3/17/2023

Learning objectives

Explain the roles and structures of key regulatory bodies.

Learning objectives Describe efforts to construct a conceptual framework.

Understand the objective of financial reporting.

Identify the qualitative characteristics of accounting information.

Define the basic elements of financial statements.

Conceptual Describe the basic assumptions of accounting.

Framework Explain the application of the basic principles of accounting.

Understand the concepts of capital maintenance.

For Financial Reporting

WWW.IFRS.ORG 2

Europe
Which countries have adopted IFRS standards? Source: https://www.ifrs.org/content/dam/ifrs/around-the-
world/adoption/use-of-ifrs-around-the-world-overview-sept-2018.pdf

America

Asia Oceania

Updated to 2018
For more updated information, visit: https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/

WWW.IFRS.ORG 3 WWW.IFRS.ORG 4

1
 3/17/2023

➢ The IASC Foundation is an independent

foundation based in the US.

➢ Its activities are directed by the Trustees who

appoint the members to the IASB, SAC and
IFRIC.
Organizational ➢ The trustees are individuals of diverse
structure of geographical and functional backgrounds and
comprise of 6 members from North America, 6
IASB from Europe, 4 from Asia Pacific and 3 from
other parts of the world.

➢ Of the 19 members, 5 represent the

accounting profession and others represent
the international organisation of preparers,
users and academics.
6
WWW.IFRS.ORG WWW.IFRS.ORG

International Accounting Standards Board

IASB is responsible for
• developing and issuing new international standards;
• which are known as International Financial Reporting
Standards (IFRS). The objectives of the IFRS
Advisory Council are:
IASB consists of 15 members and their foremost qualification is
technical expertise. All members are appointed for a terms of 5 • To give advice to the IASB on
years, renewable once. agenda decisions and priorities
in its work;
Before a standard, exposure draft or a final IFRIC interpretation
can be published, at least 8 out of the 15 members must • To inform the IASB of the views
approve it. of organizations and individuals
on the Council on major
All existing IASs and SICs remain in force until amended or
standards setting projects;
withdrawn in the future.
Therefore, IFRS includes IFRSs, IFRIC, IASs and SIC • To give other advice to the
Interpretation. Board or to the Trustees
7
WWW.IFRS.ORG WWW.IFRS.ORG

2
 3/17/2023

IFRS Interpretation Committee

International Financial Reporting

Interpretation Committee (IFRIC)
▪ is a committee of the IASB; Conceptual Framework
▪ review, on a timely basis, new
financial reporting issues not
specifically addressed in IFRS; The Conceptual Framework for Financial
▪ clarify issues where unsatisfactory Reporting describes the objective of, and the
or conflicting interpretations have
developed, with a view to reaching concepts for, general purpose financial
a consensus on the most
appropriate treatment.
reporting

9 WWW.IFRS.ORG 10

The Conceptual Framework

It is not an accounting standard

Conceptual
Framework
establishes the
It is a guidance to the concepts that underlie
preparation and presentation of financial reporting.
financial statements

It does not override any accounting

standards

WWW.IFRS.ORG WWW.IFRS.ORG
Appendix – IASB Conceptual Framework 11 12

3
 3/17/2023

13
Structure of some IFRS
Apr 1989
Rules/Application guidance Framework for the Preparation and Presentation of

History
Financial Statements was approved by the IASC Board.
IFRS

Rules Rules
(Exceptions) (interpretations) Jul 1989
Principles The Framework was published.

CF Concepts
Apr 2001
The Framework was adopted by the IASB.
IFRS

Application guidance to give effect to the principles Sep 2010

The Conceptual Framework for Financial
Reporting 2010 was approved by the IASB.

Topics of IFRS Mar 2018

WWW.IFRS.ORG

Conceptual Framework for Financial Reporting 2018

• https://www.ifrs.org/issued-standards/list-of-standards/ (the Conceptual Framework) was published.

