Final Slides On CHP 1 - Ifrs, Annual Report, Audit Report

INTERMEDIATE
ACCOUNTING
IFRS
ANNUAL REPORT REVIEW
AUDITOR’S REPORT
International Financial
Reporting Standards
(IFRS)
ACCOUNTING STANDARD SETTERS
The IASB is an independent organization
whose pronouncements, called International
Financial Reporting Standards (IFRS) define
GAAP in more than 100 other countries.
The Financial Accounting Standards Board

(FASB) is the primary regulatory body over
accounting principles and practices in the U.S.
INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)
• Single set of global accounting and reporting
standards, issued by the IASB
• Increasingly used by many large and mutinational
companies
• Accepted by most security market authorities
• Used as a basis for national accounting
requirements (partially or in full) or as a
benchmark for the development of national
accounting rules
INTERNATIONAL ACCOUNTING
STANDARDS BOARD (IASB)
• A private sector body
• Operates under the International Accounting
Standards Committee Foundation (IASCF)
• Has no responsibility to any governmental organization
• Has no enforcement authority
• Develops and issues both main standards (IAS / IFRS)
and interpretations
IFRS – STANDARD-SETTING DUE
PROCESS
• The IASB’s standard-setting procedures have

to ensure that resulting IFRS are of high quality
and are issued only after giving IASB’s
constituencies opportunities to make their
views known at several points in the standard-
setting due process
Key Points
 The United States and the international standard-setting
environment are primarily driven by meeting the needs of
investors and creditors.
 IFRS tends to be simpler in its accounting and disclosure
requirements; some people say more “principles-based.”
GAAP is more detailed; some people say more “rules-based.”
Key Points
 IFRS recommends but does not require the use of the title “statement of
financial position” rather than balance sheet.
 The format of statement of financial position information is often

presented differently under IFRS. Most companies that follow IFRS present
statement of financial position information in this order:
1. Noncurrent assets 4. Noncurrent liabilities
2. Current assets 5. Current liabilities
3. Equity
 Under IFRS, current assets are usually listed in the reverse

order of liquidity.
Key Points
 IFRS has many differences in terminology. In the investment
category stock is called shares, and common stock is called share
capital–ordinary.
 Both IFRS and GAAP require disclosures about
(1) accounting policies followed
(2) judgments that management has made in the process of

applying the entity’s accounting policies
Key Points
 Comparative prior-period information must be presented
and financial statements must be prepared annually.
 Both GAAP and IFRS are increasing the use of fair value to
report assets. As examples, under IFRS companies can
apply fair value to property, plant, and equipment; natural
resources; and in some cases intangible assets.
 Recently, the IASB and FASB completed the first phase of a

jointly created conceptual framework.
Key Points
 The monetary unit assumption is part of each framework.
However, the unit of measure will vary depending on the currency
used (e.g., Chinese yuan, Japanese yen, and British pound).
Key Points
Looking into the Future
The IASB and the FASB are working on a project to converge
their standards related to financial statement presentation.
A key feature of the proposed framework is that each of the

statements will be organized in the same format, to separate an
entity’s financing activities from its operating and investing
activities.
Current assets under IFRS are listed generally:
a) by importance.
b) in the reverse order of their expected conversion to

cash.
c) by longevity.
d) alphabetically.
IFRS is considered to be more:
a) principles-based and less rules-based than GAAP.
b) rules-based and less principles-based than GAAP.
c) detailed than GAAP.
d) None of the above.

ANNUAL REPORT REVIEW
ELEMENTS OF AN
• Management Discussion and Analysis

• Financial Statements
• Income Statement (Statement of Earnings)
• Balance Sheet
• Statement of Cash Flows
• Auditor's Report
• Notes to Financial Statements
MANAGEMENT DISCUSSION
AND ANALYSIS (MANAGEMENT’S REPORT)
• Covers three aspects of a company
• Liquidity - ability to pay near-term obligations
• Capital resources - ability to fund operations and
expansions
• Results of operations
Management must highlight favorable
or unfavorable trends and identify
significant events and uncertainties
that affect these three factors.
Management’s Report
Illustration 1-10
FINANCIAL ACCOUNTING STATEMENTS
• Income Statement (Statement of Earnings)

• Reports the results of operations for a specific period of time
• Balance Sheet
• Reports the assets, liabilities, and shareholders’ equity as at a
specific point in time
• Statement of Cash Flows
• Reports the cash receipts and payments for a specific period
of time
INCOME STATEMENT (STATEMENT OF EARNINGS)
BALANCE SHEET
STATEMENT OF CASH FLOWS
AUDITOR’S REPORT
• Auditor gives an unqualified opinion if the

financial statements present the financial
position, results of operations, and cash flows
in accordance with generally accepted
accounting principles (GAAP)
NOTES TO FINANCIAL STATEMENTS
• Provide additional information not included in body of statements

• Do not have to be numeric
• Examples
• Description of accounting policies or explanation of uncertainties and
contingencies
• Statistics and supporting details
AUDITOR’S REPORT
3
0
An audit is an “examination” or in-depth

inspection of financial statements and companies’
records that is made in accordance with
generally accepted auditing standards.
3
1
• Basically, auditors who deem audits as qualified opinions are advising whomever is reading the document that
the information within the audit is not complete or the accounting methods used by the company do not
follow the Generally Accepted Accounting Principles (GAAP)
A disclaimer of opinion is a statement made by an
auditor that no opinion is being given regarding
the financial statements of a client. This disclaimer
may be given for several reasons. For example,
the auditor may not have been allowed or been
able to complete all planned audit procedures.
CONCEPT CHECK
• List two elements of an Annual Report

• List two aspects covered in the Management’s Report
• What is the importance of an audit report?
• List the four basic types of auditor’s report
END OF CHP 1

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INTERMEDIATE

The Financial Accounting Standards Board

• The IASB’s standard-setting procedures have

 The format of statement of financial position information is often

 Under IFRS, current assets are usually listed in the reverse

 Both IFRS and GAAP require disclosures about

(1) accounting policies followed

(2) judgments that management has made in the process of

 Recently, the IASB and FASB completed the first phase of a

A key feature of the proposed framework is that each of the

b) in the reverse order of their expected conversion to

a) principles-based and less rules-based than GAAP.

b) rules-based and less principles-based than GAAP.

c) detailed than GAAP.

d) None of the above.

• Management Discussion and Analysis

• Income Statement (Statement of Earnings)

• Auditor gives an unqualified opinion if the

• Provide additional information not included in body of statements

An audit is an “examination” or in-depth

• List two elements of an Annual Report

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