International Accounting Standards ( IAS )

What is IAS

IAS stands for International Accounting Standard. IAS’s are Financial Reporting Standards issued by the IASB, which is a UK based Financial Reporting Standard setting body.

History of IAS

In the 1960s, due to the globalization and an increase in cross border investments, Listed companies in the UK are required to prepare their Financial Statements using Inernational Reporting Standards.There was a need for international cooperation to build a mutually agreed Financial Reporting Standards, so that, the Financial Information reported through Financial Statements can be recognized internationally.

A study group was formed to get into this problem and find a better way to salve to issue. This group comprises of the ICAEW from UK, AICPA from USA and CICA from Canada. This resulted in the formation of Accountants International Study Group ( AISG ). In 1973 it was agreed that an international body must be formed which is given the responsibility to issue Accounting Standards. Therefore IASC has come into existence for this purpose.

The IASC served a great period of 27 years and then restructured and replaced by IASB in 2001. The Financial reporting standards issued by IASC are named IAS. IASC has published 41 IAS in its survival which are listed below.

IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 3 Consolidated Financial Statements ( Superseded by IAS 27 and IAS 28 )
IAS 4 Depreciation Accounting ( Withdrawn in 1999 )
IAS 5 Information to be Disclosed in Financial Statements ( Superseded in 1998 by IAS 1 )
IAS 6 Accounting Responses to Changing Prices ( Withdrawn in 2003 )
IAS 7 Statement of Cash Flows
IAS 8 Accounting Policies, Change in Accounting Estimates and Errors
IAS 9 Accounting for Research and Development Activities ( Superseded in 1999 by IAS 39 )
IAS 10 Events After the Reporting Period
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 13 Presentation of Current Assets and Current Liabilities( Superseded in 1998 by IAS 39 )
IAS 14 Segment Reporting ( Superseded in 2009 by IFRS 8)
IAS 15 Information Reflecting the Effects of Changing Prices ( Withdrawn in 2003 )
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefit ( Superseded in 2013 by IAS 19 )
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
IAS 21 Effects of Changes in Foreign Exchange Rates
IAS 22 Business Combinations ( Superseded in 2004 by IFRS 3 )
IAS 23 Borrowing Costs
IAS 24 Releted Party Disclosure
IAS 25 Accounting for Investments ( Superseded in 2001 by IAS 39 and IAS 40 )
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Separate Financial Statements
IAS 28 Investments in Associates and Joint Ventures
IAS 29 Financial Reporting In Hyperinflationary Economies
IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions             ( Superseded in 2007 by IFRS 7 )
IAS 31 Interests in Joint Ventures ( Superseded in 2013 by IFRS 11 and IFRS 12 )
IAS 32 Financial Instruments: Presentation
IAS 33 Earning Per Share
IAS 34 Interim Financial Reporting
IAS 35 Discontinuing Operations ( Superseded in 2005 by IFRS 5 )
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement ( Superseded by IFRS 9           effective from 2015 )
IAS 40 Investment Property
IAS 41 Agriculture

Some of the IAS are Withdrawn or Superseded by more latest and revised IAS and IFRS. All the IAS, excluding those withdrawn are applicable to the Entities using IAS.
From 2001, after IASC restructured and replaced by the IASB, the International Financial Reporting Standards that are Issued by IASB are named IFRS.

What is Accounting Standards or Financial Reporting Standards?

Definition

Accounting Standards or financial reporting standards are the standards, established and improved by the responsible bodies, enforceable by authorities, to provide consistency and comparability in preparation of Financial Statements.

Responsible Bodies

Financial Reporting Standards are issued by Standards Issuing Bodies, Such as IASB and FASB. These Bodies have Standard Setting Process and Framework for the Review of existing Standards and Development of future Standards.

Enforcement Agencies

Although Accounting Standards are not of a mandatory nature but, some authorities such as IOSCO regulate proper implementation of Accounting Standards.

Consistency

Accounting systems and standards should be applied consistently so that the user of the Financial Statements can compare the Financial Performance of the entity over time.

Comparability

The financial Statements should be prepared in such a manner that the users of the financial statement can compare the financial Performance of companies operating in domestic country and companies operating in any foreign country.

Major Financial Reporting Standards

International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are the most widely used Financial Reporting Standards.

International Financial Reporting Standards

IFRS are issued by International Accounting Standards Board (IASB) which is an independent Accounting Standards Setter body, having head office located in London, United Kingdom. Until September 2013, Thirteen (13) IFRS are issued by IASB.

International Accounting Standards

IAS’s is the previous name for Accounting Standards issued by IASB, from 2001 the name of Standards issued by IASB are IFRS. Up to 2001, Forty one (41) IAS’s were issued.

Generally Accepted Accounting Principles

Refer to the standard framework and guidelines for Financial Reporting Used in any given jurisdiction. These include the standards, conventions, and rules that accountants follow in the preparation of Financial Statements. In fact GAAP is the local accounting standards which every country has developed over time to regulate its local Financial Reporting. Therefore there are many GAAP’s present in the world. Some of the GAAP are.

