International Accounting
Your teachers for today
Objectives of Financial Statements
Goals of today Presentation
• Understand the importance of International norms
• Understand the IFRS structure and concepts
• Understand the GAAP structure and concepts
• Main differences between the 2 systems
ves of Financial Statements
What’s the main purpose
• You have several tasks you can fulfill with accounting such
as to calculate the taxable income, calculate the split of
profit among owners, help management to decide where to
expand business and so on.
• Both GAAP and IFRS aim to provide relevant information to
a wide range of users. To make the Decision Process more
efficient and effective.
And… who needs it?Cost concept
• We can say the financial statements are useful mainly for
the stakeholders such as suppliers, employees, customers
or even potential investors who are thinking of becoming
What is IFRS?
• International Financial Reporting Standards (IFRS) is a single set of
accounting standards, developed and maintained by the IASB with
the intention of apply those standards on a globally consistent
But what is IASB?
• The International Accounting
Standards Board (IASB), by its side,
is an independent, private-sector
body that develops and approves
International Financial Reporting
Standards (IFRSs). The IASB
operates under the domain of the
IFRS Foundation.
IFRS- Historical data
• IFRS began as an attempt to harmonize accounting across the European
Union but the value of harmonization made the concept attractive around
the world.
• On 1 April 2001, the new International Accounting Standards Board (IASB)
replaced the IASC in the responsibility for setting International Accounting
• IFRS are used in many parts of the world, including the European Union,
India, Hong Kong, Australia, Malaysia, Pakistan, GCC countries, Russia, Chile,
South Africa, Singapore and Turkey, but not in the United States.
Cost concept
The main characteristics of this type of accounting are:
The investors as the main target;
Allow making economic decisions;
The investors have to predict entity’s future cash flows;
Understandable, relevant, reliable and comparable
Important conceptsCost
to retain
• Business entity;
• Accounting period;
Business entity
Cost concept
• Existence distinct from the owners;
• To the accountant, the business and its owners are
considered completely separately
Accounting periodCost concept
• Profit just can be measured after defining the lenght of the
• Normally the companies set up 1 year;
• The need of more frequent financial statements;
The IASB’s concepts
Cost concept
• Main objective;
• Important assumptions;
• Relevance;
• Reliability;
Main objective
Cost concept
• To provide the users of financial statements making good
decisions, through a fair presentation of the state and
performance of a business;
But HOW?
• Giving relevant and reliable information;
Important assumptions
Cost concept
There are two main principles IASB based on to establish the
• Accruals (and matching)
• Going concern
Accruals and matching
Cost concept
• Transactions are recognized when they really occur;
• On the other hand matching means that revenues and
expenses must be related together;
Confused? Let’s figure
out some
• Imagine that a business rents out some premises and
asks for the rent in advance….
And the opposite… Cost concept
But how to make
conceptwith assets?
• Imagine now that your company purchases an asset, like a
machine used in the production for example.
• How will the accountant report the expense?
• The answer is…
Going concern
Cost concept
• Is is assumed that the business will continue for the
foreseeable future.
• Examples: Inventory and depreciation policy.
IASB’S framework Cost concept
Comparison across companies and
across periods of time;
• Consistency in the use
of methods and
presenting numbers
• Timeliness, which
means that information
should be updated
Providing understandable
information, assuming that the
important users are intelligent and
• Materiality- giving emphasis
to the significant items
Faithful representation, which means that the information should be shown in
a transparent way
Economic substance, which means that is giving preference to the economic
substance of transactions rather than their legal form
Neutrality, which means that objective information should be used, without any
Prudence (conservatism), which means that you must consider always the
worst situation
Completeness- Although the constraints of materiality, information have to be
The benefits of information should cover the costs of producing it
Some inconsistencies
Cost concept
1- Prudence and going concern:
As mentioned before, the going concern convention assumes
that the firm will survive for a indefinite period of time.
But the prudent convention could say us to keep in mind that
a bankruptcy can always happend.
So as you can see both concepts in a certain moment
contradict each other…
Some inconsistencies
Cost concept
2- Matching and prudence
Matching convention consider assets into future periods with
the conviction that they will be used profitably later.
So, we are considering something for the long term. Is it
Some inconsistencies
Cost concept
3- Neutrality and prudence
Neutrality can be described as being impartial
But how can an accountant be prudent without being
impartial? There is always critical thinking…
Potencial future developments
Cost concept
• The IASB and the US Financial Accounting Standards Board
are now working closely together, and they are committed
to providing a revised conceptual framework which is
common to both bodies.
Cost concept
The main advantages of using IFRS are:
• The possession of centralized information;
• It’ s possible to compare financial performances
between international companies;
• The analysis of information is faster;
Money Measurement
Going Concern
Cost concept
Dual Aspect
Accounting period
11 Concepts
1 - Money Measurement
2 –Entity Concept
3 – Going Concern Concept
4 - Cost concept
4 - Cost concept – What
it mean?
Does not necessarily-indeed, does not ordinarily-reflect
what assets are worth, except at the moment they are acquired.
An asset is ordinarily entered in the accounting records at the price paid to
acquire it-at its cost
Book Value VS Market Value
4 - Cost concept - Cost
Why is itconcept
like this?
A "market value" or "current worth" concept would be difficult to apply because it would require
that the accountant attempt to keep track of the ups and downs of the market price of each asset.
The cost concept leads to a much more feasible system.
In summary, the accounting profession with the Cost Concept sacrifices
some degree of relevance in exchange for greater objectivity and greater feasibility.
4 - Cost concept – Associated
Cost concept
GoodWill - What People think it is?
GoodWill - What Realy is?
GoodWill is a Intangible and valuable
Economic Resource
5 -The Dual Aspect Concept
6 –The Accounting Period Concept
7 -The Conservatism Concept
7 -The Conservatism Concept
how it works
Cost –concept
1. Recognize revenues (increases in retained earnings) only when they
are reasonably certain
2. Recognize expenses (decreases in retained earnings) as soon as they
are reasonably possible
8 - The Realization Concept
8 - The Realization Concept
1. Recognize revenues (increases in retained earnings) only when they are reasonably certain
2. Recognize expenses (decreases in retained earnings) as soon as they are reasonably
9 - The Matching Concept
9 - The Matching Concept
The conservatism concept suggests the period when revenue shouldbe recognized.
The realization concept, indicates the amount of revenue that should be recognized fro
a given sale.
10 - The Consistency Concept
11 - The Materiality Concept
11 - The Materiality Concept
Goals of today Presentation
• Understand the importance of International norms;
• Understand the IFRS structure and concepts;
• Understand the GAAP structure and concepts;
• Main differences between the 2 systems;
e Materiality Concept
Thank you for your attention