Contents of the conceptual framework Chapter 1: The objective of

Chapter 1: The objectives of general purpose financial reporting
Chapter 2: Qualitative characteristics of useful financial information
Chapter 3: Financial statements and the reporting entity
CF 2018
general purpose financial reporting
to provide financial information about the reporting entity
that is useful to existing and potential investors, lenders and
other creditors in making decisions relating to providing
resources to the entity

Chapter 4: The elements of financial statements Users’ decisions involve decisions about:
Chapter 5: Recognition and derecognition
Chapter 6: Measurement
Chapter 7: Presentation and disclosure
Chapter 8: Concepts of capital and capital maintenance
buying, selling or providing or voting, or otherwise
holding equity settling loans and influence
and debt other forms of management’s WWW.IFRS.ORG
WWW.IFRS.ORG 15 instruments credit actions 17

4
 3/17/2023

The objective of general purpose financial reporting Usefulness & Limitations of

general purpose financial reporting
• They do not & cannot provide all of the information that existing and
To make decisions users must: potential investors, lenders and other creditors need.
• They are not designed to show the value of a reporting entity; but they
assess of the provide information to help existing and potential investors, lenders
amount, timing and other creditors to estimate the value of the reporting entity
and uncertainty of
(the prospects for)
• Individual primary users have different, and possibly conflicting,
future net cash information needs and desires. The Board, in developing Standards,
inflows to the will seek to provide the information set that will meet the needs of the
entity maximum number of primary users. However, focusing on common
assess of information needs does not prevent the reporting entity from including
management’s additional information that is most useful to a particular subset of
stewardship of primary users.
the entity’s • To a large extent, financial reports are based on estimates, judgements
economic and models rather than exact depictions
WWW.IFRS.ORG resources 18 WWW.IFRS.ORG 19

Information on financial reporting

Claims
Economic Resources
Chapter 2:
Qualitative
characteristics
of useful
financial
information

Changes in economic
Changes in economic resources and claims NOT
resources and claims result from financial
result from financial performance
WWW.IFRS.ORG 21
performance 20
WWW.IFRS.ORG

5
 3/17/2023

Fundamental qualitative characteristics Fundamental qualitative characteristics

Fundamental Quality—Relevance Fundamental Quality—Relevance

To be relevant, accounting information must be capable of making Financial information has predictive value if it has value as an input to
a difference in a decision. predictive processes used by investors to form their own expectations
about the future.

LO 4 LO 4

Fundamental qualitative characteristics Fundamental qualitative characteristics

Fundamental Quality—Relevance Fundamental Quality—Relevance

Relevant information also helps users confirm or correct prior Information is material if omitting it or misstating it could influence
expectations. decisions that users make on the basis of the reported financial
information.

LO 4 LO 4

6
 3/17/2023

Fundamental qualitative characteristics Fundamental qualitative characteristics

Fundamental Quality—Faithful Representation Fundamental Quality—Faithful Representation

Faithful representation means that the numbers and descriptions Completeness means that all the information that is necessary for
match what really existed or happened. faithful representation is provided.

LO 4 LO 4

Fundamental qualitative characteristics Fundamental qualitative characteristics

Fundamental Quality—Faithful Representation Fundamental Quality—Faithful Representation

Neutrality means that a company cannot select information to favor An information item that is free from error will be a more accurate
one set of interested parties over another. (faithful) representation of a financial item.

LO 4 LO 4

7
 3/17/2023

32 33

Applying the fundamental QC Example

• Leasing is an economic phenomenon

useful in evaluating enterprises’ claims.
Relevance + Faithfully representation = Useful
Process for applying: • Asset value, long-term liability or
settlement proceedings are relevance
1. Identify economic phenomenon that has the potential to be useful; information and could be faithfully
2. Identify type of information about phenomenon that would be most represented.
relevant;
• This information available and can be
3. Determine if information is available and can be faithfully
faithfully represented (based on the
represented contract and market information.
In some cases, a trade-off between the fundamental qualitative characteristics
may need to be made. Example: Accounting estimates/ Contingent liabilities

WWW.IFRS.ORG WWW.IFRS.ORG

Enhancing qualitative characteristics Enhancing qualitative characteristics

Enhancing Qualities Enhancing Qualities

Information that is measured and reported in a similar manner for Verifiability occurs when independent measurers, using the same
different companies is considered comparable. methods, obtain similar results.

