(1). INTERNATIONAL FINANCIAL REPORTING STANDARDS.

International Financial Reporting Standards

International Financial Reporting Standards (IFRS) are standards and interpretations adopted by the International Accounting Standards Board (IASB).

Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS were issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC). In April 2001 the IASB adopted all IAS and continued their development, calling the new standards IFRS.

Objective of financial statements

The framework states that the objective of financial statements is to provide information about the financial position, performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions.

Underlying assumptions

The underlying assumptions used in IFRS are

• Accrual basis - the effect of transactions and other events are recognised when they occur, not as cash is received or paid.
• Going concern - the financial statements are prepared on the basis that an entity will continue in operation for the foreseeable future.

Qualitative characteristics of financial statements
The Framework describes the qualitative characteristics of financial statements as being

• Understandability
• Relevance
• Reliability and
• Comparability.

Elements of financial statements
The Framework sets out the statement of financial position (balance sheet) as comprising:-

• Assets - resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
• Liabilities - 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
• Equity - the residual interest in the assets of the entity after deducting all its liabilities
  and the statement of comprehensive income (income statement) as comprising:
• Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or reductions in liabilities.
• Expenses are decreases in such economic benefits.

Recognition of elements of financial statements
n item is recognised in the financial statements when:-

• it is probable that a future economic benefit will flow to or from an entity and
• when the item has a cost or value that can be measured with reliability

Measurement of the Elements of Financial Statements
Measurement is how the responsible accountant determine the monetary values at which items are to be valued in the income statement and balance sheet. The basis of measurement has to be selected by the responsible accountant.
Accountants employ different measurement bases to different degrees and in varying combinations. They include, but are not limited to:

• Historical cost
• Current cost
• Realisable (settlement) value
• Present value

Concepts of Capital and Capital Maintenance
Concepts of Capital
financial concept of capital, e.g. invested money or invested purchasing power means capital is the net assets or equity of the entity.
A physical concept of capital means capital is the productive capacity of the entity.
Concepts of Capital Maintenance and the Determination of Profit
Accountants can choose to maintain financial capital in either nominal monetary units or constant purchasing power units.
Physical capital is maintained when productive capacity at the end is greater than at the start of the period.
The main difference between the two concepts is the way asset and liability price change effects are treated.
Profit is the excess after the capital at the start of the period has been maintained.
When accountants choose nominal monetary units, the profit is the increase in nominal capital.
When accountants choose units of constant purchasing power, the profit for the period is the increase in invested purchasing power. Only increases greater than the inflation rate are taken as profit. Increases up to the level of inflation maintain capital and is taken to equity.