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Chapter 1: - The reporting environmentChapter 2: - The conceptual framework for financial reportingChapter 3: - Presentation of financial statementsChapter 4: - Revenue from contracts with customersChapter 5: - Taxation: Various Types and Current TaxationChapter 6: - Taxation: Deferred TaxationChapter 7: - Property, Plant and Equipment: The Cost ModelChapter 8: -
Property, Plant and Equipment: The Revaluation ModelChapter 9: - Intangible AssetsChapter 10: - Investment PropertiesChapter 11: - Impairment of AssetsChapter 12: - Non-current Assets Held for Sale and Discontinued OperationsChapter 13: - InventoriesChapter 14: - Borrowing CostsChapter 15: - Government Grants and Government AssistanceChapter 16: - Leases: Lessee
AccountingChapter 17: - Leases: Lessor AccountingChapter 18: - Provisions, Contingencies and Events after the Reporting PeriodChapter 19: - Employee BenefitsChapter 20: - Foreign Currency TransactionsChapter 21: - Financial InstrumentsChapter 22: - Hedge AccountingChapter 23: - Share Capital: Equity Instruments and Financial LiabilitiesChapter 24: - Earnings per
ShareChapter 25: - Fair Value MeasurementChapter 26: - Accounting Policies, Estimates and ErrorsChapter 27: - Statement of Cash FlowsChapter 28: - Financial Analysis and Interpretation Academia.edu uses cookies to personalize content, tailor ads and improve the user experience. By using our site, you agree to our collection of information through the use of cookies. To
learn more, view our Privacy Policy.× Related Products Related products text i Gripping GAAPSixteenth Edition####### Cathrynne Service CA (SA) BCompt (Hons) (C.T.A.) (UNISA) CA (SA) Acknowledgements and thanks: Special thanks must go to: Khaya Sithole (from the University of the Witwatersrand) who dedicated his boundless expertise and many precious hours in the
mammoth task of editing the brand new chapter on revenue and assisting in the updating of a further two chapters. Thanks must also go to: Professor Dave Kolitz (from the University of Exeter); and Súne Diedericks and Suzette Snyders (both from the Nelson Mandela Metropolitan University); for their valuable input, suggestions and special requests. Sue Ludolph: SAICA Project
Director: Accounting Sandy Van der Walt: SAICA Project Director: Education Heather de Jongh: KPMG: Director Tara Smith: KPMG: Director Juanita Steenekamp: SAICA: Project Director: Governance And Non-IFRS Reporting Ewald Müller: SAICA: Senior Executive Thank you for your advice and interpretations in the past. Chief editing and technical review of this 2015 edition
done by: Khaya Sithole, Troy Halliday, Zaheer Bux, Errol Prawlall, Thivesan Govender, Deepika Panday, Kamantha Vengasamy, Vidhur Sunichur, Zahra Moorad, Johannes Rice and Yusuf Seedat Thank you to a super-dedicated team for your enthusiasm and expertise. Chief editing and technical review of some of the more recent editions done by: Tanweer Ansari, Trixy
Cadman, Aphrodite Contogiannis, Zaid Ebrahim, Susan Flack, Haseena Latif, Daleshan Naidoo, Thabo Ndimande, Dietmar Paul, Kate Purnell, Johannes Rice, Yusuf Seedat and Khaya Sithole Albertus Louw, Ayanda Magwaza, Trixy Cadman, Carla Tarin, Jade Archer, Marc Frank and Adrian Marcia Khaya Sithole, Ruan Gertenbach, Carla Tarin, Jade Archer, Fathima Khan,
Susan Flack, Preshan Moodliar, Prekashnee Brijlall, Nikky Valentine Ruan Gertenbach, Susan Flack, Gareth Edwardes, Artur Mierzwa, Nabilah Soobedaar, Nikky Valentine and Prekashnee Brijlall. Warren Maroun, Byron Cowie, Mahomed Jameel Essop, Nasreen Suleman, Daveshin Chetty, Steve Carew, Justin Cousins, Jarrod Viljoen and Craig Wallington. Warren Kemper,