LO 4 LO 4

8
 3/17/2023

Enhancing qualitative characteristics Enhancing qualitative characteristics

Enhancing Qualities Enhancing Qualities

Timeliness means having information available to decision-makers Understandability is the quality of information that lets reasonably
before it loses its capacity to influence decisions. informed users see its significance.

LO 4 LO 4

Qualitative characteristics - Exercises Qualitative characteristics - Exercises

Exercise: Identify the qualitative characteristic(s) to be used given Exercise: Identify the qualitative characteristic(s) to be used given
the information provided. Characteristics the information provided. Characteristics
(a) Qualitative characteristic being Relevance (e) Requires a high degree of consensus Relevance
displayed when companies in the Faithful representation among individuals on a given Faithful representation
same industry are using the same Predictive value measurement. Predictive value
accounting principles.
Confirmatory value (f) Predictive value is an ingredient of this Confirmatory value
(b) Quality of information that confirms Neutrality fundamental quality of information. Neutrality
users’ earlier expectations.
Materiality (g) Four qualitative characteristics that Materiality
(c) Imperative for providing comparisons Timeliness enhance both relevance and faithful Timeliness
of a company from period to period. representation.
Verifiability Verifiability
(d) Ignores the economic consequences Understandability (h) An item is not reported because its Understandability
of a standard or rule. Comparability effect on income would not change a Comparability
decision.
WWW.IFRS.ORG LO 5 38 WWW.IFRS.ORG LO 5 39

9
 3/17/2023

Qualitative characteristics - Exercises Chapter 3: Financial statements and reporting entity

Exercise: Identify the qualitative characteristic(s) to be used given

the information provided. Characteristics
(i) Neutrality is a key ingredient of this Relevance
fundamental quality of accounting Faithful representation
information. Predictive value
(j) Two fundamental qualities that make Confirmatory value
accounting information useful for Neutrality
decision-making purposes.
Materiality
(k) Issuance of interim reports is an Timeliness
example of what enhancing
Verifiability
ingredient?
Understandability
Comparability
WWW.IFRS.ORG LO 5 40 WWW.IFRS.ORG 41

Financial statements and reporting entity Financial statements and reporting entity
Statement of financial position: assets, liabilities and equity;
Statement(s) of financial performance: income and expenses Statement of financial position
Other statements and notes:
(i) recognised assets, liabilities, equity, income and expenses, Liquidity
including information about their nature and about the risks arising from
those recognised assets and liabilities; Current liability
(ii) assets and liabilities that have not been recognised, including Current
information about their nature and about the risks arising from them; asset Non current liability
(iii) cash flows; Economic resources & claims
(iv) contributions from holders of equity claims and distributions to Strengths & weaknesses
them; and Equity Liquidity & solvency
Non current asset
(v) the methods, assumptions and judgements used in estimating
the amounts presented or disclosed, and changes in those methods,
assumptions and judgements.

WWW.IFRS.ORG 42 WWW.IFRS.ORG 43

10
 3/17/2023

Financial statements and reporting entity Financial statements and reporting entity
Statement of comprehensive income = SPL + OCI Statement of changes in equity
Statement of Profit or Loss (SPL)
Revenue Profit or loss from Share Retained Revaluation
operating activity
Total
Expenses capital earnings surplus
Profit or loss from financial Changes in resources & claims
Financial income
activity from financial performance Balance as at 1/1/X6
Financial expenses - Components of that return Retrospective
Profit or loss from other ➔ Efficiently effective use of
activity the reporting entity’s resources application
Other income Issuance of new
Other expenses Profit or loss before tax share
Income tax Dividend Changes in Resources &
Profit or loss after tax Income/expenses NOT presented
Transfers between
on the SPL.
claims NOT from
=> For example: those arising equity components financial performance
Other comprehensive income (OCI) debt or equity instruments
from a change in the current Balance as at
WWW.IFRS.ORG value of an asset or liability… 44 31/12/X6 WWW.IFRS.ORG 45

Financial statements and reporting entity Chapter 4: The elements of financial statements
Statement of cash flows

