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Knowledge guide to International AccountingStandardsIn this knowledge guide, we describe the development of international standards and offer
resources to help you find more on IAS, IFRS, interpretations and IPSAS.
Contents
What are International Accounting Standards?
History and development
Sources for standards and interpretations
International convergence
Further reading
Other international accounting standards
What are international accounting standards?
International Accounting Standards are accounting standards issued by the International Accounting
Standards Board (IASB) and its predecessor, the International Accounting Standards Committee (IASC).
Listed companies, and sometimes unlisted companies, are required to use the standards in their financial
statements in those countries which have adopted them.
TheEU regulation 1606/2002 on the application of international accounting standardsmade this a requirement
for listed companies in the European Union. For other jurisdictions, please see our page on theworldwide
adoption of IFRS.
History and development
Our timeline highlights some of the most significant dates in the history of international accounting
standards. It covers the period from the 1960s to 2005 when listed companies in the UK were required to
present their financial statements using international standards. Please note it is not intended to be a
comprehensive list of developments between these dates.
1966The history of International Accounting Standards really began in 1966, with the proposal to establish an
International Study Group comprising:
Institute of Chartered Accountants of England & Wales (ICAEW)
American Institute of Certified Public Accountants (AICPA)
Canadian Institute of Chartered Accountants (CICA).
http://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#whathttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#whathttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#historyhttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#historyhttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#sourceshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#sourceshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#convergencehttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#convergencehttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#readinghttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#readinghttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#otherhttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#otherhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002R1606:EN:NOThttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002R1606:EN:NOThttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.aicpa.org/http://www.aicpa.org/http://www.cica.ca/http://www.cica.ca/http://www.cica.ca/http://www.aicpa.org/http://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002R1606:EN:NOThttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#otherhttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#readinghttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#convergencehttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#sourceshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#historyhttp://www.icaew.com/en/library/subject-gateways/accounting-standards/knowledge-guide-to-international-accounting-standards#what -
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1967
In February 1967 this resulted in the foundation of the Accountants International Study Group (AISG),
which began to publish papers on important topics every few months and created an appetite for change.
Many of these papers led the way for the standards that followed, when in March 1973 it was finally
agreed to establish an international body writing accounting standards for international use.
1973
In June 1973 the IASC came into existence, with the stated intent that the new international standards it
released must be capable of rapid acceptance and implementation world-wide. The IASC survived for 27
years, until 2001, when the organisation was restructured and the IASC was replaced by the IASB.
One of the most comprehensive accounts of this early history of international accounting standards is
contained in Lord Benson's article The story of international accounting standards which was published
in Accountancy magazine in July 1976 (Volume 87, Number 995) on pages 34-39. A further source ofinformation is Lord Benson's biography Accounting for life which was published by Kogan Page, with
ICAEW, in 1989.
Between 1973 and 2000 the IASC released a series of standards called International Accounting
Standards (IAS) in a numerical sequence that began with IAS 1 and ended with IAS 41 Agriculture, which
was published in December 2000.
1997
The Standing Interpretations Committee (SIC) was established in 1997 to consider contentious
accounting issues that needed authorative guidance to stop widespread variation in practice.
2000
February
The US Securities and Exchange Commission (SEC) issued a concept release on 24 February 2000 on
the acceptability of International Accounting Standards. The ICAEW response was published in a
technical release (TECH 16/00). In the press release issued on 19 May 2000, Graham Ward, Deputy
President of the ICAEW, commented:
We have long looked forward to the time when financial statements prepared in accordance with
international accounting standards are recognised by stock exchanges throughout the world.
May
The International Organisation of Securities Commissions (IOSCO) endorses IAS for use in connection
with cross-border listings, as announced in apress releaseissued by the organisation on 17 May 2000.
http://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(SEC%20concept%20release%20on%20International%20Accounting%20Standards)&format=BOOK&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(SEC%20concept%20release%20on%20International%20Accounting%20Standards)&format=BOOK&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(SEC%20concept%20release%20on%20International%20Accounting%20Standards)&format=BOOK&user_id=WEBSERVERhttp://www.iosco.org/news/pdf/IOSCONEWS26.pdfhttp://www.iosco.org/news/pdf/IOSCONEWS26.pdfhttp://www.iosco.org/news/pdf/IOSCONEWS26.pdfhttp://www.iosco.org/news/pdf/IOSCONEWS26.pdfhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(SEC%20concept%20release%20on%20International%20Accounting%20Standards)&format=BOOK&user_id=WEBSERVER -
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August
The ICAEW issued a policy statement (TECH 23/00)on the endorsement and enforcement of IAS within
the EU.
2001Apr i l
The IASC restructured its organisation at the end of the twentieth century, which resulted in the formation
of the IASB. These changes came into effect on 1 April 2001.
At the time, the IASB stated that it would adopt the body of standards issued by the Board of the
International Accounting Standards Committee (which would continue to be designated International
Accounting Standards [1]), but any new standards would be published in a series called International
Financial Reporting Standards (IFRS) [2].References:
[1] The IASB approved the IASB Resolution on IASC Standards at its meeting in April 2001 which
confirmed the status of all IASC Standards and SIC Interpretations in effect as of 1 April 2001.
[2] The IASB announced that the IASC Foundation Trustees had agreed that accounting standards
issued by IASB would be designated International Financial Reporting Standards in a statement dated
23 April 2001.
Ju ly
At the 23 July 2001 meeting of the Standards Advisory Council the IASB submitted a proposal to rename
the Standing Interpretations Committee (SIC) as the International Financial Reporting Issues Committee
(IFRIC) which was subsequently accepted.
