Financial Reporting

2019-2020

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Financial reporting
Lector and class teacher

Maria Kravtsova
IFRS REPORTING
VTB Bank

E-mail:
maria@kravtsova.ru

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Financial reporting
 Essential reading

Alexander, D., A. Britton and A. Jorissen

International Financial Reporting and
Analysis
Seventh edition, 2017

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Financial reporting
 Additional reading

1. International Financial Reporting Standards &

International Accounting Standards (IFRSs&IASs)

2. Ernst and Young

International GAAP 2019: Generally Accepted
Accounting Practice Under International Finanacial
Reporting.
(Chichester: John Wiley and Sons, 2019)

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Financial reporting
 Grade determination

The first half-year grade is based on the following weights:

• 12% – for written home assignments;
• 12% – for class participation;
• 26% – for the autumn MOCK exam;
• 50% – for the winter internal exam.

The final grade is based on the spring internal exam (50%)

and the remaining 50% is given for performance
evaluation during the course including:
• 40% – for the first half-year grade;
• 10% – for home assignments and class participation in
the second half-year.
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Financial reporting
 2017/2018 year results

HSE mark LSE mark

84 87
72 78
64 67
61 63
60 60
60 42
57 51
50 50
45 42
44 62
44 46
36 56
33 43
27 41
23 34
14 4
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 2018/2019 year results

HSE mark LSE mark

46 51
45 60
42 47
42 63
51 70
33 40
48 63
33 73

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Financial Reporting VS Financial Accounting

1) FA is a branch of FR

2) FR is a broader external reporting whereas FA is just

financials

3) For this course purposes FR & FA are substantively the

same

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 What is financial accounting?
Financial accounting is information
that guides economic decisions.

Financial reporting = external reporting

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Financial reporting
 Shareholders Customers
Creditors

Competitors Employees
Users of financials
Public
Government
Suppliers
Analysts

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 Regulating reporting?
FOR
 Unregulated disclosure may lead to
uneven possession of information
among investors
 Managers have incentives not to
disclose unfavourable information
 Lack of information for users and
inability to compare information
AGAINST
 Regulation may restrict the
accounting methods that may be
used
 Regulation may demand
disclosures that are excessive for
users and too costly for business
 The market of information is
good enough to produce an
optimal supply
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Financial reporting
 Accounting standards:
what form should they take?
Type 1: ‘Tell people what you have done.’ This type of standard
in the first place restricts accounting to information about what
has happened.

Type 2: Uniformity of presentation. This type of standard would

only concern rules on how you should present your financial
results and hence create some form of uniformity and consistency.

Type 3: Disclosure of specific matters. This type of standard

would require disclosure of specific matters in certain cases.

Type 4: How to value assets/liabilities, what is regarded as

income, how income is allocated to periods, and so on – specifying
considerable details

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Financial reporting
 Arguments for accounting standards

 standards provide handy rules for the daily work of

accountants
 help to improve published reports
 supplement company law with fuller, clearer and more
consistent figures
 stimulate comparability which in turn would help analysts
and potential investors compare and evaluate businesses
 force weaker accountants to improve their work

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 Arguments for accounting standards

 provide credibility to the accounting profession which

might otherwise be undermined if there are continued
scandals over the extreme subjectivity of some
companies’ financial statements
 provide discipline – although some believe that if
companies were left to their own devices they would
ultimately be disciplined by the financial markets
 the use of standards attempts to reduce the risk to
investors

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Financial reporting
 Arguments against accounting standards
 accounting standards are costly and bureaucratic
 accounting figures (due to their very nature) do not lend
themselves to standardisation; industries differ, so do firms;
the needs of users vary. Thus standards may be suitable for
the average but may not suit the fringes
 standard-setters may bow to political pressures and thus the
development of accounting standards may be merely
consensus-seeking
 standards in themselves could actually reduce professional
judgement and be bad for the academic education of
accountants (e.g. they might be more interested in what is
required to comply with the standard than in investigating
the ideal accounting system)

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Financial reporting
 Arguments against accounting standards
 standards may lull users into a false sense of security (i.e.
investors may believe that the accounts are all based on the
same specific rules, when in fact a standard principle may still
leave room for different estimates)
 accounting standards might result in sub-optimal behaviour
purely to ensure that accounting earnings are not reduced
 standards could result in overload, e.g. if there are too many
standards; if standards are too detailed; if standards are not
specific enough; if there are too many standard-setters

