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.

Accounting and Finance

Bahawalpur, Punjab 63100

Phone: +923458883839 URL of Map

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.