Byron Cowie, Gary Klingbiel, Alastair Petticrew, Catherine Friggens, Kerry Barnes and Shiksha Ramdhin. Tiffiny Sneedon and Ryan Wheeler. Dhiren Sivjattan and Clive Kingsley. Trixy Cadman, Phillipe Welthagen and Tarryn Altshuler. Maria Kritikos, Lara Williams, Praneel Nundkumar, Brian Nichol, Pawel Szpak and Craig Irwin. Editing of layout and formatting: Sue Trollip Thank
you for your expertise and the long, long hours! iii Gripping GAAPDedicationDedicationDedicationDedicationThis book is once again dedicated to my very dear family and friends! Writing it would simply not have been possible without my parents, Roger and Jillianne, who continually keep the home fires burning during the endless months of writing, and my loving sons Roger and
Guy who have been extremely patient and understanding throughout. And a sincere thanks to Scott for all your support and encouragement! Too numerous to mention, are the rest of my family and friends, who have all been subjected to the same boring excuse ‘sorry – I’m busy with my book ​’. And to my team of guardian angels who not only inspired this book but who have
provided me with the guidance and the super-human strength that it has taken to update each year. And finally, I wish to dedicate this book to those for whom I wrote it: You! I sincerely wish that my book sheds the necessary light as you fervently study towards your ultimate goal of joining our country’s ranks of ‘counting mutants’ Our country needs you! (‘counting mutants’ is a
quirky reference to accountants in the comedy: Mr Magorium’s Wonder Emporium) iv Gripping GAAPForewordForewordForewordForewordAnother ‘Four Words’ to Gripping GAAP My own lifelong - and appalling - inability to accurately distinguish between debits and credits suggests that a) I was absolutely right not to consider accounting as a career, and b) that I have little
credibility - oh, let's be honest, no credibility whatsoever - in being accorded the honour of penning a foreword to "Gripping GAAP". While I dread the thought that nepotism could be considered the rationale for such distinction (I am closely related to the authoress!) I have at least, I hope, established my monstrous lack of appropriate credentials. However, as a fellow writer, (of
fiction - and is that so very different from latter-day accounting fact?), I feel thus qualified to commend the work for its lucid and clearly understandable (even to me!) "unpacking" of the arcane subject of Accountancy. A sage of old opined that "money is the root of all evil " - a maxim which, like most others, appears to have stood the test of time. Until recently, of late it would appear
that the accounting of money (on a worldwide basis) has much to answer for. Hitherto trustworthy multinational financial edifices have been found wanting to an alarming degree and the tendency to indulge in 'creative accounting' has been rightly indicted. The vigour of youth (yours) coupled with a sincere passion to put right what has gone wrong (also yours, I trust!) is the serious
need that "Gripping GAAP" seeks to advance. Balzac said "Behind every great fortune there is a crime!". Was he right? Winston Churchill said "Success is the ability to lurch from failure to failure with no loss of enthusiasm!". Was he right? Does it matter? Perhaps it does. Certainly my personal hope is that those who, thousands of years ago, taught us all to read and write with
such fine precision will be the inspiration for your generation of professionals to deal with an emerging global need to account with similar exactitude. Carpe Diem! Dr. Roger Servicevi Gripping GAAPIntroduction The ongoing international harmonisation and improvements projects have seen a proliferation of revised and re-revised standards, interpretations and exposure drafts.
