1 if Rss for Academics and Educators Wells

8/14/2019 1 if Rss for Academics and Educators Wells

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IASC Foundation

Education

IFRS TeachingIFRS TeachingMichael WellsMichael Wells

Senior Manager, IASC FoundationSenior Manager, IASC Foundation

IASC Foundation / CICAIASC Foundation / CICA IFRSsIFRSsforforAcademics and Educators sessionAcademics and Educators session24 April 200824 April 2008

The views expressed in this presentation are those of the presenThe views expressed in this presentation are those of the presenter,ter,

not necessarily those of the IASC Foundation or the IASBnot necessarily those of the IASC Foundation or the IASB


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OverviewOverview

What we hearWhat we hear A structure for teaching IFRSA structure for teaching IFRS

Debunk mythsDebunk myths Focus on judgementsFocus on judgements

ResourcesResources


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What we hearWhat we hear

IFRSs is new ~ lack ofteaching capacity

Principle-based ~ requiresmany judgements

Complex rules ~requiresspecialisation Complexity ~

accountingpolicy choices

Complexity ~ mixedmeasurement bases


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Objective of General PurposeObjective of General Purpose

Financial StatementsFinancial Statements

to provide information about the:to provide information about the:

financial positionfinancial position

performance; andperformance; and

changes in financial positionchanges in financial position

of an entity that is useful toof an entity that is useful to in makingin makingeconomic decisions. (economic decisions. (FrameworkFramework.12).12)

Teaching suggestions:Teaching suggestions:

relate requirements back to the objectiverelate requirements back to the objective

debunk myths:debunk myths:

M1: objective = a record of historical costsM1: objective = a record of historical costs

M2: objective = support tax returnM2: objective = support tax return


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Structure ofStructure of IFRSsIFRSs

Concepts

Rules ~ exceptions

Principles

Principles

Concepts

Principles

Rules ~ that give effect to the principles

Principles

Rules ~ Interpretations


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Structure for teaching IFRSsStructure for teaching IFRSsconcepts to principles to rulesconcepts to principles to rules

PrinciplesPrinciples RulesRulesConcepts


build from objective through concepts to principlesbuild from objective through concepts to principles

explain how rules give effect to the principlesexplain how rules give effect to the principles

explain reasons for exceptions (another type of rule)explain reasons for exceptions (another type of rule)


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Concepts that underlieConcepts that underlie IFRSsIFRSs

Qualitative characteristicsQualitative characteristics

ElementsElements

Recognition and measurementRecognition and measurement

Presentation and disclosurePresentation and disclosure


build from objective through concepts to principles andbuild from objective through concepts to principles and

rulesrules

relate requirements back to conceptsrelate requirements back to concepts


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Correcting materialCorrecting material

prior period errorsprior period errors Objective of financial statementsObjective of financial statements

ConceptsConceptsqualitative characteristicsqualitative characteristics

PrinciplePrincipleretrospective restatementretrospective restatement

RulesRules impracticable exceptionimpracticable exception

specified disclosuresspecified disclosures


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Change inChange in

accounting policyaccounting policy

Objective of financial statementsObjective of financial statements

ConceptsConceptsqualitative characteristicsqualitative characteristics PrinciplePrincipleretrospective restatementretrospective restatement

RulesRules transitional provisionstransitional provisions

impracticable exceptionimpracticable exception

specified disclosuresspecified disclosures


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FrameworkFramework

debunk mythsdebunk myths

M1: TheM1: The FrameworkFramework= IFRS Constitution= IFRS Constitution

FWFW never overrides an IFRS (FW.2)never overrides an IFRS (FW.2)

in absence of an IFRS, FW in hierarchy forin absence of an IFRS, FW in hierarchy for

developing an AP (IAS 8.11)developing an AP (IAS 8.11)


relate the requirements of an IFRS back to FWrelate the requirements of an IFRS back to FW when it does not fit the IFRS prevailswhen it does not fit the IFRS prevails