Generally Accepted Accounting Principles (United States)
Generally Accepted Accounting Principles (United Kingdom)
Generally Accepted Accounting Principles (Canada)
Generally Accepted Accounting Principles (France)

Benefits of Financial Reporting Standards

Adoption of Financial Reporting Standards ensures that the Financial Statements of different entities are prepared on the same basis; this aid in comparing the Financial Statements of different entities.

Global Trend to Adopt IFRS

Due to Globalization, international Trade and Investment across borders, there is a leading trend in countries to adopt IFRS. Major economies of the world like USA, are working on international harmonization projects to shift its Financial Reporting Framework from GAAP to IFRS. There are more than 115 countries that are using IFRS in their Financial Reporting and the trend is increasing.

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Example of Statement of Cash Flows and Statement of Changes in Equity

3) Statement of Cash Flows

The cash flow statement reports the cash generated and used during the time interval specified in its heading. The period of time that the statement covers is chosen by the Entity. For example, the heading may state "For the Three Months Ended December 31, 2013" or "The Year Ended September 30, 2013". It has four (4) Parts.

a)Cash Flows from Operating Activities.
b)Cash Flows from Investing Activities.
c)Cash Flows from Financing Activities.
d)Reconciliation of cash and cash Equivalents.

Example of Statement of Cash Flows

Brief Description

Note 1:- Name of the Entity Reporting.
Note 2:- Name of the Financial statement.
Note 3:- The Date at which Cash flow position of the entity is reporting.
Note 4:- Year to which data is related to.
Note 5:- Part a) Cash Flow from major operating activities of the Entity.
Note 6:- Profit before Tax as reported in Income Statement.
Note 7:- Depreciation Charged this year.
Note 8:- Any Gain/Loss on Disposal of Property.
Note 9:- Any Gain/Loss on Sale of Subsidy.
Note 10:- Share of Associates Profit.
Note 11:- Finance Cost relating to Loan etc..
Note 12:- Operating Profit before Working capital changes.
Note 13:- Increase/Decrease in Inventory.
Note 14:- Increase/Decrease in Trade Receivables.
Note 15:- Increase/Decrease in Trade Payables.
Note 16:- Finance Cost Actually paid this year.
Note 17:- Tax paid.
Note 18:- Net Cash Flows from Operating Activities of the Entity.
Note 19:- Left blank deliberately.
Note 20:- Part b) Cash Flows from Investing Activities.
Note 21:- Proceeds of any Sale of property.
Note 22:- Cash Paid for Purchase of Property Plant & Equipment.
Note 23:- Dividend Received from Associates this year.
Note 24:- Net Cash Flows from Investing Activities.
Note 25:- Left blank deliberately.
Note 26:- Part c) Cash Flows from Financing Activities.
Note 27:- Cash Paid as a Repayment of Finance Lease.
Note 28:- Proceeds of Issue of Shares this year.
Note 29:- Dividend Paid to Stockholders of Parent entity this year.
Note 30:- Dividend Paid to Non-Controlling Interest this year.
Note 31:- Net Cash Flows from Financing Activities of the Entity.
Note 32:- Left blank deliberately.
Note 33:- Net of Part a, b, and c of the statement.
Note 34:- Left blank deliberately.
Note 35:- Closing Cash & Cash Equivalent of the previous year’s Balance Sheet.
Note 36:- Closing Cash & Cash Equivalent as reported in Balance Sheet of the relevant year.
Note 37:- Net Change in Cash & Cash equivalents.

4) Statement of Changes in equity.

The Statement of changes in Equity represents changes to equity arising from transections with owners in their capacity as owners, in particular; Issue of Shares, Dividends.

Example of Statement of Changes in Equity

Brief Description

Note 1:- Name of the Entity Reporting.
Note 2:- Name of the Financial statement.
Note 3:- The Date at which Reserves of the entity are reporting.
Note 4:- Different Columns showing Reserves of the entity.
Note 5:- Deliberately left blank.
Note 6:- Balance at beginning of the Reporting period.
Note 7:- Change in Reserves Due to any Change in Accounting Policy.
Note 8:- Balance Restated after account for Changes in Accounting Policy.
Note 9:- From Now, Changes in Equity for the Year are account for.
Note 10:- Dividends Declared during the year.
Note 11:- Proceeds from Issue of shares this year.
Note 12:- Current Year’s Income Transfer to Retained Earnings.
Note 13:- Closing balances of Reserves of the Entity.
Note 14:- Deliberately left blank.

Example of Statement Of Financial Position and Statement of Comprehensive income

Financial Statements

Financial Statements are the product of accounting. Through systematic process, the financial data is presented in a meaningful manner, in the shape of financial statements. Financial Statements represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company.
There are many types of Financial Statements but normally the financial statements produced at the end of the fiscal year are concerned.

1)Statement of Financial Position or Balance Sheet.
2)Statement of Comprehensive Income or Income Statement.
3)Statement of Cash Flows
4)Statement of Changes in equity

1) Statement of Financial Position or Balance Sheet

It represents the financial position of the entity at a given date, normally at the last day of the fiscal year.