This edition has been updated for all relevant standards in issue to 10 December 2014. A number of new international standards and interpretations are expected to be issued during 2015. Please watch my Facebook page for details (see page ii). Since Gripping GAAP has gained international attention, the text has been updated to be more country non-specific in terms of tax
legislation. In this regard, students may assume that the business entity is subjected to the following taxes (unless otherwise indicated): ​ A tax on taxable profits at 30%, (referred to as income tax); ​ An inclusion rate of 50% for entities when dealing with capital gains tax (part of income tax); ​ A transaction tax levied at 14%, (referred to as VAT or value added tax). Gripping GAAP
uses the symbol ‘C’ to denote an entity’s currency but uses the symbol ‘LC’ for an entity’s ‘local currency’ in any chapter dealing with foreign currencies. Some chapters (e.g. chapter 1 & 23) include unavoidable reference to South African legislation. Aspects of these chapters may possibly not be relevant to some of the countries using this book. All principles are, however,
international principles. Paedagogical philosophy Gripping GAAP is designed for those who wish to: fully understand the concepts and principles of accounting be able to study their syllabus without the aid of daily lectures (e.g. students studying on a distance learning basis); qualify as chartered accountants; and keep abreast of the changes to international financial reporting
standards. Gripping GAAP can be successfully used with GAAP: Graded Questions by D Kolitz and C Service and Gripping Groups by C Service and M Wichlinski. This edition of Gripping GAAP covers an enormous volume of work and is frequently studied over a two-year period at undergraduate level or a one-year period at post- graduate level. The text has therefore been
written so as to be as easy-to-read as possible and includes more than 550 examples as well as both pop-up summaries and flowchart summaries, thus making it ideal for students studying on a distance basis. Students need to be able to see the ‘big picture’ and thus flowchart summaries are provided at the end of each chapter. These flowchart summaries are a good place to
start before reading any chapter or in preparation for lectures and are also good to read over after having completed the reading of a chapter or after having attended a lecture. In order to help one remain focused whilst reading the chapters, which unavoidably contain copious and complex detail, little grey pop-ups have been inserted to highlight the relevant core definitions and
the essence. These pop-ups have been provided in a bulleted format to enable quick assimilation of these ‘fast-facts’. vii Gripping GAAPPaedagogical philosophy Chapter 1 explains the environment within which a ‘reporting accountant’ finds himself (i.e. where an accountant is affected by the IASB and various related legislation). Chapter 2 explains the Conceptual Framework,
which reflects the basic logic underpinning all other IFRSs. Chapter 3 explains how financial statements should be presented. Chapter 4 - 6 involve revenue from customer contracts and taxes. Since tax is integral to all topics, the chapters on tax are included early on in the book. However, before we can understand the differences between accounting profit and taxable profit,
students need to understand the concept of accrual. An ideal standard to start this is the revenue standard. Once students understand when to recognise revenue, they have a yardstick to use when studying the tax and deferred tax chapters, where revenue is used as the initial example explaining the calculation of taxable profits and the concept of deferred tax. Chapters 17 – 13
involve various assets. These chapters are covered after having grasped deferred tax since these assets have deferred tax consequences. That said, some institutions prefer to teach the principles involving each of the asset types without these deferred tax consequences. For this reason, the deferred tax consequences are presented in a separate section of each of these
chapters and examples are shown with deferred tax consequences and without deferred tax consequences. We start with non-current assets and proceed to current assets (inventory). Impairment of assets is also included in this set of chapters but it is inserted after the chapters covering property, plant and equipment, intangible assets and investment properties but before non-
current assets held for sale and inventories. This is because the standard on impairments applies to the former assets but not the latter assets. Chapter 14 – 17 deal with borrowing costs, government grants and leases. These chapters may all have an impact on the recognition and measurement of assets. Chapters 18 – 19 relate to provisions, contingencies and events after the