Net cash from operating activities

Asset Income
Net cash from investing activities Liability
Net cash from financing activities

Equity
Changes in cash flows Expenses
Cash generating ability
Cash usage

WWW.IFRS.ORG 46 WWW.IFRS.ORG 48

11
 3/17/2023

Basic elements Basic elements

Elements of Financial Statements Elements of Financial Statements

Asset A present economic resource controlled Asset

by the entity as a result of past events. A present obligation of the entity to
An economic resource is a right that has transfer an economic resource as a result
Liability Liability
the potential to produce economic of past events.
benefits. An obligation is a duty or responsibility
Equity Equity that the entity has no practical ability to
avoid
Income Income

Expenses Expenses

LO 5 LO 5

Basic elements Basic elements

Elements of Financial Statements Elements of Financial Statements

Asset Asset

Liability Liability

The residual interest in the assets of the

Equity Equity
entity after deducting all its liabilities. Increases in assets, or decreases in
liabilities, that result in increase in equity,
Income Income other than those relating to contributions
from holders of equity claims.
Expenses Expenses

LO 5 LO 5

12
 3/17/2023

Basic elements
Elements of Financial Statements

Asset

Liability

Equity

Income
Decreases in assets, or increases in
liabilities, that result in increase in equity,
Expenses other than those relating to distributions
from holders of equity claims.
LO 5 WWW.IFRS.ORG 54

Chapter 5: Recognition, Derecognition

How recognition links the elements of financial statement

Principles
Recognition
is the process of capturing
for inclusion in the
statement of financial
position or the statement(s)
of financial performance an
item that meets the
definition of one of the
elements of financial
statements—an asset, a
liability, equity, income or
expenses. (depicting the
items in words and by the
monetary amount)

WWW.IFRS.ORG 55 WWW.IFRS.ORG 56

13
 3/17/2023

Chapter 5: Recognition, Derecognition Basic assumptions

Economic entity
These concepts explain how companies should recognize, Company keeps its activity separate
measure, and report financial elements and events. from its owners and other business unit.

Recognition, Measurement, and Disclosure Concepts Accrual

Going concern
Transactions are recorded in the
Company to last long enough to
PRINCIPLES periods in which the events occur.
ASSUMPTIONS CONSTRAINTS fulfill objectives and
1. Economic entity 1. Measurement 1. Cost commitments.
2. Going concern 2. Recognition
3. Monetary unit Periodicity Monetary unit
3. Derecognition
4. Periodicity
4. Presentation and Company can divide its economic Money is the common
5. Accrual disclosure activities into time periods. denominator.

WWW.IFRS.ORG LO 6 57 WWW.IFRS.ORG 58

Recognition criteria Recognition criteria

When? whether recognition of an item results in relevant
information may be affected
v by, for example:
➢ Meets the definition of an element
➢ Provides users of financial statements with relevant information and faithful
representation Existence uncertainty
Low probability of an inflow
➢ And information which results in benefits which exceed the cost of providing that or outflow of economic
information. benefits

› it is uncertain whether an › An asset or liability can exist

asset exists or is separable even if the probability of an
from goodwill, or whether a inflow or outflow of economic
liability exists. benefits is low.

WWW.IFRS.ORG 59 WWW.IFRS.ORG 60

14
 3/17/2023

Recognition criteria Derecognition

a faithful representation may be affected by the level
of measurement uncertainty
v
or by other factors.

Liabilities
› derecognition normally
› derecognition Derecognition is occurs when the entity

Measurement uncertainty
› a measurement of an
asset or liability is
available but the level of
measurement
uncertainty is so high.
WWW.IFRS.ORG
Assets
normally occurs the removal of all or no longer has a present
Other factors when the entity loses
part of a recognised obligation for all or part
control of all or part
asset or liability from of the recognised
of the recognised
liability.
› the depiction of resulting income, asset an entity’s statement
expenses and changes in equity. of financial position.
› whether related assets and liabilities
are recognized.
› presentation and disclosure of related
information can enable a recognized
amount to form part of a faithful
representation. WWW.IFRS.ORG
61 62

