan (under the Japanese accounting standards) was vastly different in terms of accounting treatments and disclosures compared to a financial statement issued in other major parts of the world, say, in Germany where German accounting standards were used. In other words, the “name” that was given to the set of accounting standards used in the preparation of financial statements did matter for several countries since their national standard setters strongly believed that their own (national) accounting standards were suitable for their needs and were compatible to other globally preferred accounting standards.

However, due to the advent of globalization, the falling of the erstwhile insurmountable trade barriers between nations, and more recently the much-awaited response to the global financial crisis, together with calls by world leaders, things have changed dramatically in terms of the preferred set of standards of accounting globally. The accounting and financial world is now seriously considering the notion of using a single set of accounting and financial reporting standards that would be used by most, if not all, the nations around the globe, it appears that in all likelihood the name of that set of global accounting standards may be the International Financial Reporting Standards (IFRS®).

With this transformation of our world into a “flat world” (as some claim) the magical phenomenon of globalization has led to the emergence of a “global village” that we all live in now. The robust waves of globalization surging through the world seem to have transformed businesses across the globe as well as the manner in which they deal with each other across boundaries. If therefore, as the old adage goes, “accounting is the language of business,” then businesses around the world cannot afford to be speaking in different languages to each other while exchanging and sharing financial results of their international business activities with each other, and also while reporting the results of business and trade to their international stakeholders. As one school of thought believes, since business enterprises around the world are so highly globalized now and need to speak to each other in a common language of business, there is a real need for adopting a single set of accounting standards to unify the accounting world under one canvas and more importantly, solve the problem of diversity of accounting practices across borders.

Historically, countries around the world have had their own national accounting standards (which some countries have treasured for whatever reason, most likely due to the pride of national sovereignty). However, with such a compulsion to be part of the globalization movement, wherein businesses across national boundaries are realizing that it is an astute business strategy to embrace the world as their workplace and marketplace, having different rules (standards) of accounting for the purposes of reporting financial results would not help them at all (rather, it would serve as an impediment to smooth flows of information), and therefore, businesses have realized that they need to talk to each other in a common language. Thus, there is an urgent need for a common set of global, or even universal, accounting and financial reporting standards that are understood, used, and interpreted by different people around the world in the same manner.

The adoption of accounting standards that require high-quality, transparent, and comparable information is welcomed by investors, creditors, financial analysts, and other users of financial statements. Without a common set of accounting and financial reporting standards, it is difficult to compare financial information prepared by entities located in different parts of the world. In an increasingly global economy, the use of a single set of high-quality accounting standards facilitates investment and other economic decisions across borders, increases market efficiency, and reduces the cost of raising capital. International Financial Reporting Standards (IFRS) are increasingly becoming the set of globally accepted accounting standards that meet the needs of the world’s increasingly integrated global capital markets.

What Are IFRS?

IFRS is a set of standards promulgated by the International Accounting Standards Board (IASB), an international standard-setting body based in London, United Kingdom. The IASB places emphasis on developing standards based on sound, clearly-stated principles, on which interpretations may be required (sometimes referred to as principles-based standards). This contrasts with sets of standards, like US GAAP, the national accounting standards of the United States, which contain significantly more application guidance. These standards are sometimes referred to as rules-based standards, but that is really a misnomer as US standards also are based on principles—they just contain more application guidance (or “rules”). IFRS also generally do not provide “bright lines” in distinguishing between circumstances in which different accounting requirements are specified. This reduces the chances of ‘structuring’ transactions to achieve particular accounting effects.

According to one school of thought, since IFRS are primarily “principles-based” standards, the IFRS-approach to standard setting focuses more on the business or the economic purpose of a transaction and the underlying rights and obligations and therefore, instead of providing prescriptive rules (or guidance), IFRS promulgates Standards that lay down guidance in the form of “principles.”

This significant difference in approach to standard setting between IFRS and US GAAP is responsible for the limited number of pages that the IFRS Standards are spread over compared to US GAAP (US GAAP extends to over 20,000 pages of accounting literature as opposed to IFRS which presently is covered in approximately 2,000 to 3,000 pages).

WORLDWIDE ADOPTION OF IFRS

International Financial Reporting Standards (IFRS), which were initially called International Accounting Standards (IAS), are gaining acceptance worldwide. This section discusses the extent to which IFRS are recognized around the world and includes a brief overview of the history and key elements of the international standard-setting process. In the last few years, the international accounting standard-setting process has been able to claim a number of successes in achieving greater recognition and use of IFRS.

A major breakthrough came in 2002 when the European Union (EU) adopted legislation that required listed companies in Europe to apply IFRS in their consolidated financial statements. The legislation came into effect in 2005 and applies to more than 8,000 companies in 30 countries, including France, Germany, Italy, Spain, and the United Kingdom. The adoption of IFRS in Europe means that IFRS have replaced national accounting standards and requirements as the basis for preparing and presenting group financial statements for listed companies in Europe.

Outside Europe,...

Table of contents

• Cover
• Content
• Title Page
• Copyright
• Forewords to First Edition
• Preface
• Acknowledgements
• About the Authors
• 1. Introduction to International Financial Reporting Standards
• 2. IASB Framework
• 3. Presentation of Financial Statements (IAS 1)
• 4. Inventories (IAS 2)
• 5. Statement of Cash Flows (IAS 7)
• 6. Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8)
• 7. Events After the Reporting Period (IAS 10)
• 8. Construction Contracts (IAS 11)
• 9. Income Taxes (IAS 12)
• 10. Property, Plant, and Equipment (IAS 16)
• 11. Leases (IAS 17)
• 12. Revenue (IAS 18)
• 13. Employee Benefits (IAS 19)
• 14. Accounting for Government Grants and Disclosure of Government Assistance (IAS 20)
• 15. The Effects of Changes in Foreign Exchange Rates (IAS 21)
• 16. Borrowing Costs (IAS 23)
• 17. Related-Party Disclosures (IAS 24)
• 18. Accounting and Reporting by Retirement Benefit Plans (IAS 26)
• 19. Consolidated and Separate Financial Statements (IAS 27)
• 20. Investments in Associates (IAS 28)
• 21. Financial Reporting in Hyperinflationary Economies (IAS 29)
• 22. Interests in Joint Ventures (IAS 31)
• 23. Financial Instruments: Presentation (IAS 32)
• 24. Financial Instruments: Recognition and Measurement (IAS 39)
• 25. Earnings Per Share (IAS 33)
• 26. Interim Financial Reporting (IAS 34)
• 27. Impairment of Assets (IAS 36)
• 28. Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)
• 29. Intangible Assets (IAS 38)
• 30. Investment Property (IAS 40)
• 31. Agriculture (IAS 41)
• 32. First-Time Adoption of International Financial Reporting Standards (IFRS 1)
• 33. Share-Based Payments (IFRS 2)
• 34. Business Combinations (IFRS 3)
• 35. Insurance Contracts (IFRS 4)
• 36. Noncurrent Assets Held for Sale and Discontinued Operations (IFRS 5)
• 37. Exploration for and Evaluation of Mineral Resources (IFRS 6)
• 38. Financial Instruments: Disclosures (IFRS 7)
• 39. Operating Segments (IFRS 8)
• 40. Financial Instruments (IFRS 9)
• 41. IFRS for SMEs
• Answers for Multiple-Choice Questions
• Index
• End User License Agreement