reporting period and employee benefits. Both these chapters relate largely (although not exclusively) to liabilities. Chapter 20 – 24: Chapter 20 deals with foreign currency transactions, where it explains how transacting in a foreign currency can affect the measurement of items. Since foreign currency transactions frequently require hedging, chapter 21 explains hedging with forward
exchange contracts. Since forward exchange contracts are a type of financial instrument, chapter 22 explains financial instruments. Share capital involves either equity instruments or financial liabilities and is best covered after having grasped the various concepts in the financial instruments chapter and this section is thus contained in chapter 23. Chapter 24 covers earnings per
share: this chapter is best covered after studying share capital. Chapter 25: Fair value measurement affects numerous prior chapters and is thus best contained after all the chapters affected by fair value measurements. This chapter may be referred to whilst studying these other affected chapters. Chapter 26: Statements of cash flows are quite distinct from the principles covered
in all prior chapters since it applies the cash concept rather than the accrual concept and is thus the penultimate chapter. Chapter 27: The very final chapter is financial analysis and interpretation since it does not related to an IFRS at all but simply explains how the financial statements are analysed by the users thereof. Appendix: although definitions relevant to each of the
chapters are included in each of these chapters, the appendix provides a list of all definitions in alphabetical order thus enabling readers to quickly and easily find definitions. Gripping GAAP The reporting environment Chapter 1 1 Chapter 1 The Reporting Environment Main references: IFRS Foundation Constitution (2013); Due Process Handbook (2013); ; Companies Act 2008;
Companies Act Regulations, 2011; Companies Act Amendments, 2011; King III and JSE Listing Requirements (September 2014) Contents: Page Introduction 3 A brief history of accounting 4 2.1 Accounting is a language 2.2 Accounting has evolved 2.3 The difference between the double-entry system and GAAP 2.4 The difference between GAAP and IFRS 4 4 5 5 3. GAAP and
IFRSs – the process of internationalisation 6 3.1 A brief history of the internationalisation of GAAP into IFRSs 3.2 International Financial Reporting Standards (IFRSs) 3.2.1 Overview 3.2.2 The meaning of the term: IFRSs 3.2.3 The meaning of the term: Standards 3.2.4 The meaning of the term: Interpretations 3.3 Conceptual Framework for Financial Reporting 3.4 Compliance
with IFRSs 3.4.1 What does compliance with IFRSs involve? 3.4.2 Why would one comply with IFRSs? 3.4.3 The extent of compliance with IFRSs around the world 3.5 Harmonisation versus Convergence 3.6 Adoption versus Convergence 3.7 Development of IFRSs (standard-setting) 3.7.1 Overview 3.7.2 Standards developed to date 3.7.3 Interpretations developed to date 3.7.4
Due Process 3.7.4.1 Overview 3.7.4.2 Principles of Due Process 3.7.4.3 The Basic Development Cycle 3.7.4.4 Developing Exposure Drafts 3.7.4.5 Developing Standards 3.7.4.6 Developing Interpretations 3.7.4.7 Developing Annual Improvements 6 7 7 7 7 7 8 8 8 8 9 9 11 12 12 12 12 12 12 13 13 14 14 15 16 Gripping GAAP The reporting environment 2 Chapter 1 3.8 The IASB
and the IFRS Foundation: a look at the structure 3.8.1 Overview 3.8.2 The IFRS Foundation: an organogram 3.8.3 The IFRS Foundation 3.8.4 The Trustees 3.8.5 The Monitoring Board 3.8.6 The International Accounting Standards Board (IASB) 3.8.7 The IFRS Interpretations Committee (IFRSIC) 3.8.8 The IFRS Advisory Council (IFRSAC) 3.8.9 The Accounting Standards
Advisory Forum (ASAF) 16 16 17 17 18 18 19 19 19 19 4. The Companies Act and the related regulations 19 4.1 Overview 4.2 The Companies Act, 2008: some of the big changes 19 20 4.2.1 What about pre-existing par value shares? 4.2.2 What about pre-existing CCs? 20 20 4.3 The different categories of companies 4.4 Legal backing for financial reporting standards 4.5 Which
financial reporting standards must we use? 4.6 Legal backing for differential reporting 21 22 23 25 4.6.1 An overview 4.6.2 What is a small and medium-sized entity (SME)? 4.6.3 The history of differential reporting in South Africa 4.6.4 How do the IFRS for SMEs help? 4.7 Does our company need an audit or independent review? 25 25 25 25 26 4.8 Company records (s24) 4.9
Accounting records (s1 and s28) 4.10 Financial year (s27) 4.11 Financial statements (s29) 4.12 Annual financial statements (s30) 27 27 27 28 28 4.12.1 Timing 4.12.2 Audit or independent review 4.12.3 Other documents included in the annual financial statements 4.12.4 Extra disclosure relating to directors or prescribed officers 4.12.5 Approval and presentation 28 28 28 28 30 5.