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Financial reporting
National accounting regulation systems are
different due to:

 provision of finance
 existing legal systems
 link between accounting and taxation
 cultural differences

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 UK accounting regulation
”consists of a mass of rules and regulations”
Statutory legislation:
the Companies Act 1985
the Companies Act 1989 (revised)
from 2005 – adoption of IASs/IFRSs
Mandatory regulation:
the Statements of Accounting Standards Board
(ASB)
The Stock Exchange Listing Rules:
Combined Code of Corporate Governance

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Organisational chart for the accounting standard-setting
body in the UK

Source: https://www.frc.org.uk/About-the-FRC/FRC-structure.aspx
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 International Accounting Standards Board (IASB)

The IASB (International Accounting Standards Board) is the

independent standard-setting body of the IFRS Foundation.

All meetings of the IASB are held in public and webcast. In

fulfilling its standard-setting duties the IASB follows a
thorough, open and transparent due process of which the
publication of consultative documents, such as Discussion
Papers and Exposure Drafts, for public comment is an
important component.

The IASB engages closely with stakeholders around the world,

including investors, analysts, regulators, business leaders,
accounting standard-setters and the accountancy profession.
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Source: https://www.ifrs.org
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What are IFRS?

High quality, reliable financial information is the lifeblood of capital

markets.
International Financial Reporting Standards (IFRS) is a single set of
accounting standards, developed and maintained by the IASB with
the intention of those standards being capable of being applied on
a globally consistent basis — by developed, emerging and
developing economies — thus providing investors and other users
of financial statements with the ability to compare the financial
performance of publicly listed companies on a like-for-like basis
with their international peers.
IFRS are now mandated for use by more than 100 countries,
including the European Union and by more than two-thirds of the
G20.
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Source: https://www.ifrs.org
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 Adoption of IFRS in Russia

The adoption of IFRS in Russia has been finalized in 2012.

IFRS are required for the consolidated financial statements of all entities
whose securities are listed on stock exchanges, for banks and other credit
institutions, insurance companies (except those with activities limited to
obligatory medical insurance), pension funds, management companies of
investment and pension funds, and clearing houses. Additionally, certain
state-owned companies are required to prepare consolidated IFRS
financial statements by separate decrees of the Russian government.

Publicly listed entities that previously reported under US GAAP have an

extension for IFRS transition till 2015.

IFRS are mandatory for consolidated financial statements. Standalone

(separate) financial statements for all entities must be prepared using
RAS.
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 Adoption of IFRS in Russia

IFRS are part of the Russian legislative framework. Federal

Law 208-FZ “On Consolidated Financial Statements” states
that standards and interpretations issued by IASB are
endorsed for adoption in Russia by the Russian Government
in consultation with the Central Bank.

Russia has a formal process for endorsement of new or

amended IFRSs (including interpretations). Newly-issued
standards go through a technical expertise by the National
Accounting Standards Board (NSFO), an independent
organization designated by the Ministry of Finance. Based on
the results of the expertise the Ministry issues endorsement
decisions.
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 Convergence of RAS with IFRS

Considerable progress is being made towards converging RAS

with IFRS. However significant differences still remain
between the Russian standards and IFRS in recognition,
measurement and presentation, including:

 The fair value concept is not applied in RAS;

 Non-quoted financial assets are accounted for at cost or
amortized cost (less impairment provision);
 Finance leases may be capitalized or expensed by
agreement of the parties to the lease contract;
 Property, plant and equipment are not impaired, though
revaluation to the current replacement cost is allowed;

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 Convergence of RAS with IFRS

 Useful lives of fixed assets are often in line with the useful
lives applied for tax purposes.
 Deferred tax is calculated using the income statement
method, although the methodology differs.
 Revenues or expenditures are often recognized after
documentation supporting the transaction is received in
accordance with the tax rules.
Certain complex IFRS topics such as Joint Arrangements,
Hedging, Pension Plans, Share-Based Payments, etc. are not
covered in RAS. In absence of RAS guidance, entities may
chose to apply relevant IFRSs. Consolidation and Business
Combinations topics are not relevant to RAS, as it is only
applicable to standalone financial statements.
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 Thank you for attention!

Home assignment: loaded to ICEF-online

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