Following this change, releases from IFRIC were categorized as abstracts rather than interpretations. In
December 2001 the Standing Interpretations Committee (SIC) was reconstituted as the International
Financial Reporting Interpretations Committee (IFRIC).
2002
May
The IASB issued published a press release on 23 May 2002 announcing the publication of thePreface to
International Financial Reporting Standardswhich Sir David Tweedie, IASB Chairman, said provided
http://www.icaew.com/~/media/Files/Technical/technical-releases/legal-and-regulatory/TECH-23-00-Policy-Statement.ashxhttp://www.icaew.com/~/media/Files/Technical/technical-releases/legal-and-regulatory/TECH-23-00-Policy-Statement.ashxhttp://www.icaew.com/~/media/Files/Technical/technical-releases/legal-and-regulatory/TECH-23-00-Policy-Statement.ashxhttp://www.iasplus.com/en/news/2002/May/news555http://www.iasplus.com/en/news/2002/May/news555http://www.iasplus.com/en/news/2002/May/news555http://www.iasplus.com/en/news/2002/May/news555http://www.iasplus.com/en/news/2002/May/news555http://www.iasplus.com/en/news/2002/May/news555http://www.icaew.com/~/media/Files/Technical/technical-releases/legal-and-regulatory/TECH-23-00-Policy-Statement.ashx -
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a brief description of the purpose and function of the main structures of the new arrangements for setting
global standards. As such, it is a short but essential introduction to the context within which the Board will
frame its standards.
June
On 6 June 2002 the European Council of Ministers approved the regulation that would require all EU
companies listed on a regulated market to prepare accounts in accordance with International Accounting
Standards for accounting periods beginning on or after 1 January 2005.
ICAEW welcomed the formal approval of the regulation as a landmark development in the creation of a
single European capital market. Ian D Wright, Chairman of the ICAEW Financial Reporting Committee,
said:
The Institute has supported the European Commission through a lengthy political process to see this
Regulation come into effect because we believe passionately in the benefits to business of truly
international accounting standards.
Ju ly
TheRegulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of
international accounting standardswas adopted on 19 July 2002 by the European Parliament and the
Council, requiring listed companies to use International Accounting Standards by 2005.
November
ICAEW issued a memorandum on November 7 2002 to the Accounting Standards Board (replaced by the
Accounting Council in July 2012) entitledThe Transition to IAS: The role of the ASB (TECH 20/02), in which
the institute highlighted its support for aligning UK accounting standards progressively with IAS, stressing
the importance of minimising differences between UK GAAP and IAS
in order to maintain comparability between the accounts of listed and larger unlisted companies, avoid
unnecessary complexity and prevent practical problems for companies seeking listed status.
2003
June
The first IFRS was published in June 2003IFRS 1: First-time Adoption of International Financial
Reporting Standards.
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Ju ly
The Department of Trade and Industry (DTI) issued the press release UK extends use of International
Accounting Standards on 17 July 2003 announcing that publicly traded companies in the UK wou ld be
permitted to use international accounting standards in their individual accounts from 2005 and that
other companies and limited liability partnerships in the UK will be permitted to use IAS in both their
individual and consolidated accounts from the same date.
ICAEW issued a press release in support entitled ICAEW welcomes announcement that unlisted
companies can opt to use IAS from 2005.
September
The European Commission adopted a Regulation endorsing International Accounting Standards (IASs)
on 29 September 2003, thereby confirming the requirement for their compulsory use from 2005.
At the time, Internal Market Commissioner Frits Bolkestein said that:
Adoption by the Commission of this Regulation, endorsing most of the existing International Accounting
Standards and publishing them in the EU's official languages, will help the 7000 or so listed EU
companies affected to get ready for 2005, when their consolidated accounts will have to be in line with
IAS. That will put an end to the current Tower of Babel in financial reporting, improve competition and
transparency and make the free movement of capital much easier.
The full text of the regulationAdopting certain international accounting standards in accordance with Regulation
(EC) No 1606/2002is available online.
December
In Chancellor Gordon Brown'sPre-Budget Report 2003speech on 10 December 2003, the Chancellor
announced that
firms applying international accounting standards will not have to submit a second and separate set of
accounts to the Inland Revenue.
2004
February
On 24 February 2004 the Inland Revenue publishedAccounting Standardsthe UK tax implicationson its
website. At the time the website stated that the Finance Bill 2004 would
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include measures to ensure that companies choosing to adopt International Accounting Standards (IAS)
to draw up their accounts will receive broadly equivalent tax treatment to companies that continue to use
UK GAAP.
March
The DTI published a consultation document on the implementation of the accounting modernisation
directive and arrangements for the use of IAS for companies and building societies,Modernisation of
Accounting Directives/IAS Infrastructure.
November
On 12 November 2004 the Accounts Modernisation and Fair Value Directives came into force withThe
Companies Act 1985 (International Accounting Standards and Other Accounting Amendments) Regulations
2004(SI 2947).
2005
Listed companies in the UK were required to present their financial statements using the international
accounting standards adopted by the EU for periods commencing on or after 1 January 2005.
Sources for standards and interpretations
Standards (IAS/IFRS)
From 1973 until 2000 the International Accounting Standards Committee (IASC) released a series of
International Accounting Standards (IAS). In 2001 the International Accounting Standards Committee
(IASC) was replaced by the International Accounting Standards Board (IASB) and all new standards
published since then have been issued as International Financial Reporting Standards (IFRS).