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FrameworkFramework

debunk mythsdebunk mythsM2: Financial statements are designed to meet theM2: Financial statements are designed to meet the

needs of all usersneeds of all users financial statements focus on investors needsfinancial statements focus on investors needs such financial statements meet most of the needs of other userssuch financial statements meet most of the needs of other users

M3: Reliability = verifiableM3: Reliability = verifiable

faithful representationfaithful representation, substance over form, neutrality, substance over form, neutralityM4: Matching is an underlying assumptionM4: Matching is an underlying assumption

underlying assumptions = going concern and accrual basisunderlying assumptions = going concern and accrual basis

accrual basis = recognise elements when they satisfy definitionaccrual basis = recognise elements when they satisfy definition

and recognition criteriaand recognition criteriaM5: Matching is a qualitative characteristicM5: Matching is a qualitative characteristic

QCs =QCs =understandabilityunderstandability, relevance, reliability & comparability, relevance, reliability & comparability


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MaterialityMateriality

debunk mythsdebunk myths

M1: Materiality is based on size aloneM1: Materiality is based on size alone

materiality depends onmateriality depends on

size and naturesize and nature

of the omission orof the omission or

misstatement judged in themisstatement judged in thesurrounding circumstancessurrounding circumstances

size, nature or both could be the determining factorsize, nature or both could be the determining factor

M2: Immaterial items must be accounted forM2: Immaterial items must be accounted for breachbreachIFRSsIFRSsif material errors, orif material errors, or

immaterial errors made intentionally to achieve a particularimmaterial errors made intentionally to achieve a particularpresentationpresentation

M3: Immaterial items must be disclosedM3: Immaterial items must be disclosed need not provide a specific disclosure required by an IFRS if thneed not provide a specific disclosure required by an IFRS if thee

information is not materialinformation is not material

recognised immaterial dissimilar items are aggregatedrecognised immaterial dissimilar items are aggregated

Omissions or misstatements of items are material if theyOmissions or misstatements of items are material if they couldcould,,

individually or collectively, influence economic decisions thatindividually or collectively, influence economic decisions thatusers make on the basis of the financial statements.users make on the basis of the financial statements.


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A process of accountingA process of accounting1. Identify assets and liabilities1. Identify assets and liabilities

2. Determine classification2. Determine classification3. Recognition3. Recognition

4. Initial measurement4. Initial measurement5. Subsequent measurement5. Subsequent measurement

6. Income and expenses (movements)6. Income and expenses (movements)

7.7. DerecognitionDerecognition


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ExceptionsExceptions RevenueRevenue

Construction contractsConstruction contracts Government grantsGovernment grants

Hedge accountingHedge accounting

etcetc

Teaching suggestion:Teaching suggestion:

identify and explain the exceptions that override theidentify and explain the exceptions that override theconceptsconcepts


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Element definitionsElement definitions AssetAsset

resource controlled by the entityresource controlled by the entity result of past eventresult of past event

expected inflow of economic benefitsexpected inflow of economic benefits

LiabilityLiability

present obligationpresent obligation

arising from past eventarising from past event

expected outflow of economic benefitsexpected outflow of economic benefits

Equity = AssetsEquity = Assets Liabilities (ie a residual)Liabilities (ie a residual)

Income and expenses = changes in assets and liabilitiesIncome and expenses = changes in assets and liabilities

Teaching suggestion:Teaching suggestion:

asset is the cornerstone elementasset is the cornerstone element


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AssetAssetclassification,classification,

recognition and measurementrecognition and measurement

Assets

PP&E Intangible

CM or

RM0

Inv property

CMorFVM

Inve

ntory

CM or RM

Lower

ofC

orN

RV

someF

VM

Financial

AmCor

FVMDefined

benefitFV

planassetslessPUCplanobligation&arbitraryrules

Deferred

tax

Taxrates&

undiscounted

etcvarious

AssetsInve

ntoryLow

erofC

orNRV

som

eFVM

CMorRM CMorRM nil

CMorFV

M

AmCor

FVM

Taxrates

&

undiscounted

various

Cost

PP&E IntangibleInvproperty

FinancialDeferred

tax

Defined

benefit

etc

Cost Cost

Cost

Fairvalu

e

Taxrates&

undiscounted

FVplanassetslessPUCplanobligation&arbitraryrulesFVplanassetslessPUCplan

obligation&arbitraryrules

various

nil


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LiabilityLiabilityclassification,classification,