JSE listing requirements 30 5.1 Overview 5.2 Section 3: Continuing obligations 5.3 Section 8: Financial information 30 31 31 6. King III Report 33 6.1 Overview 6.2 King III Report on directors remuneration 6.3 King III Report on sustainability reporting 6.4 King III Report on integrated reporting 33 33 34 34 7. Summary 37 Gripping GAAP The reporting environment 4 Chapter 1 A
Brief History of Accounting 2.1 Accounting is a language You may think accounting is dry and boring, but believe it or not, accounting has much in common with possibly more exciting subjects such as language. If you’ll get back onto your chair, I’ll explain... Through the ages, many languages developed, such as Latin, English and Zulu, so that people could communicate with one
another effectively. Communicating effectively is essential! It helps avoid all sorts of unpleasantness. Accounting is just another language, one that is used by accountants to communicate with other accountants and interested parties (called ‘users’). Interested parties want to hear the story of the business – and accountants need to know how to both document the facts (by
debiting and crediting) and how to tell the story (reporting). The language we use depends on which country we are telling the story to – some countries require us to tell our story in their national GAAP, whereas others require that we tell the story in international GAAP (i.e. using IFRSs). The intention is that, in time, there will be one accounting language – international GAAP. 2.2
Accounting has evolved The language of accounting has developed over thousands of years (some say more than 10 000 years and some as many as 20 000 years – we will never know for sure) and is constantly evolving owing largely to a changing environment. The evolution so far: ​ Accounting first started as a basic recording of items such as cattle and stores of grain, using
notches in clay tablets and sticks. ​ Over time, this became slightly more detailed where it then involved a written record of business transactions (i.e. using words and numbers rather than notches). ​ And then came the double-entry system (i.e. using debits and credits). The evolution of accounting came about due largely to the evolution of business. There are many stages that
have been identified in this business evolution, but two significant stages include the introduction of (1) corporations and (2) credit. The arrival of corporations and credit meant that more detail was needed to satisfy those users who were not involved in the day- to-day management of the business: ​ Initially businesses involved sole proprietors and family-run businesses, where
record- keeping was a relatively simple affair because the owners also managed the business and were thus intimate with the transactions the business entered into. However, when businesses grew larger and corporations began appearing on the scene, record-keeping had to become more detailed since the owners of these corporations were shareholders who were generally
not involved in the day-to-day management of the business. ​ Initially businesses worked purely on cash. However, when ‘credit’ was introduced, money-lenders wanted information that would help assess whether or not it was safe to continue providing credit. Since money-lenders were not involved in the day-to-day management of the business, they too demanded detailed
record-keeping. In summary, unlike earlier times, users of financial information today are often not involved in the management process and thus demand more detailed financial information. Examples of typical users: Shareholders: who may consider increasing or decreasing investments, Lenders: need to assess the risk of continuing to provide credit, Suppliers: who may want to
assess whether or not to continue supplying goods and services, Customers: need to decide who best to give their business to. The double-entry system came about because it: ​ gives the detail and checks & balances ​ needed for those users ​ who are not involved in ‘day- to-day management’. Gripping GAAP The reporting environment Chapter 1 5 2.3 The difference between
the double-entry system and GAAP The double-entry system is a language that is centuries old and as relevant today as it was back then. Evidence of the first double-entry system comes in the form of two ledgers dating back to the end of the 13th century: Evidence suggests that the double- entry system started ​ in Italy ​ in the 13 th century! ​ a ledger created by Amatino Manucci,
a Florentine (Italian) merchant, at the end of the 13th century; and ​ a ledger created by Giovanino Farolfi & Company, a firm of Florentine (Italian) merchants and moneylenders, dated of 1299-1300 (called the ‘Farolfi Ledger’). To communicate properly in any language, we need to obey certain rules. These rules tell us how to pronounce and spell words and how to string them
together in the right order to make a sentence that someone else will understand. Accounting is no different and thus rules on how to ‘operate’ the double-entry system were developed. An Italian, Luca Pacioli, who worked closely with the artist and genius, Leonardo da Vinci, is often referred to as the ‘father of accounting’. However, Luca Pacioli did not design the double-entry
system (since it had already been in use for roughly 200 years). He simply appeared to be the first to document how the double-entry system worked, explaining it in his mathematics textbook (Summa de arithmetica, geometria, proportioni et proportionalità, published in Venice in 1494). Interestingly, however, it seems that there were Pacioli is called: ​ the ‘father of accounting’ –