The text of unaccompanied standards (which are the current year's consolidated standards, excluding
additional content such as illustrative examples and basis for conclusions) are freely available from
theIASB website.Registration is required.
We have printed versions in the ICAEW Library of the individual standards (as published) and annual
volumes which provide consolidated versions of the standards. We also have access to an online
database with electronic versions of the standards.
Prior to 2010 one annual bound volume of consolidated standards was published by the IASB. In January
2010 the additional bound volume IFRS: Consolidated without early application, also known as the Blue
Book, was launched. This new publication only consolidates those standards with an effective date no
later than 1 January so excludes those not yet effective to non-early adopters. It includes IFRSs, IASs,
IFRICs and SICs plus accompanying documents
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The existing IFRS bound volume, now known as the Red Book, is still published and follows the practice
of previous years by consolidating all IFRSs issued at 1 January, including those with an effective date
later than 1 January. It excludes IFRSs that are being replaced or superseded but remain applicable to
non-early adopters. Part A contains IFRSs, IASs, IFRICs and SICs and Part B the accompanying
documents
See the links below for full details of the Library's holdings:
IASC/IASB Handbooks, 1981-
International Accounting Standards, 1973-2001
International Financial Reporting Standards, 2001-
Our webpages onIFRSinclude links to guides, news updates and other online resources for each of the
standards.
Interpretations (SIC/IFRIC)SIC Interpretations agreed by the Standing Interpretations Committee (SIC) and ratified by the IASB were
published between 1997 and 2001.
IFRIC Interpretations agreed by the International Financial Reporting Interpretations Committee (IFRIC)
and ratified by the IASB have been published since 2001. In 2010 the IFRIC was renamed the IFRS
Interpretations Committee. An explanation of the process can be found on the IASB website atHow we
develop interpretations.
The text of unaccompanied standards (which are the current year's consolidated standards, excluding
additional content such as illustrative examples and basis for conclusions) including SICs and IFRICs are
freely available from theIASB website.Registration is required.
The full official text of the interpretations are included in the current bound volumes of IASB standards
which are available from theInternational Accounting Standards Board (IASB).
We have printed copies in the ICAEW Library of the individual interpretations and the current volumes of
standards, in addition to access to an online database with electronic versions of the interpretations.
See the links below for full details of the Library's holdings:
IASC/IASB Handbooks, 1981-
SIC Interpretations, 1997-2001
IFRIC Interpretations, 2001-
You can obtain information about recent IFRIC interpretations and draft IFRIC interpretations through the
IASB website from theIFRIC Projectssection. The IAS Plus website from Deloitte also provides
comprehensiveSummaries of interpretations,including those SIC and IFRIC interpretations which have
been superseded.
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Convergence with IAS/IFRS
We offer a number of resources focusing on convergence between national GAAP and IFRS across the
world, including:
Worldwide adoption of IFRS
Local GAAP and GAAP comparisons
Articles and books in the Library collection on IFRS convergence and harmonisation
Further resources
Our collection includes a growing volume of books and articles on international accounting standards.
View a list of the latest books on international accounting standards
View a list of the latest articles on international accounting standards
To find out how you can borrow books from the Library please see our guide tobook loans.
You can obtain copies of articles or extracts of books and reports by post, fax or email through
ourdocument supply service.
Financial Reporting Faculty
The faculty offers assistance and support in IFRS, UK GAAP and other aspects of business reporting. It
offers technical briefings and factsheets, IFRS and UK GAAP standards-trackers, plus practical advice
from industry experts and working accountants.
Other international accounting standards
International Public Sector Accounting Standards (IPSAS)
The International Public Sector Accounting Standards Board (IPSASB) focuses on the accounting and
financial reporting needs of national, regional and local governments, related governmental agencies.
The IPSASB issues International Public Sector Accounting Standards (IPSAS) for this audience which
are published in full text within the IFAC Handbook of International Public Sector Accounting
Pronouncements, which is available from theIFAC websitefree of charge.
