q Assim Hand Out

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International Financial Reporting Standards

The views expressed in this presentation are those of the presenter,

not necessarily those of the IFRS Foundation or the IASB

IFRS Foundation

International Financial

Reporting Standards:framework-based

understanding and teaching

© 2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org

Guillermo Braunbeck, Project Manager, Education Initiative, IASB

Outline

• Why global standards?

• The progress

• Structure and governance

• Understanding principle-based standards

2


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IFRS Foundation

Why global standards?

The reality

• Capital markets are global – New York, London, Luxemburg, Hong Kong, Singapore

• World’s economies are interdependent

– the financial crisis

– SMEs integrated into the global economy

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Benefits of global standards

• Efficient allocation of capital globally

– attracting investment through transparency

– reducing the cost of capital

– increasing world-wide investment

• Reducing costs and increased efficiency

– facilitates standardising information systems

– eliminates wasteful reconciliations

– audit efficiencies

– education and training

5



Th


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Status of IFRSs use around the world

Since 2001, over 120 countries have required or

permitted the use of IFRSs.

Remaining major economies have time lines toconverge with or adopt IFRSs in the near future.

Next wave of new joiners in 2011/2012: Argentina,

Canada, Mexico, South Korea, etc

Japan: IFRS permitted for a number of international

companies since 2010; decision about mandatory

adoption around 2012.


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88

More than 100 countries require or permit the use of International Financial Reporting Standards (IFRSs),or are converging with the IASB’s standards.


THE MOMENTUM TOWARDS GLOBAL ADOPTION OF IFRSs

The World is Getting Smaller


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Fortune Global 500 (July 2009)

© 2009 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org

9

Fortune G500 Based on

announced plans

Which GAAP? 2009 2013 Japan 2015?

IFRSs and word-for-word

IFRS equivalents 190 245 310

US GAAP 155 155 140

National GAAPs 155 100 50

Total 500 500 500


Structure and


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The vision

…one single set of high

quality global standards..

..used on the global

capital markets.

11

Structure of IFRS Foundation 12

IFRSInternational

IFRS Interpretations

The standard-setting operation

IFRS Foundation TrusteesInternationalMonitoring

Board


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Consultation process


13

Discussion

paper

Exposure

Draft

Final

standardComment

analysis

Comment

analysis

Research:

Standard

setters,

EFRAG, and

others.

Effective

date

9 – 15

months

9 – 15

months12 –18

months

Additional

input

Additional

input

Feedback

statement

2 year post

implementationreview


Understanding principle-b d t d d


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15What does principle-based mean?

• There is overwhelming support for principle-

based accounting standards

• But what does principle-based mean?

• In this presentation

– an IFRS requirement is principle-based only when

it is consistent with the concepts in the IASB’s

Conceptual Framework

15

Role of the Conceptual Framework

• Conceptual Framework sets out agreed concepts thatunderlie financial reporting

– objective, qualitative characteristics, element definitions, …

• IASB uses Conceptual Framework to set standards


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17

17Objective of financial reporting

Provide financial information about the reportingentity that is useful to existing and potentialinvestors, lenders and other creditors in making

decisions about providing resources to the entity

Note:

• other aspects of the Conceptual Framework flowlogically from the objective (CF.OB1)

• Conceptual Framework sets out the concepts that

underlie IFRS financial statements and assist theIASB in the development of future IFRSs and in itsreview of existing IFRSs (CF.Purpose and Status)

© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


• Investors’, lenders’ and other creditors’ expectationsabout returns depend on their assessment of the

amount, timing and uncertainty of (the prospects

for) future net cash inflows to the entity.

– Decisions by investors about buying, selling or holding equity


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• To assess an entity’s prospects for future net cash

inflows, existing and potential investors, lenders and

other creditors need information about:

– the resources of the entity;

– claims against the entity; and

– how efficiently and effectively the entity's management

and governing board have discharged their

responsibilities to use the entity's resources

– eg protecting the entity's resources from unfavourable effects

of economic factors such as price and technological changes


20Qualitative characteristics

• If financial information is to be useful, it must berelevant and faithfully represent what it purports torepresent (ie fundamental qualities).

