A2 Accounting Standards
The International Accounting Standards (IAS) are a set of agreed norms of financial reporting. This includes the items that should be reported on financial statements. Having an agreed set of standards allows company accounts to be easily and accurately interpreted.
IAS1 Presentation of Financial Statements
Companies are required to present a complete set of financial accounts at the end of each period. This includes a statement of financial position, a statement of comprehensive income, a statement of changes in equity and cash flow statements.
IAS2 Inventories
Inventories include finished goods ready to be sold, part finished goods and raw materials. When accounting for inventory, all costs associated with bringing the inventory to its present state should be included in its valuation. This includes the cost of raw materials, direct labour and direct overhead costs. As inventory is continually being sold and the cost of inventory varies regularly, IAS2 requires companies to account for inventory at the lower cost.
IAS8 Accounting Policies,
Changes in Accounting Estimates and Errors
When preparing financial statements, companies must make some estimations of the value of assets and liabilities. This is because the true value of an asset can only be known once its sold and the true value of a liability cab only be known once its future value has been paid. When making these estimates, it is expected that companies make full use of all information available to them to make predictions. When this has not occurred in previous reporting periods, the values must be amended.
IAS10 Events After Reporting Period
There are multiple stages of the preparation of company accounts. Once the end of a reporting period has been reached, accountants will gather financial data for the period and construct the accounts. These accounts will then need to be checked for errors and authorised for issue by the Board of directors. Financial events that occur between the end of the reporting period and the date they are authorised for issue may need to be disclosed. Adjusting events are those which had evidence at the end of the reporting period and must be adjusted in the accounts. Non-adjusting events arose after the end of the reporting period and do not need to be adjusted in the accounts. However, if a non-adjusting event is significant enough to make interpretation of accounts difficult, they should be disclosed.
IAS 16 Property, Plant and Equipment
When producing financial statements, property, plant and machinery are recorded as assets. Assets add value to the company and proper steps should be taken to estimate their current value. The initial value of an asset is its original cost. This should then be re-evaluated each time financial statements are produced including any devaluation from depreciation.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Liabilities occur when past events or purchases result in future required payments. Any liabilities that exist at the end of a reporting period must be stated in the accounts. Contingent liabilities are obligations of events in the future where the amount is not yet known. One example would be a lawsuit where the settlement amount is not yet known at the reporting date. Another example would be if the company has given warranties to their customers for their products as it would not be known how many would be claimed. Provisions are reductions in asset value as a result of past events where the amount is uncertain. Examples include payments from debtors who have gone or are likely to go insolvent leading to invoices for products and services going unpaid. Contingent assets are possible increases in asset value as a result of future events. An example would be a lawsuit where there is an expected compensation of an unknown amount.
When the future payment amount or date is uncertain, it is referred to as a provision.
IAS 38 Intangible Assets
An intangible asset is something which adds value to a business but is not physical in nature. Examples of intangible assets include patents, copyrights and computer software. Intangible assets must be separable from the business entity. They are initially valued at cost and their value decreased over time through a process called amortization.
Goodwill is an intangible asset which includes intellectual property and the reputation of the brand but is very difficult to quantify and is therefore not recognized under IAS 38.
IFRS fair value measurement states that when assessing the value of an asset or liability, it must be in the principal market for that item.