http://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/local-gaap-and-gaap-comparisonshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/local-gaap-and-gaap-comparisonshttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(%27COMPARISON$%27%7b650%7d%20OR%20%27COMPARISON$%27%7b690%7d)%20AND%20(%27INTERNATIONAL%20ACCOUNTING%20STANDARD$%27%20OR%20%27IAS$%27%20OR%20%27IFRS$%27%20OR%20%27INTERNATIONAL%20FINANCIAL%20REPORTING%20STANDARD$%27)&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(%27COMPARISON$%27%7b650%7d%20OR%20%27COMPARISON$%27%7b690%7d)%20AND%20(%27INTERNATIONAL%20ACCOUNTING%20STANDARD$%27%20OR%20%27IAS$%27%20OR%20%27IFRS$%27%20OR%20%27INTERNATIONAL%20FINANCIAL%20REPORTING%20STANDARD$%27)&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=%27accounting%20standards%20international%27%7b650%7d&pubyear=%3E2012&sort_by=-PBYR&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=%27accounting%20standards%20international%27%7b650%7d&pubyear=%3E2012&sort_by=-PBYR&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=%27%27accounting%20standards%20international%27%7b690%7d&pubyear=%3E2012&sort_by=-PBYR&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=%27%27accounting%20standards%20international%27%7b690%7d&pubyear=%3E2012&sort_by=-PBYR&user_id=WEBSERVERhttp://www.icaew.com/en/library/guide-to-services/borrowing-bookshttp://www.icaew.com/en/library/guide-to-services/borrowing-bookshttp://www.icaew.com/en/library/guide-to-services/borrowing-bookshttp://www.icaew.com/en/library/guide-to-services/document-delivery-servicehttp://www.icaew.com/en/library/guide-to-services/document-delivery-servicehttp://www.icaew.com/en/library/guide-to-services/document-delivery-servicehttp://www.icaew.com/en/join-us/join-a-faculty/financial-reporting-facultyhttp://www.icaew.com/en/join-us/join-a-faculty/financial-reporting-facultyhttp://www.ifac.org/public-sectorhttp://www.ifac.org/public-sectorhttp://www.ifac.org/public-sectorhttp://www.icaew.com/en/join-us/join-a-faculty/financial-reporting-facultyhttp://www.icaew.com/en/library/guide-to-services/document-delivery-servicehttp://www.icaew.com/en/library/guide-to-services/borrowing-bookshttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=%27%27accounting%20standards%20international%27%7b690%7d&pubyear=%3E2012&sort_by=-PBYR&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=%27accounting%20standards%20international%27%7b650%7d&pubyear=%3E2012&sort_by=-PBYR&user_id=WEBSERVERhttp://libcat.icaew.com/uhtbin/cgisirsi.exe/x/SIRSI/0/5?searchdata1=(%27COMPARISON$%27%7b650%7d%20OR%20%27COMPARISON$%27%7b690%7d)%20AND%20(%27INTERNATIONAL%20ACCOUNTING%20STANDARD$%27%20OR%20%27IAS$%27%20OR%20%27IFRS$%27%20OR%20%27INTERNATIONAL%20FINANCIAL%20REPORTING%20STANDARD$%27)&user_id=WEBSERVERhttp://www.icaew.com/en/library/subject-gateways/accounting-standards/local-gaap-and-gaap-comparisonshttp://www.icaew.com/en/library/subject-gateways/accounting-standards/worldwide-adoption-of-ifrs -
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International Financial Reporting StandardsFrom Wikipedia, the free encyclopedia
Accountancy
Key concepts
Accountant
Accounting period
Accrual
Bookkeeping
Cash and accrual basis
Cash flow forecasting
Chart of accounts
Convergence
Journal
Special journals
Capital Maintenance in Units of Constant Purchasing Power
Cost of goods sold
Credit terms
Debits and credits
Double-entry system
Mark-to-market accounting
FIFO and LIFO
http://en.wikipedia.org/wiki/Accountancyhttp://en.wikipedia.org/wiki/Accountancyhttp://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Accrualhttp://en.wikipedia.org/wiki/Accrualhttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_of_accountinghttp://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_of_accountinghttp://en.wikipedia.org/wiki/Cash_flow_forecastinghttp://en.wikipedia.org/wiki/Cash_flow_forecastinghttp://en.wikipedia.org/wiki/Chart_of_accountshttp://en.wikipedia.org/wiki/Chart_of_accountshttp://en.wikipedia.org/wiki/Convergence_of_accounting_standardshttp://en.wikipedia.org/wiki/Convergence_of_accounting_standardshttp://en.wikipedia.org/wiki/General_journalhttp://en.wikipedia.org/wiki/General_journalhttp://en.wikipedia.org/wiki/Special_journalhttp://en.wikipedia.org/wiki/Special_journalhttp://en.wikipedia.org/wiki/Constant_purchasing_power_accountinghttp://en.wikipedia.org/wiki/Constant_purchasing_power_accountinghttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Trade_credithttp://en.wikipedia.org/wiki/Trade_credithttp://en.wikipedia.org/wiki/Debits_and_creditshttp://en.wikipedia.org/wiki/Debits_and_creditshttp://en.wikipedia.org/wiki/Double-entry_bookkeeping_systemhttp://en.wikipedia.org/wiki/Double-entry_bookkeeping_systemhttp://en.wikipedia.org/wiki/Mark-to-market_accountinghttp://en.wikipedia.org/wiki/Mark-to-market_accountinghttp://en.wikipedia.org/wiki/FIFO_and_LIFO_accountinghttp://en.wikipedia.org/wiki/FIFO_and_LIFO_accountinghttp://en.wikipedia.org/wiki/FIFO_and_LIFO_accountinghttp://en.wikipedia.org/wiki/Mark-to-market_accountinghttp://en.wikipedia.org/wiki/Double-entry_bookkeeping_systemhttp://en.wikipedia.org/wiki/Debits_and_creditshttp://en.wikipedia.org/wiki/Trade_credithttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Constant_purchasing_power_accountinghttp://en.wikipedia.org/wiki/Special_journalhttp://en.wikipedia.org/wiki/General_journalhttp://en.wikipedia.org/wiki/Convergence_of_accounting_standardshttp://en.wikipedia.org/wiki/Chart_of_accountshttp://en.wikipedia.org/wiki/Cash_flow_forecastinghttp://en.wikipedia.org/wiki/Comparison_of_cash_and_accrual_methods_of_accountinghttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Accrualhttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/Accountancy -
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GAAP/ IFRS
Management Accounting Principles
General ledger
Goodwill
Historical cost
Matching principle
Revenue recognition
Trial balance
Fields of accounting
Cost
Financial
Forensic
Fund
Management
Tax (U.S.)