but ​ he did not design the double-entry system; ​ ...he simply wrote about it! previous books on the double-entry system and that Pacioli’s book was simply more widely distributed than these previous books. Over time, more rules sprung up around this double-entry system. These rules became known as generally accepted accounting practice (GAAP). Before globalisation,
countries operated very separately, each developing their own unique form of GAAP, in other words, their own accounting language. Each country’s GAAP is referred to as that country’s national GAAP. 2.4 The difference between GAAP and IFRS IFRSs are the result of: ​ combining the various national GAAPs into one global GAAP. ​ Global GAAP is represented by IFRSs. Since
the beginning of the industrial revolution, businesses began to grow and expand across borders. Recent technology, such as phones, faxes, email, jet engines and the internet, made it possible to communicate instantly with people in countries that are thousands of miles away. Much of this ‘globe-shrinking technology’ has been around for many years now, so communication is
well underway between accountants of businesses in countries that, only a few hundred years ago, did not even know each other existed. This increased global communication between accountants gradually led them to realise that they were ‘not talking the same language’. In fact, the national GAAP used in one country is sometimes so different to that used in another country
that it is like comparing the languages of French and Chinese. In other cases, the differences are so minor that it is like comparing American English with British English, where the words are the same but the accents differ. However, all differences, no matter how small, will still result in miscommunication. Whilst miscommunication at a personal level can lead to tragedies ranging
from losing your keys to divorce, miscommunication at a business level often leads to court cases, financial loss, liquidation and sometimes even prison time for those involved. The international communication amongst accountants has been growing exponentially over the last few decades and eventually, in 1993, the effect of the different accounting languages became painfully
clear to the public. Let me tell you the story... Gripping GAAP The reporting environment Chapter 1 7 3.2 International Financial Reporting Standards (IFRSs) 3.2.1 Overview International Financial Reporting Standards (IFRSs) contain the principles that are applied by an accountant when: ​ recording transactions and other financial information (accounting); and when ​ preparing
financial statements for external users (external reporting). IFRSs are issued by the International Accounting Standards Board. The development of IFRSs is explained in section 3.7. 3.2.2 The meaning of the term: IFRSs It is important to realise that the term IFRSs may be used in many ways: ​ It may be used in a narrow sense to refer to only those standards published by the
International Accounting Standards Board and thus prefixed with ‘IFRS’ (i.e. as opposed to standards published by the previous International Accounting Standards Committee and thus prefixed with ‘IAS’). ​ In its broader and more technical sense, the term is used to refer to the combination of both standards and interpretations (i.e. it would refer to all the standards, prefixed with
IFRS or IAS, and all their interpretations, prefixed with SIC or IFRIC). The term IFRSs technically includes: ​ Standards; AND ​ Interpretations. However, when we state in a financial report that the financial statements comply with International Financial Reporting Standards, we are using the term in the broader more technical sense to refer to both the standards and the
interpretations. 3.2.3 The meaning of the term: Standards Standards represent the set of principles applied by accountants. Standards contain the principles to be applied by accountants. These standards are not only issued by the IASB but are also developed by the IASB. However, the development process follows strict due process procedures that require much collaboration
with national standard-setters from around the world and other interested parties. Standards are defined as: ​ Standards issued by the IASB. ​ They comprise those prefixed by IFRS and IAS. Due Process Handbook: Glossary of terms As explained in a previous section, the IAS Board adopted all the work done by the previous IAS Committee and thus some of the standards are still
prefixed with IAS while those issued by the IASB are prefixed with IFRS. 3.2.4 The meaning of the term: Interpretations It can happen that a standard has complex or ambiguous principles, the application of which needs some explanation. Where such an explanation is required, the IASB issues a document called an interpretation. Interpretations are given the same authority as
the standards. Thus, if a standard comes with an interpretation, this standard must be read together with its interpretation. Although interpretations are issued by the IASB, they are actually developed by the IASB’s Interpretations Committee. As with the development of standards, the development of interpretations follows strict due process procedures that require much
