a) Historically, financial reporting throughout the world has differed widely. The IFRS Foundation (formerly the International Accounting Standards Committee Foundation (IASCF)) is committed to developing, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements. The various pronouncements of the IFRS Foundation are sometimes collectively referred to as International Financial Reporting Standards (IFRS).
Required:
Discuss the IFRS Foundation’s standard setting process including how standards are promulgated and revised. (6 marks)
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International Financial Reporting Standards (IFRS Standards) are developed through an international consultation process, the “due process”, which involves interested individuals and organisations from around the world.
The due process comprises six stages, with the Trustees of the IFRS Foundation having the opportunity to ensure compliance at various points throughout:
- Setting the agenda:
The IASB evaluates the merits of adding a potential item to its agenda, also know as the work plan, mainly by reference to the needs of investors.
The IASB considers: the relevance to users of the information and the reliability of information that could be provided; whether existing guidance is available; the possibility of increasing convergence; the quality of the standard to be developed; and resource constraints. - Planning the project:
When adding an item to its active agenda, the IASB also decides whether to: conduct the project alone; or jointly with another standard-setter. due process is followed under both approaches. After considering the nature of the issues and the level of interest among constituents, the IASB may establish a Consultative group at this stage. A team is selected for the project by the two most senior members of the technical staff: The Director of Technical Activities; and
The Director of Research. - Developing and publishing the Discussion Paper, including public consultation:
Although a Discussion Paper is not mandatory, the IASB normally publishes it as its first publication on any major new topic to explain the issue and solicit early comment from constituents. If the IASB decides to omit this step, it will state why. Typically, a Discussion Paper includes a comprehensive overview of the issue; possible approaches in addressing the issue; the preliminary views of its authors or the IASB; and an invitation to comment. - Developing and publishing the Exposure Draft, including public consultation:
Publication of an Exposure Draft is a mandatory step in due process. Irrespective of whether the IASB has published a Discussion Paper, an Exposure Draft is the IASB’s main vehicle for consulting the public. Unlike a Discussion Paper, an Exposure Draft sets out a specific proposal in the form of a proposed Standard (or amendment to an existing Standard). The development of an Exposure Draft begins with the IASB considering: issues on the basis of staff research and recommendations; comments received on any Discussion Paper; and suggestions made by the IFRS Advisory Council, Consultative groups and accounting standard-setters, and arising from public education sessions. - Developing and publishing the Standard:
The development of an IFRS Standard is carried out during IASB meetings, when the IASB considers the comments received on the Exposure Draft. After resolving issues arising from the Exposure Draft, the IASB considers whether it should expose its revised proposals for public comment, for example by publishing a second Exposure Draft. - Procedures after a Standard is issued:
The development of an IFRS Standard is carried out during IASB meetings, when the IASB considers the comments received on the Exposure Draft. After resolving issues arising from the Exposure Draft, the IASB considers whether it should expose its revised proposals for public comment, for example by publishing a second Exposure Draft.
c) Measurement is the process of determining the monetary amounts at which the elements of financial statements are to be recognized and carried in the statement of financial position and statements of profit or loss and other comprehensive income (Conceptual Framework). This involve the selection of a particular basis of measurement. A number of these are used to different degrees and in varying combinations in financial statements.
Required:
Discuss the measurement basis of elements of financial statements in accordance with the IASB Conceptual Framework. (7 marks)
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(i) Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.
(ii) Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.
(iii) Realisable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their settlement values; that is, the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.
(iv) Present value. Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.