Recognition

Chapter 5: Recognition and

Derecognition
64
WWW.IFRS.ORG 63 WWW.IFRS.ORG

15
 3/17/2023

Chapter 6: Measurement
Historical cost
➢ Measurement bases
The historical cost of an asset= the value of the costs incurred in creating the asset, comprising the consideration
➢ Factors to consider when selecting a measurement basis paid to acquire or create the asset plus transaction costs.
The historical cost of a liability = the value of the consideration received to take on the liability minus transaction
➢ Measurement bases costs.
Current value
Current value
Historical cost Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date
➢ historical cost, amortized cost, carrying ➢ fair value, value in use (for asset), Current cost of an asset = the cost of an equivalent asset at the measurement date.
amount... fulfilment value (for liability) is Current cost of a liability = the consideration that would be received for an equivalent liability at the
➢ Derived from the transaction or event that updated to reflect conditions at the measurement date minus the transaction costs that would be incurred at that date
created them measurement date. Value in use is the present value of the cash flows, or other economic benefits, that an entity expects to derive
➢ Do not reflect changes in prices ➢ capture any positive or negative from the use of an asset and from its ultimate disposal.
➢ do reflect change relate to impairment of changes Fulfilment value is the present value of the cash, or other economic resources, that an entity expects to be
an asset or a liability becoming onerous obliged to transfer as it fulfils a liability

WWW.IFRS.ORG 65 WWW.IFRS.ORG 66

Measurement Cost constraint

➢ Measurement bases

➢ Factors to consider when Cost Constraint

selecting a measurement basis Companies must weigh the costs of providing the information
against the benefits that can be derived from using it.

◆ Rule-making bodies and governmental agencies use cost-

benefit analysis before making final their informational
✓ Must be relevant and it must faithfully represent what it purports to represent
requirements.
✓ Should, as far as possible, be comparable, verifiable, timely and understandable
◆ In order to justify requiring a particular measurement or
✓ Benefits of the information must be sufficient to justify the cost of providing that
disclosure, the benefits perceived to be derived from it
information
must exceed the costs perceived to be associated with it.

WWW.IFRS.ORG 67 WWW.IFRS.ORG LO 8 68

16
 3/17/2023

Exercise: Measurements Chapter 7: Presentation and disclosure

On 31/12/20X9
• There is an equipment “E” acquired on 1/1/20X8 at the price of $3
million. E has a useful life of 10 years. PRESENTATION AND DISCLOSURE

• Currently, E could be sold for $2.5 million. When using for PRINCIPLES
production, it is expected to created the cash inflows of $500.000
CLASSIFICATION
per year during the next 8 years of its remaining life. Discount rate
is 10%. It cost $3,5 million to acquire a new equipment, which is ➢ Classification of assets and liabilities
equivalent to E.
Offsetting
Determine
Historical cost of E: ➢ Classification of equity

Fair value at 31/12/20X9: ➢ Classification of income and expenses

Current cost at 31/12/20X9:
Value in use at 31/12/20X9: WWW.IFRS.ORG 69 WWW.IFRS.ORG 72

Presentation and disclosure principles

Effective communication in Classification
financial statements 01 Classification is applied to the unit of account selected
for an asset or liability.

entity-specific information No duplication Classification

› duplication of information in
of assets and 02
Offsetting
Offsetting occurs when an entity recognises and
measures both an asset and liability as separate units
› entity-specific information is of account, but groups them into a single net amount in

more useful than standardised

different parts of the financial
statements is usually
liabilities the statement of financial position.
Offs etting classifies dissimilar items together a nd therefore
i s generally not appropriate
descriptions, sometimes
unnecessary and can make
referred to as ‘boilerplate’ Offsetting vs. A set
financial statements less
understandable.
03 Offsetting assets and liabilities differs from treating a
set of rights and obligations as a single unit of account.

WWW.IFRS.ORG 73 WWW.IFRS.ORG 74

17
 3/17/2023

Classification of equity Classification of income and expenses

Classification is applied to
Classify components of equity separately if some of
(a) income and expenses resulting from the unit of account selected for an asset or liability; or
those components are subject to particular legal, (b) components of such income and expenses if those components have different characteristics and are
identified separately.
regulatory or other requirements.