collaboration with national standard-setters from around the world and other interested parties. Interpretations ​ explain how to apply standards; ​ have the same authority as standards. Gripping GAAP The reporting environment 8 Chapter 1 Since the IAS Board adopted all the work done by the previous IAS Committee, some interpretations are prefixed with SIC and some are
prefixed with IFRIC: ​ The old IASC prefixed their interpretations with SIC, being the acronym for the committee responsible for their development: Standing Interpretations Committee. ​ The new IASB prefixes interpretations with IFRIC, being the acronym for the committee that develops them: the International Financial Reporting Interpretations Committee. 3.3 Conceptual
Framework for Financial Reporting When the IASB considers which principles and practices to include in each new IFRS (i.e. standard or interpretation), it uses the Conceptual Framework for Financial Reporting. Thus this Conceptual Framework is used to develop IFRSs, but is technically not an IFRS. [The CF is covered in chapter 2.] 3.4 Compliance with IFRSs (adoption) 3.4.1
What does compliance with IFRS involve? To comply with IFRSs means to have adopted IFRSs. To be able to state in the financial report that the financial statements comply with IFRS, they must comply with: ​ all IFRSs, and ​ without any modifications (i.e. adaptations). Since interpretations have the same authority as standards and are thus to be read together with the standards,
when we make a statement in the financial report that the financial statements ‘comply with the IFRSs’, we are actually saying they comply with both the: ​ Standards, whether prefixed with IAS or IFRS; and ​ Interpretations, whether prefixed with SIC or IFRIC. When a set of financial statements is prepared in terms of IFRSs, a declaration of this compliance must be included in the
notes to the financial statements (this is a requirement contained in IAS 1 Presentation of Financial Statements). 3.4.2 Why would one comply with IFRS? There is no international body forcing compliance with IFRSs. A country’s specific national legislation may, however, require compliance with IFRSs. On the other hand, the national legislation of some countries neither requires
nor disallows compliance. On the other end of the spectrum, there are some countries whose national legislation actually disallows compliance (see section 3.4.3). Where the national legislation requires compliance, the answer to ‘why would one comply with IFRS’ is obvious. However, in situations where compliance is neither required and nor disallowed, why would entities
comply with it? The answer is simply that compliance with IFRS gives credibility to the financial statements and makes them understandable to foreigners, thus encouraging foreign investment. For many years, South Africa’s legislation did not require compliance with IFRSs. Despite this, the increased credibility gained from complying with IFRSs led many South African companies
to adopt IFRSs. However, a recent revision to South Africa’s legislation now means that certain companies must comply with IFRSs while other companies may choose to comply. [More information about the legislation may be found in section 4.] Interpretations are defined as: ​ ‘developed by the Interpretations Committee before being ​ ratified & issued by the IASB. Interpretations
carry the same weight as a Standard.’ Due Process Handbook: Glossary of terms The Conceptual Framework is not an IFRS! The CF is simply used in the process of developing IFRSs. Compliance with IFRSs means compliance with: ​ Standards (IAS/ IFRS); AND ​ Interpretations (SIC/IFRIC). Compliance could be: ​ Legislated: due to the relevant national legislation requiring
compliance; or ​ Voluntary: due to the international credibility that compliance provides. Gripping GAAP The reporting environment 10 Chapter 1 In this regard, two terms are commonly used: ​ harmonisation; and ​ convergence. Whereas ‘harmonisation’ was previously the buzz word, ‘convergence’ is now the new focus. In fact, the Constitution of the IFRS Foundation refers only to
the term ‘convergence’. Ultimately, however, the purpose of both harmonisation and convergence is to create a single set of high quality, global GAAP to be adopted world-wide. The process of harmonisation involved the IASB and national standard-setters meeting to analyse and compare the various principles and practices used across the world in order to: ​ identify differences/
problems and try to eliminate them; ​ help guide the development of the international standards (i.e. the IFRS would then incorporate a combination of best practice and any new and improved ideas that may have emanated from the process). Essentially, the purpose of convergence is to try to reduce the differences between the IFRSs (international GAAP) and the standards of
that specific country (that country’s national GAAP). It involves discussion and collaboration between that country’s standard-setters and the IASB in order to assess the differences and reach agreement on how to minimise them. The Constitution of the IFRS Foundation was amended in 2010 to make it clear that the ultimate objective is adoption of IFRSs, and that convergence is
simply a means to achieve adoption. Convergence came about as a stepping stone due to The IFRS Foundation’s objective: ​ is not convergence; ​ is adoption. Convergence is simply a means to achieve adoption. resistance from some countries to full-scale adoption of the IFRSs. Although most countries (at least 131 participating countries as at 11 December 2014 1 ) already
