Advanced financial accounting - Lecture 26: IASB frame-work

Advanced Financial
Accounting
FIN-611
Mian Ahmad Farhan
Lecture-26
IASB Frame-Work


Financial Statements
1.

Balance sheet

2.

Income statement

3.

Statement of changes in equity

4.

Cash-flow statement

5.

Notes


Financial Statements

Balance sheet
Financial position
Income statement
Financial performance or Profit / Loss
Statement of changes in equity
Movement In different heads of owner’s equity
Cash-flow statement
Movement in cash inflow and cash outflow
Notes
Significant accounting policies and explanatory notes


Qualitative Check
Materiality
1.
2.
3.
4.

Relevancy
Reliability
Comparability
Understanding

Qualitative characteristics that
make financial information useful
Qualitative characteristics that
make financial presentation useful

Relevancy
The financial statement are relevant for decision making
Purpose for the use of financial statement.
Values to be relevant
1. Predictive value
2. Confirmative value


Five Characteristics of Reliability
1.
2.
3.
4.
5.

Faithful representation
Substance over form
Neutralability
Prudence
Completeness


Constraints / Limitations relating to Relevancy
& Reliability
1. Timeliness
2. Balance between the benefit and cost
3. Balance among the different characteristics


Types of Financial Information

1.
2.
3.
4.
5.

Assets
Liabilities
Owner’s equity
Incomes
Expenses


Assets
1. Assets are resources
2. Arising from past event
3. Probability of inflow of economic benefit
to the entity in future


Liabilities
A liability is a present obligation of the entity arising from
past events, the settlement of which is expected to result
in an outflow from the entity of resources embodying
economic benefits.


Important points
1. Present obligation
2. Arises/Result from past event

Owner’s Equity
It is the residual interest in the assets after
deducting all its liabilities. In other words, equity
is what is left when all liabilities have been
settled.


Income
Revenue
1. Sale of goods
2. Sale of services
3. Return on investment

Gain
By selling its assets at an amount which is greater than
book value.
By settlement of its liabilities at an amount that is lesser
than its book value.


Income
Income is the increase in economic benefits during
the accounting period, in the form of inflows of
assets, enhancement of assets or decreases in
liabilities, that results in an increase in equity.
Other than those relating to contribution from
equity participation.

Expenses
Expenses is the decrease in economic benefits
during the accounting period, in the form of
outflows, depletion of assets or increase in
liabilities, that results in an decrease in equity.
Other than those relating to contribution /
distribution from equity participation.


General Recognition Criteria
An item should be recognized in the Financial
statements if:
1. It means one of the definitions of element;
2. It is probable that any future economic benefit,
associated with the item will flow to or from the
entity (for example, Income is recognized
when a Sales is made, not when an order is
received).
3. The item has a cost or value that can be
measured with reliability.


Four Bases of Financial Instrument
Measurement
1.
2.
3.
4.

Historical cost
Current cost
Realizable value
Present value


Capital Maintenance
1. Financial capital maintenance
2. Physical capital maintenance


Capital Maintenance
1. Financial capital maintenance
2. Physical capital maintenance