Financial statements
Balance sheet
Cash flow statement
Income statement
Statement of retained earnings
Notes
http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)http://en.wikipedia.org/wiki/Management_Accounting_Principleshttp://en.wikipedia.org/wiki/Management_Accounting_Principleshttp://en.wikipedia.org/wiki/General_ledgerhttp://en.wikipedia.org/wiki/General_ledgerhttp://en.wikipedia.org/wiki/Goodwill_(accounting)http://en.wikipedia.org/wiki/Goodwill_(accounting)http://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Matching_principlehttp://en.wikipedia.org/wiki/Matching_principlehttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Financial_accountancyhttp://en.wikipedia.org/wiki/Financial_accountancyhttp://en.wikipedia.org/wiki/Forensic_accountinghttp://en.wikipedia.org/wiki/Forensic_accountinghttp://en.wikipedia.org/wiki/Fund_accountinghttp://en.wikipedia.org/wiki/Fund_accountinghttp://en.wikipedia.org/wiki/Management_accountinghttp://en.wikipedia.org/wiki/Management_accountinghttp://en.wikipedia.org/wiki/Tax_accounting_in_the_United_Stateshttp://en.wikipedia.org/wiki/Tax_accounting_in_the_United_Stateshttp://en.wikipedia.org/wiki/Financial_statementhttp://en.wikipedia.org/wiki/Financial_statementhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Statement_of_retained_earningshttp://en.wikipedia.org/wiki/Statement_of_retained_earningshttp://en.wikipedia.org/wiki/Notes_to_financial_statementshttp://en.wikipedia.org/wiki/Notes_to_financial_statementshttp://en.wikipedia.org/wiki/Notes_to_financial_statementshttp://en.wikipedia.org/wiki/Statement_of_retained_earningshttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Financial_statementhttp://en.wikipedia.org/wiki/Tax_accounting_in_the_United_Stateshttp://en.wikipedia.org/wiki/Management_accountinghttp://en.wikipedia.org/wiki/Fund_accountinghttp://en.wikipedia.org/wiki/Forensic_accountinghttp://en.wikipedia.org/wiki/Financial_accountancyhttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Trial_balancehttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Matching_principlehttp://en.wikipedia.org/wiki/Historical_costhttp://en.wikipedia.org/wiki/Goodwill_(accounting)http://en.wikipedia.org/wiki/General_ledgerhttp://en.wikipedia.org/wiki/Management_Accounting_Principleshttp://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States) -
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Management discussion and analysis
XBRL
Auditing
Auditor's report
Control self-assessment
Financial audit
GAAS/ISA
Internal audit
SarbanesOxley Act
Accounting qualifications
CIA
CA
AIA
CPA
CCA
CGA
CMA
CAT
AAT
CFE
http://en.wikipedia.org/wiki/Management_discussion_and_analysishttp://en.wikipedia.org/wiki/Management_discussion_and_analysishttp://en.wikipedia.org/wiki/XBRLhttp://en.wikipedia.org/wiki/XBRLhttp://en.wikipedia.org/wiki/Audithttp://en.wikipedia.org/wiki/Audithttp://en.wikipedia.org/wiki/Auditor%27s_reporthttp://en.wikipedia.org/wiki/Auditor%27s_reporthttp://en.wikipedia.org/wiki/Control_self-assessmenthttp://en.wikipedia.org/wiki/Control_self-assessmenthttp://en.wikipedia.org/wiki/Financial_audithttp://en.wikipedia.org/wiki/Financial_audithttp://en.wikipedia.org/wiki/Generally_Accepted_Auditing_Standardshttp://en.wikipedia.org/wiki/Generally_Accepted_Auditing_Standardshttp://en.wikipedia.org/wiki/International_Standards_on_Auditinghttp://en.wikipedia.org/wiki/International_Standards_on_Auditinghttp://en.wikipedia.org/wiki/International_Standards_on_Auditinghttp://en.wikipedia.org/wiki/Internal_audithttp://en.wikipedia.org/wiki/Internal_audithttp://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Acthttp://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Acthttp://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Acthttp://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Acthttp://en.wikipedia.org/wiki/Certified_Internal_Auditorhttp://en.wikipedia.org/wiki/Certified_Internal_Auditorhttp://en.wikipedia.org/wiki/Chartered_Accountanthttp://en.wikipedia.org/wiki/Chartered_Accountanthttp://en.wikipedia.org/wiki/Association_of_International_Accountantshttp://en.wikipedia.org/wiki/Association_of_International_Accountantshttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/Certified_General_Accountanthttp://en.wikipedia.org/wiki/Certified_General_Accountanthttp://en.wikipedia.org/wiki/Certified_Management_Accountanthttp://en.wikipedia.org/wiki/Certified_Management_Accountanthttp://en.wikipedia.org/wiki/Certified_Accounting_Technicianhttp://en.wikipedia.org/wiki/Certified_Accounting_Technicianhttp://en.wikipedia.org/wiki/Association_of_Accounting_Technicianshttp://en.wikipedia.org/wiki/Association_of_Accounting_Technicianshttp://en.wikipedia.org/wiki/Certified_Fraud_Examinerhttp://en.wikipedia.org/wiki/Certified_Fraud_Examinerhttp://en.wikipedia.org/wiki/Certified_Fraud_Examinerhttp://en.wikipedia.org/wiki/Association_of_Accounting_Technicianshttp://en.wikipedia.org/wiki/Certified_Accounting_Technicianhttp://en.wikipedia.org/wiki/Certified_Management_Accountanthttp://en.wikipedia.org/wiki/Certified_General_Accountanthttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/Association_of_International_Accountantshttp://en.wikipedia.org/wiki/Chartered_Accountanthttp://en.wikipedia.org/wiki/Certified_Internal_Auditorhttp://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Acthttp://en.wikipedia.org/wiki/Internal_audithttp://en.wikipedia.org/wiki/International_Standards_on_Auditinghttp://en.wikipedia.org/wiki/Generally_Accepted_Auditing_Standardshttp://en.wikipedia.org/wiki/Financial_audithttp://en.wikipedia.org/wiki/Control_self-assessmenthttp://en.wikipedia.org/wiki/Auditor%27s_reporthttp://en.wikipedia.org/wiki/Audithttp://en.wikipedia.org/wiki/XBRLhttp://en.wikipedia.org/wiki/Management_discussion_and_analysis -
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CICA
ACCA
CIMA
CGMA
V
T
E
International Financial Reporting Standards(IFRS) are designed as a common global language for
business affairs so that company accounts are understandable and comparable across international
boundaries. They are a consequence of growing international shareholding and trade and are particularly
important for companies that have dealings in several countries. They are progressively replacing the many
different national accounting standards. The rules to be followed by accountants to maintain books of accounts
which is comparable, understandable, reliable and relevant as per the users internal or external.