either permit or require the use of IFRSs (i.e. have adopted IFRSs), there are a few countries that are still resisting adoption of the IFRSs. The reasons these countries are resisting vary from country to country, for example: ​ A common reason given by a country for resisting the adoption of IFRSs is if differences between that country’s national GAAP and the IFRSs are so vast that
the complications and related cost of converting to IFRSs are expected to outweigh the benefits. ​ In other cases, the countries that are resisting believe that their national standards are superior to that of the IFRSs. The IFRSs are principles-based (in fact, one of the objectives in the development of an IFRS is to ensure that it is ‘based upon clearly articulated principles’) whereas
the United States, for example, uses US GAAP which, although is intended to be principles-based, tends to be highly rules-based due to their litigious society (i.e. a society that tends to take things to court). The US argues that the pure principles-based approach is unsuitable since it opens the door to potential litigation, which is less defensible than their relatively rules-based
approach. ​ It has also been found that more powerful countries appear ‘less willing to surrender standard-setting authority to an international body’. 2 Where a country believes that it is unable to adopt the IFRSs, convergence is an option. 1 accessed 11 December 2014; 2 Research: Why Do Countries Adopt International Financial Reporting Standards? (2009: Ramanna & Sletten);
Gripping GAAP The reporting environment Chapter 1 11 3.6 Adoption versus Convergence Adopt or converge? One country resisting the adoption of IFRSs is the United States. Initially, the US was completely opposed to the international standard-setting process, but following numerous US corporate collapses, the US Financial Accounting Standards Board (FASB) and the
IASB agreed to a process of convergence. The convergence between the IASB and US’s FASB is commonly referred to as ‘the Convergence Project’. However, it is a misconception that convergence refers only to the convergence between the IASB and FASB. Other countries involved in similar convergence projects with the IASB include, for example, China, India, Malaysia and
Singapore. However, given that the US economy is considered to be relatively large (the US economy is the second largest in the As the IASB’s Director of International Activities (Mr Wayne Upton) explained: ‘While convergence may be the necessary preparation for some countries to adopt IFRSs, the simplest, least costly and most straightforward approach is to adopt the
complete body of IFRSs in a single step rather than opting for long-term convergence. Certainly, this is a significant change, but the alternatives may be more difficult and may be of less benefit to a country in the long run. The main reason why most companies want to use IFRSs in their financial statements is the ability to demonstrate to the investor community that their financial
statements are IFRS-compliant. For that purpose it is not sufficient that the standards have converged. The only way to make a valid claim is to apply all the standards as issued by the IASB and make the compliance representation required by IAS 1. Hence, while convergence is good, adoption is necessary to be truly able to harvest the benefits of the change.’ 1 world, with the
greatest being the European economy), the convergence project between the IASB and the US’s FASB is considered to be high profile worth watching carefully. As mentioned, the US was initially opposed to IFRSs, but eventually, the IASB and the FASB expressed their commitment to converge their standards. This commitment was documented in the Norwalk Agreement of
2002. Although the convergence project between the IASB and the FASB has a long way to go, the effects of having successfully reduced many differences between the IASB’s IFRSs and FASB’s US GAAP have already been felt by foreign companies listed in the US since they are no longer required to prepare the complex and time-consuming reconciliation between their
financial statements, prepared using IFRSs, and the results that would have been achieved using US GAAP. The US Securities Exchange Commission (SEC) was expected to decide in 2011 whether it would allow its domestic companies listed in the US to use IFRSs. This was then postponed to 2012. But in October 2012, the SEC announced that, due to ‘the US Presidential
Elections and other priorities in Washington, it was unlikely that the SEC would return to the topic of domestic use of IFRSs until early 2013’. 2 Sadly, there appears to have been little/no progress during 2013 with the last ‘joint IASB and FASB progress report’ having been released in 2012. Although this project seems never-ending, Christopher Cox, the previous Chairman of the
US Securities and Exchange Commission (SEC), vowed it would be complete in 2016.Despite the difficulties in the convergence between the IASB and FASB, the top 20 economies in the world, (represented by the G20, which includes countries such as the United States, South Africa, Australia, United Kingdom etc) have given their total support to all convergence projects and
‘called on international accounting bodies to redouble their efforts to achieve this objective within the context of their independent standard-setting process. In particular, they asked the IASB and the US FASB to complete their convergence project’. 3 1 2 - accessed 24 October 2012; 3 . gripping gaap 2020 pdf free download

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