The statement of profit or loss

• The statement of profit or loss is the primary source of information about an entity’s financial performance
for the reporting period;
• Profit or loss could be a section of a single statement of financial performance or a separate statement;
• The statement(s) of financial performance include(s) a total (subtotal) for profit or loss;
• In principle, all income and expenses are classified and included in the statement of profit or loss;
• Income and expenses that arise on a historical cost measurement basis are included in the statement of
profit or loss. That is also the case when income and expenses of that type are separately identified as a
component of a change in the current value of an asset or liability.
WWW.IFRS.ORG 75 WWW.IFRS.ORG 76

Classification of income and expenses Capital concept

Other comprehensive income
• In exceptional circumstances, the Board may decide to exclude from the statement of profit or loss income
Capital can be
or expenses arising from a change in current value of an asset or liability and include those income and • the net assets of an entity or
expenses in other comprehensive income
• the amount of capital contributed by
• The Board may make such a decision when doing so would result in the statement of profit or loss providing the owners plus increases in the net
more relevant information or a more faithful representation assets that remain in the entity.

Recycling Capital can be expressed as money

invested or purchasing power invested.
• In principle, income and expenses included in other comprehensive income in one period are recycled to
the statement of profit or loss in a future period when doing so results in the statement of profit or loss
providing more relevant information or a more faithful representation It can also be expressed in terms of
• When recycling does not result in the statement of profit or loss providing more relevant information or a productive capacity.
more faithful representation, the Board may decide income and expenses included in other comprehensive
income are not to be subsequently recycled
WWW.IFRS.ORG 77 WWW.IFRS.ORG 78

18
 3/17/2023

Concepts of capital maintenance Concepts of capital maintenance

Financial capital maintenance Physical capital maintenance Physical capital FCM - FCM – Constant
Nominal monetary units or units of maintenance Monetary term purchasing power
constant purchasing power) ➢ Profit represents the increase ➢ Profit represents the increase › Profit represents the increase in
in that capital over the period. in nominal money capital over invested purchasing power over
the period. the period.
Profit

Capital = Net asset or equity of the entity. Capital = Productive capacity of the entity (measured as
➢ All price changes of the assets ➢ Increases in the prices of ➢ Only that part of the increase
units of output per day) and liabilities are viewed as assets may not be recognized in the prices of assets that
Used if the main concern of the user of the financial changes in the measurement until the assets are disposed exceeds the increase in the
statements is the maintenance of the nominal value Used if the main concern of the user of the financial Increase in the of the physical productive of in an exchange transaction. general level of prices is
capacity of the entity ➔ as regarded as profit. The rest of
invested capital. statements is the operating capacity of the entity. prices capital maintenance the increase is treated as a
adjustments that are part of capital maintenance
Profit is the difference in money terms between the Profit is earned only if the operating capacity at the end of equity and not as profit. adjustment and, hence, as part
of equity.
opening and closing capital excluding any contributions the period exceeds that of the beginning of the period.
from and distribution to owners.
WWW.IFRS.ORG 79 WWW.IFRS.ORG 80

Example Answer

Accounting items FCM – Monetary term FCM – Constant PP term Physical CM

On 1 Jan X0, an inventory was purchased with the Inventory (1.1.x0) 100 100 100

price of 100 CU. On 31 Dec X0, the purchasing Inventory (31.12.x0) 100 100 x 110% = 110 130

Changes in equity (31.12.x0) 0 110 – 100 = 10 130 – 100 = 30

power increase by 10%. The current cost of the
20
Profit or Loss (01.01.x1) 50 40
inventory was 130 CU. The inventory was sold on 1
Jan X1 at the price of 150 CU.
Required: Calculate the carrying amount of
inventory, P/L and OCI under different capital
maintenance views.

WWW.IFRS.ORG 81 WWW.IFRS.ORG 82

19
 3/17/2023

WWW.IFRS.ORG 94 WWW.IFRS.ORG 95

The
End!
Address: Contact:
196 Tran Quang Khai st., School of Accounting –
District 1, HCMC, Vietnam University of Economics, HCMC

WWW.IFRS.ORG 96

20