IFRS began as an attempt to harmonise accounting across the European Union but the value of harmonisation
quickly made the concept attractive around the world. They are sometimes still called by the original name
of International Accounting Standards(IAS). IAS were issued between 1973 and 2001 by the Board of
theInternational Accounting Standards Committee(IASC). On 1 April 2001, the newInternational Accounting
Standards Boardtook over from the IASC the responsibility for setting International Accounting Standards.
During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards
(SICs). The IASB has continued to develop standards calling the new standards International Financial
Reporting Standards(IFRS).
In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must
use its judgement in developing and applying an accounting policy that results in information that is relevant
and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition
criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework.
Contents
[hide]
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1 Objective of financial statements
2 Qualitative characteristics of financial statements
3 Elements of financial statements (IAS 1 article 10)
4 Recognition of elements of financial statements
5 Measurement of the elements of financial statements
6 Concepts of capital and capital maintenance
7 Concepts of capital
o 7.1 Concepts of capital maintenance and the determination of profit
8 Requirements of IFRS
9 Adoption of IFRS
o 9.1 Australia
o 9.2 Canada
o 9.3 European Union
o 9.4 India
o 9.5 Japan
o 9.6 Montenegro
o 9.7 Pakistan
o 9.8 Russia
o 9.9 Singapore
o 9.10 South Africa
o 9.11 Taiwan
o 9.12 Turkey
10 List of International Financial Reporting Standards
11 See also
12 References
13 Further reading
14 External links
Objective of financial statements[edit]
A financial statement should reflect a true and fair view of the business affairs of the organization. As
statements are used by various constituents of the society / regulators, they need to reflect a true view of the
financial position of the organization, and they are very helpful to check the financial position of the business for
a specific period.
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IFRS authorize three basic accounting models:
I. Current Cost Accounting, under Physical Capital Maintenance at all levels of inflation and deflation under
the Historical Cost paradigm as well as the Capital Maintenance in Units of Constant Purchasing Power
paradigm. (See the Conceptual Framework, Par. 4.59 (b).)
II. Financial Capital Maintenance in Nominal Monetary Units, i.e., globally implementedHistorical cost
accountingduring low inflation and deflation only under the traditional Historical Cost paradigm. (See the
original Framework (1989), Par 104 (a)) [now Conceptual Framework (2010), Par. 4.59 (a)]
III. Financial Capital Maintenance in Units of Constant Purchasing Power,[5]CMUCPPin terms of
aDaily Consumer Price Indexor daily rate at all levels of inflation and deflation (see the original Framework
(1989), Par 104 (a)) [now Conceptual Framework (2010), Par. 4.59 (a)] under the Capital Maintenance in Units
of Constant Purchasing Power paradigm.
The following are the three underlying assumptions in IFRS:
1.Going concern:an entity will continue for the foreseeable future under the Historical Cost paradigm as
well as under the Capital Maintenance in Units of Constant Purchasing Power paradigm. (See Conceptual
Framework, Par. 4.1)
2.Stable measuring unit assumption:financial capital maintenance innominal monetary unitsor
traditionalHistorical cost accountingonly under the traditional Historical Cost paradigm; i.e., accountants
consider changes in the purchasing power of the functional currency up to but excluding 26% per annum
for three years in a row (which would be 100% cumulative inflation over three years or hyperinflation as
defined in IAS 29) as immaterial or not sufficiently important for them to choose Capital Maintenance
inunits of constant purchasing powerin terms of a Daily Consumer Price Index or daily rate [Capital
Maintenance in Units of Constant Purchasing Power] at all levels of inflation and deflation as authorized in
IFRS in the original Framework(1989), Par 104 (a) [now Conceptual Framework (2010), Par. 4.59 (a)].
Accountants implementing the stable measuring unit assumption (traditional Historical Cost Accounting) during
annual inflation of 25% for 3 years in a row would erode 100% of the real value of allconstant real value non-
monetary itemsnot maintained constant under the Historical Cost paradigm.
3.Units of constant purchasing power:Capital Maintenance in Units of Constant Purchasing Power at
all levels of inflation and deflation - including during hyperinflation as required in IAS 29 - in terms of a
Daily Consumer Price Index or daily rate[6]only under the Capital Maintenance in Units of Constant
Purchasing Power paradigm; i.e. the total rejection of the stable measuring unit assumption at all levels of
inflation and deflation. See The Framework (1989), Paragraph 104 (a) [now Conceptual Framework
(2010), Par. 4.59 (a)]. Capital Maintenance in Units of Constant Purchasing Power in terms of a Daily
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Consumer Price Index or daily rate of all constant real value non-monetary items in all entities that at least
break even in real value at all levels of inflation and deflation - ceteris paribus - remedies for an indefinite
period of time the erosion caused by Historical Cost Accounting of the real values of constant real value
non-monetary items never maintained constant as a result of the implementation of the stable measuring
unit assumption at all levels of inflation and deflation under HCA.