Brief Description

Note 1:- Name of the Entity reporting.
Note 2:- Name of the Financial Statement.
Note 3:- The Date at which Financial Position of the entity is reporting.
Note 4:- Year to which data is related to.
Note 5:- The Broad Category of Balance Sheet “ASSETS”.
Note 6:- Sub category of ASSETS.
Note 7:- Financial Values of PP&E at the Reporting Dates.
Note 8:- Financial Values of Goodwill at the Reporting Dates.
Note 9:- Total of Non-Current Assets.
Note 10:- Sub category of ASSETS.
Note 11:- Financial Values of Inventories at the Reporting Dates.
Note 12:- Financial Values of Trade Receivables at the Reporting Dates.
Note 13:- Cash at Bank and in hand at the Reporting Dates.
Note 14:- Total of Sub Category Current Assets.
Note 15:- Deliberately left blank.
Note 16:- Total Value of Broad Category ASSETS.
Note 17:- Deliberately left blank.
Note 18:- Broad Category Shareholder’s Equity and Liabilities of the Entity.
Note 19:- Sub-Category of Shareholder’s Equity and Liabilities of the Entity.
Note 20:- Financial Values of Issues Share Capital at the Reporting Dates.
Note 21:- Financial Values of Share Premium at the Reporting Dates.
Note 22:- Financial Values of Reserves at the Reporting Dates.
Note 23:- Financial Values of Retained earnings at the Reporting Dates.
Note 24:- Total of Sub Category Capital and Reserves.
Note 25:- Sub category of Equity and Liabilities.
Note 26:- Financial Values of Loans at the Reporting Dates.
Note 27:- Total of the Sub Category Non-Current Liabilities.
Note 28:- Sub-Category of Shareholder’s Equity and Liabilities of the Entity.
Note 29:- Financial Values of Trade Payables at the Reporting Dates.
Note 30:- Total of the Sub Category Non-Current Liabilities.
Note 31:- Total of Broad category Equity and Liabilities.
Note 32:- Deliberately Left Blank.

2) Statement of Comprehensive Income or Income Statement.

It represents the Financial Performance of the entity over a period of time, normally One year.
We discuss by using an example.

Brief Description

Note 1:- Name of the entity reporting.
Note 2:- Name of the Financial Statement.
Note 3:- The Date at which Financial Position of the entity is reporting.
Note 4:- Year to which data is related to.
Note 5:- Gross Revenue of the Entity.
Note 6:- Cost of goods sold.
Note 7:- Sale Revenue - Cost of Goods Sold.
Note 8:- Other Income Related to other major operations of the entity.
Note 9:- Distribution cost for the year.
Note 10:- Administrative Expenses for the year.
Note 11:- Expenses Related to other major operations of the entity.
Note 12:- Profit from major operations of the entity.
Note 13:- Finance Cost for the year relating to Loan etc.
Note 14:- Share of profit from associate, if any.
Note 15:- Profit before Tax.
Note 16:- Income Tax Expense for the Year.
Note 17:- Profit For the Year.
Note 18:- Income from non-operating activities of the entity.
Note 19:- Income/loss from Available for Sale financial Assets.
Note 20:- Gain/loss on Any Cash Flow Hedge.
Note 21:- Gain on Revaluation of Property.
Note 22:- Any Actuarial Gain/loss.
Note 23:- Share of Other Comprehensive income of Associate.
Note 24:- Income Tax relating to Share of Other Comprehensive income of Associate.
Note 25:- Net Other Comprehensive income.
Note 26:- Total Comprehensive income for the year.
Note 27:- Left Blank Deliberately.

What is Accounting and How it hepls us!

Definition

Accounting is a systematic process of identifying, classifying, measuring, summarizing and communication of financial data.

All the profit seeking and non-profit seeking business and organizations make use of financial resources to operate. There is a need to show at any point in time the situation of the financial resources, financial performance, any profit or loss and the assets and liabilities of the organization. But how this is summarized and presented to the interested parties.

Accounting comes into action and solves this problem. As stated in definition it is a systematic process, by which financial data is identified, classified, measured, summarize and communicated to the interested parties in a proper manner. To make it more clear every aspect of the definition is explained. Given below you will find all those steps which are include in accounting definition:

Systematic Process.

It means rational, not arbitrary. Accounting did use a defined way to process financial transactions.

Identifying

It means detecting financial transactions.

Classifying

It means differentiating and grouping the financial transactions to their relevant group under defined headings.

Measuring

To allocate correct financial value to all the financial transactions.

Summarizing

To convert all the financial information to a short form so that all the relevant information is provided and irrelevant information is omitted.

Communicating

Presenting financial data to the users, in a meaningful manner.

Financial Statements are the product of Accounting system. And it is only possible through Accounting that the a large number financial transactions are presented in standardized and summarized manner, in the shape of Financial Statement, so that the internal and external users of the financial statements finds the relevant, reliable and easy to understand information for their decisions.