• Self-Regulation
• National Law
• EU law

Self Regulation
International Financial
Reporting Standards
IFRS
International
Accounting Standards
Board IASB
International
Accounting Standards
IAS
Rules and guidelines issued that govern the presentation of
Financial Statements
True & Fair

• True & Fair

• A legal concept – undefined – changes over time
• Objective is that accounts fairly reflect the true substance of the business
• Accounts are an accurate portrayal of the business activities
• Accounts should provide useful information
• Concepts and Conventions adopted by the profession to help ensure “True & Fair”

• Rules or accepted practice
– Which assets and liabilities are in Stmt of FP
– How assets and liabilities are valued
– What income and expenditure are in Stmt of P&L
– The value of income and expenditure recorded

1.
2.
3.
4.
Historical Cost
Monetary Measurement
Business Entity
Materiality

Accounting Conventions

An item should be valued at historical cost



Its purchase price
Not its current value
Reliable

A certainty
Problem: Valuing assets such as Property
Eg Bought for €100,000 in 2002 - not reflective of current value
IASB has moved away from using Historical cost to value assets
IASB now use FAIR VALUES
Ireland & UK tend to use historical cost – following standard issued by ASB

Accounting Conventions


Accounted for if it can be measured in monetary terms
We don’t account for quality of management, skill set, morale etc

Accounting Conventions

From an accounting viewpoint:

Transactions entered into by a business and the those entered by the owner are separate and distinct.

From a legal viewpoint:


Sole trader and the business are one entity
Limited company and the owner are separate legal entities

Accounting Conventions



Information is material to the Financial
Statements if omission or misstatement could influence economic decisions
Material in terms of Size eg €1 million loan not declared
Material in terms of Nature eg “A” is a director and received a salary with ABC plc. “A” is also owner of XYZ ltd that trades with ABC plc
– IAS 24 “Related Party Transaction”

3.
4.
1.
2.
5.
Dual Aspect
Going Concern
Consistency
Prudence
Accruals


Every Debit has a corresponding Credit

Accounting Equation

Assets = Capital + Liabilities


When financial statements are prepared under IFRS, management are required to make an assessment of the entity’s ability to continue as a going concern

Ability to continue in business for foreseeable future – 12 months from date financial statements signed

Resources to continue

If not going concern, then Financial
Statements prepared on a Breakup basis


Presentation and classification of items should be retained from one period to the next


Unless a change is justified by a change
Or a change if IFRS

Facilitates comparability


Under conditions of uncertainty a degree of caution must be exercised.

Uncertainty:

 estimating gains and assets
Estimating losses and liabailities

Confirmatory evidence required before recording in financial statements

Prudence not required where there is no uncertainty


Income & Expenditure should be recognised in the financial year in which they relate rather that the year paid

Eg sales in December not paid for until Jan should be recorded in Dec

Eg Electricity used in Dec not paid for until
Jan should be recorded in Dec

• Accruals – Credit Sales recorded
• Prudence – only record when paid
“Reasonably Certain” – not too optimistic nor too pessimistic
Sales based on contract – reasonably certain it will come in – credit history – allowance for receivables

Characteristic
Relevance
Reliability
Comparability
Understandable
Objectivity
Consistency
Explanation
Must assist user to form, confirm or change opinion
Should be truthful, accurate, complete and capable of being verified
Used to make performance comparisons over time or with similar companies
Express with clarity and understandable to user
Reported in a neutral way. Not biased to a particular user
Consistent application of items over time

• Purpose – to assist the IASB in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements
• A basis for reducing the number of accounting treatments permitted by IFRS
• Hope to support harmonisation of accounting standards globally
• Outlines generally accepted theoretical principles for financial accounting
• Basis for developing new standards and for assessing existing standards
• Like a constitution – new law must be consistent
• Less inconsistency between standards

1.
2.
3.
4.
Relevant
Reliable
Comparable
Understandable

 Information is relevant
 if it influences economic Decision Making even if not acted on


If it has predictive value
If it has confirmatory value

If it helps a user to evaluate a past, present or future event/decision

If it confirms or corrects past evaluations



Financial reports should faithfully represent the underlying economic situation of the entity
Faithful Representation if

Complete


Neutral
Free from error





Compare one financial year against another

Vital information

Assessing trends
Compare with other competitions

Benchmark performance
Achieved through Consistency in use of accounting standards
Changes in standard should be disclosed




Information is classified, characterised and presented clearly and concisely
Don’t leave information out for understandability
Assume that the reader has a reasonable knowledge

• Relevance Vs Reliability
– Eg property valued at historical cost (reliable) but current value more relevant
• Neutrality Vs Prudence
– Eg profits not overstated (prudence) given knowledge of debtors but bias (neutrality)?
• Relevance Vs Understandability
– Use information that is most reliable and relevant

• Policies, principles, bases, conventions rules and practices that specify how transactions and events are reflected in the Financial
Statements
• It’s the recognition, selection of a measuring basis and the presentation of Assets,
Liabilities, Gains, Losses, and Changes to
Capital
• It doesn’t include estimation techniques

• Methods for estimating amounts for assets, liabilities, gains, losses, and changes in capital.
• Allowance for receivables
• Depreciation

• Cost
• Net Realisable Value
• Replacement Cost

• Ensure Financial Statements show a true and
Fair view
• Consistent with accounting standards and company legislation
• Provide useful information

• Don’t change unless absolutely necessary
• IAS 8 Accounting policies, Changes in accounting , Estimates and Errors
• Select policies that result in relevant and reliable information (framework)
• NB in selecting policies
– The going concern concept
– The accruals concept (accounting concepts)