recognition and measurementrecognition and measurement

Assets

PP&E Intangible

CM or

RM0

Inv property

CMorFVM

Inve

ntory

CM or RM

Lower

ofC

orN

RV

someF

VM

Financial

AmCor

FVMDefined

benefitFV

planassetslessPUCplanobligation&arbitraryrules

Deferred

tax

Taxrates&

undiscounted

etcvarious

LiabilitiesLeases

FL

~rules

nil various

Bestest.tosettle

@B/Sd

ate

AmC,

FVM&

oth

er

Taxrates

&

undiscounted

OL~rules(nil)

FL~FV

orifle

ss

PVMLP

ContingentProvisions

FinancialDeferred

tax

Defined

benefit

nil Bestest.tosettle

@B/Sdate

Fairvalu

e

Taxrates&

undiscounted

PUCplanobligationlessFVplanassetsandarbitraryrulesPUCplanobligationlessFVpla

nassetsandarbitraryrules

nil

various

etc


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JudgementsJudgements

Financial AssetsFinancial AssetsProperty, Plant & EquipProperty, Plant & Equip

egeg when do R&R pass,when do R&R pass,

when expect nowhen expect no FEBsFEBs

all of the aboveall of the above

egeg RV, RA, useful life,RV, RA, useful life,depreciation methoddepreciation method

egeg est. dismantling,est. dismantling,

removing & restoringremoving & restoring

egeg unit of measure,unit of measure,dayday--toto--day servicingday servicing

egeg L&BL&BPPE, Inv.PPE, Inv.

property or inventoryproperty or inventoryClassificationClassification

InitialInitial

measuremeasure

egeg which valuationwhich valuationmodel,model, inputs, etcinputs, etc

ReRe--measuremeasure

egeg substantially all R&R,substantially all R&R,

extent of CI, etcextent of CI, etcDerecognitionDerecognition

aboveaboveInc & expInc & expss

RecognitionRecognition

Identify assetIdentify asset


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JudgementsJudgementskey disclosureskey disclosures Requirements in each IFRSRequirements in each IFRS

Judgements in applying accounting policiesJudgements in applying accounting policies estimates aside, disclose the judgements made in applyingestimates aside, disclose the judgements made in applying

accounting policies that have the most significant effect on theaccounting policies that have the most significant effect on theamounts recognised,amounts recognised, egegjudgements in determining whether:judgements in determining whether:

risks and rewards have transferred,risks and rewards have transferred, egegderecognitionderecognitionof financial assets,of financial assets,

or revenue recognition, or lease classificationor revenue recognition, or lease classification an entity controls or significantly influences anotheran entity controls or significantly influences another

a present obligation is a provision or a contingent liabilitya present obligation is a provision or a contingent liability

Key sources of estimation uncertaintyKey sources of estimation uncertainty

disclose information about major sources of estimationdisclose information about major sources of estimationuncertainty,uncertainty, egegeffects of uncertain future events (pensions andeffects of uncertain future events (pensions andprovisions)provisions)


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ResourcesResources


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ResourcesResources Traditional sourcesTraditional sources

International accounting firmsInternational accounting firms egegwww.iasplus.comwww.iasplus.com

IASB/IASCF websiteIASB/IASCF website www.iasb.orgwww.iasb.org

Regulators websitesRegulators websites

egegEECSEECSssdatabase of enforcement decisionsdatabase of enforcement decisions

www.cesr.euwww.cesr.eu

etcetc


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Time for questions andTime for questions andcomments after the othercomments after the otherspeakers have presentedspeakers have presented

Expressions of individual views by membersof the IASC Foundation, IASB and its staff areencouraged. The views expressed in thispresentation are those of Mr Wells. Official

positions of the IASB on accounting mattersare determined only after extensive dueprocess and deliberation.

Thank youThank you

Documents

1 if Rss for Academics and Educators Wells