It is not inflation doing the eroding. Inflation and deflation have no effect on the real value of non-monetary
items.[1]It is the implementation of the stable measuring unit assumption, i.e., traditional HCA, which erodes the
real value of constant real value non-monetary items never maintained constant in a double entry basic
accounting model.
Constant real value non-monetary items are non-monetary items with constant real values over time whose
values within an entity are not generally determined in a market on a daily basis.
Examples include borrowing costs, comprehensive income, interest paid, interest received, bank charges,
royalties, fees, short term employee benefits, pensions, salaries, wages, rentals, all other income statement
items, issued share capital, share premium accounts, share discount accounts, retained earnings, retained
losses, capital reserves, revaluation surpluses, all accounted profits and losses, all other items in shareholders
equity, trade debtors, trade creditors, dividends payable, dividends receivable, deferred tax assets, deferred tax
liabilities, all taxes payable, all taxes receivable, all other non-monetary payables, all other non-monetary
receivables, provisions, etc.
All constant real value non-monetary items are always and everywhere measured in units of constant
purchasing power at all levels of inflation (including during hyperinflation) and deflation under CMUCPP in
terms of a Daily CPI or daily rate under the Capital Maintenance in Units of Constant Purchasing Power
paradigm. The constant purchasing power gain or loss is calculated when current period constant items are not
measured in units of constant purchasing power.
Monetary items constitute the money supply.
Examples of units of money held are bank notes and coins of the fiat currency created within an economy by
means of fractional reserve banking. Examples of items with an underlying monetary nature which are
substitutes for money held include the capital amount of: bank loans, bank savings, credit card loans, car loans,
home loans, student loans, consumer loans, commercial and government bonds, Treasury Bills, all capital and
money market investments, notes payable, notes receivable, etc. when these items are not in the form of
money held.
Historic and current period monetary items are required to be inflation-adjusted on a daily basis in terms of a
daily index or rate under the Capital Maintenance in Units of Constant Purchasing Power paradigm. The net
monetary loss or gain as defined in IAS 29 is required to be calculated and accounted when they are not
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inflation-adjusted on a daily basis during the current financial period. Inflation-adjusting the total money supply
(excluding bank notes and coins of the fiat functional currency created by means of fractional reserve banking
within an economy) in terms of a daily index or rate under complete co-ordination would result in zero cost of
inflation (not zero inflation) in only the entire money supply (as qualified) in an economy.
Variable real value non-monetary items are non-monetary items with variable real values over time. Examples
include quoted and unquoted shares, property, plant, equipment, inventory, intellectual property, goodwill,
foreign exchange, finished goods, raw material, etc.
Current period variable real value non-monetary items are required to be measured on a daily basis in terms of
IFRS excluding the stable measuring unit assumption under the Capital Maintenance in Units of Constant
Purchasing Power paradigm. When they are not valued on a daily basis, then they as well as historic variable
real value non-monetary items are required to be updated daily in terms of a daily rate as indicated above.
Current period impairment losses in variable real value non-monetary items are required to be treated in terms
of IFRS. They are constant real value non-monetary items once they are accounted. All accounted losses and
profits are constant real value non-monetary items.
Under the Capital Maintenance in Units of Constant Purchasing Power paradigm daily measurement is
required of all items in terms of
(a) a Daily Consumer Price Index or monetized daily indexed unit of account, e.g. the Unidad de Fomento in
Chile, during low inflation, high inflation and deflation and
(b) in terms of a relatively stable foreign currency parallel rate (normally the US Dollar daily parallel rate) or a
Brazilian-style Unidade Real de Valor daily index during hyperinflation. Hyperinflation is defined in IAS 29 as
cumulative inflation equal to or approaching 100 per cent over three years, i.e. 26 per cent annual inflation for
three years in a row.
Qualitative characteristics of financial statements[edit]
Qualitative characteristics of financial statements include:
Relevance (Materiality)
Faithful representation
Enhancing qualitative characteristics include:
Comparability
Verifiability
Timeliness
Understandability
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Elements of financial statements (IAS 1 article 10)[edit]
The financial position of an enterprise is primarily provided in theStatement of Financial Position.The
elements include:
Asset:An asset is a resource controlled by the enterprise as a result of past events from which future
economic benefits are expected to flow to the enterprise.
Liability:A liability is a present obligation of the enterprise arising from the past events, the settlement
of which is expected to result in an outflow from the enterprise' resources, i.e., assets.
Equity:Equity is the residual interest in the assets of the enterprise after deducting all the liabilities
under the Historical Cost Accounting model. Equity is also known as owner's equity. Under the units of
constant purchasing power model equity is the constant real value of shareholders equity.
The financial performance of an enterprise is primarily provided in theStatement of Comprehensive
Income(income statementor profit and loss account). The elements of an income statement or the
elements that measure the financial performance are as follows:
Revenues:increases in economic benefit during an accounting period in the form of inflows or
enhancements of assets, or decrease of liabilities that result in increases in equity. However, it does
not include the contributions made by the equity participants, i.e., proprietor, partners and
shareholders.
Expenses:decreases in economic benefits during an accounting period in the form of outflows, or
depletions of assets or incurrences of liabilities that result in decreases in equity.
Revenues and expenses are measured innominal monetary unitsunder theHistorical Cost
Accountingmodel and inunits of constant purchasing power(inflation-adjusted)under theUnits of
Constant Purchasing Powermodel.
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Recognition of elements of financial statements[edit]
An item is recognized in the financial statements when:
it is probable future economic benefit will flow to or from an entity.
the resource can be reliably measuredotherwise the stable measuring unit assumption is applied
under the Historical Cost Accounting model: i.e. it is assumed that the monetary unit of account (the
functional currency) is perfectly stable (zero inflation or deflation); it is simply assumed that there is no
inflation or deflation ever, and items are stated at their original nominal Historical Cost from any prior
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date: 1 month, 1 year, 10 or 100 or 200 or more years before; i.e. the stable measuring unit
assumption is applied to items such as issued share capital, retained earnings, capital reserves, all
other items in shareholders equity, all items in the Statement of Comprehensive Income (except
salaries, wages, rentals, etc., which are inflation-adjusted annually), etc.
Under the Capital Maintenance in Units of Constant Purchasing Power (CMUCPP) model, all constant real
value non-monetary items are measured in units of constant purchasing power in terms of a daily index at
all levels of inflation and deflation; i.e. all items in the Statement of Comprehensive Income, all items in
shareholders equity, Accounts Receivables, Accounts Payables, all non-monetary payables, all non-
monetary receivables, provisions, etc.
Measurement of the elements of financial statements[edit]
Par. 99. Measurement is the process of determining the monetary amounts at which the elements of the
financial statements are to be recognized and carried in the balance sheet and income statement. Thisinvolves the selection of the particular basis of measurement.
Par. 100. A number of different measurement bases are employed to different degrees and in varying
combinations in financial statements. They include the following:
(a) Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of
the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the
amount of proceeds received in exchange for the obligation, or in some circumstances (for example,
income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the
normal course of business.
(b) Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if
the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount
of cash or cash equivalents that would be required to settle the obligation currently.
(c) Realisable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could
currently be obtained by selling the asset in an orderly disposal. Assets are carried at the present
discounted value of the future net cash inflows that the item is expected to generate in the normal course
of business. Liabilities are carried at the present discounted value of the future net cash outflows that are
expected to be required to settle the liabilities in the normal course of business.
Par. 101. The measurement basis most commonly adopted by entities in preparing their financial
statements is historical cost. This is usually combined with other measurement bases. For example,
inventories are usually carried at the lower of cost and net realisable value, marketable securities may be
carried at market value and pension liabilities are carried at their present value. Furthermore, some entities
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use the current cost basis as a response to the inability of the historical cost accounting model to deal with
the effects of changing prices of non-monetary assets.
Concepts of capital and capital maintenance[edit]
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Concepts of capital[edit]
Par. 102. A financial concept of capital is adopted by most entities in preparing their financial statements.
Under a financial concept of capital, such as invested money or invested purchasing power, capital is
synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as
operating capability, capital is regarded as the productive capacity of the entity based on, for example,
units of output per day.
Par. 103. The selection of the appropriate concept of capital by an entity should be based on the needs of
the users of its financial statements. Thus, a financial concept of capital should be adopted if the users of
financial statements are primarily concerned with the maintenance of nominal invested capital or the
purchasing power of invested capital. If, however, the main concern of users is with the operating
capability of the entity, a physical concept of capital should be used. The concept chosen indicates the
goal to be attained in determining profit, even though there may be some measurement difficulties in
making the concept operational.
Concepts of capital maintenance and the determination of profit[edit]
Par. 104. The concepts of capital in paragraph 102 give rise to the following two concepts of capital
maintenance:
(a) Financial capital maintenance. Under this concept a profit is earned only if the financial (or money)
amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at
the beginning of the period, after excluding any distributions to, and contributions from, owners during the
period. Financial capital maintenance can be measured in eithernominal monetary unitsorunits of
constant purchasing power.
(b) Physical capital maintenance. Under this concept a profit is earned only if the physical productive
capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity)
at the end of the period exceeds the physical productive capacity at the beginning of the period, after
excluding any distributions to, and contributions from, owners during the period.
The concepts of capital in paragraph 102 give rise to the following three concepts of capital during low
inflation and deflation:
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(A) Physical capital.[2]See paragraph 102&103
(B) Nominal financial capital.[2]See paragraph 104.[3]
(C) Constant item purchasing power financial capital.[2]See paragraph 104.[4]
The concepts of capital in paragraph 102 give rise to the following three concepts of capital maintenance
during low inflation and deflation:
(1) Physical capital maintenance:[2]optional during low inflation and deflation. Current Cost
Accounting model prescribed by IFRS. See Par 106.
(2) Financial capital maintenance innominal monetary units(Historical cost
accounting):[2]authorized by IFRS but not prescribedoptional during low inflation and deflation. See
Par 104 (a)Historical cost accounting.Financial capital maintenance innominal monetary unitsper se
during inflation and deflation is afallacy:it is impossible to maintain the real value of financial capital
constant with measurement in nominal monetary units per se during inflation and deflation.
(3) Financial capital maintenance inunits of constant purchasing power[2](Capital Maintenance
in Units of Constant Purchasing Power):[5]authorized by IFRS but not prescribedoptional during low
inflation and deflation. See Par 104(a). Capital Maintenance in Units of Constant Purchasing Power is
prescribed during hyperinflation in IAS 29:[6]i.e. the restatement of Historical Cost or Current Cost
period-end financial statements in terms of the period-end monthly published Consumer Price
Index.[7]Only financial capit