– Financial information without both relevance and faithfulrepresentation is not useful, and it cannot be made useful bybeing more comparable, verifiable, timely or understandable.


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21

21Fundamental qualitative characteristics

• Relevance: capable of making a difference in users’

decisions

– predictive value

– confirmatory value

– materiality (entity-specific)

• Faithful representation: faithfully represents the

phenomena it purports to represent

– completeness (depiction including numbers and words)

– neutrality (unbiased)

– free from error (ideally)

Note: faithful representation replaces reliability


22Enhancing Qualitative Characteristics

• Comparability : like things look alike; different thingslook different

• Verifiability : knowledgeable and independent

observers could reach consensus, but not

necessarily complete agreement, that a depiction is


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232323Pervasive constraint

• Reporting financial information imposes costs, and it is

important that those costs are justified by the benefits of

reporting that information.

• Benefits include more efficient functioning of capital markets and a

lower cost of capital for the economy.

• Costs include collecting, processing, verifying and disseminating

financial information and the costs of analysing and interpreting the

information provided.

• In applying the cost constraint, the IASB assesses whether

the benefits of reporting particular information are likely to

justify the costs incurred to provide and use that information.Those assessments are usually based on a combination of

quantitative and qualitative information.


242424Summary

• Reporting financial information that is relevant andfaithfully represents what it purports to representhelps users to make decisions with moreconfidence (ie financial information must possessthe fundamental qualitative characteristics).


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25

25Elements

• Asset : Resource controlled as a result of past events and

from which future economic benefits are expected to flow

• Liability : Present obligation arising from past events, the

settlement of which is expected to result in outflow ofresources embodying economic benefits

• Equity : Assets minus liabilities

• Income (expense): Increases (decreases) in economic

benefits during period from inflows or enhancements

(outflows or depletions) of assets (liabilities) or decreases

(incurrences) of liabilities from in increases (decreases) in

equity, other than contributions from (distributions to) equity


26Recognition

• Accrual basis of accounting

– recognise element (eg asset) when satisfy

definition and recognition criteria

• Recognise item that meets element definition when


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27Recognition

What does probable mean?

The meaning of probable is determined at thestandards level. Therefore, inconsistent useacross IFRSs

What does measure reliably mean?

To a large extent, financial reports are based onestimates, judgements and models rather thanexact depictions.


Measurement concepts 28

• Measurement is the process of determining monetaryamounts at which elements are recognised and

carried. (CF.4.54)

• To a large extent, financial reports are based on

estimates judgements and models rather than exact


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29

Presentation and disclosure

• Objective of financial reporting

• Presentation: financial statements portray financial

effects of transactions and events by:

– grouping into broad classes (the elements, eg asset)

– sub-classify elements (eg assets sub-classified by their

nature or function in the business)

• IAS 1

– application of IFRSs with additional disclosures whennecessary results in a fair presentation (faithful

representation of transactions, events and conditions)

– don’t offset assets & liabilities or income & expenses© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Quiz:Conceptual Framework


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31

Quiz: purpose of the Conceptual

Framework for Financia l Report ing

Question 1: The purpose of the ConceptualFramework for Financia l Report ing is:

a. to assist the IASB in setting IFRSs?b. to assist preparers of financialstatements in applying IFRSs?

c. to assist auditors in forming an opinionon whether financial statementscomply with IFRSs?

d. to assist users of financial statements

in interpreting IFRS financialstatements?e. all of the above?

Quiz: objective of general purpose of

financial reporting

Question 2: The objective of generalpurpose financial reporting is:

a. provide financial information about thereporting entity that is useful toexisting and potential investors,


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Quiz: objective of general purpose of

financial reporting

Question 2: The objective of generalpurpose financial reporting is:

d. to meet all the information needs of allthe users of an entity’s financialstatements?

e. to inform economic decision-makingby a broad range of users (includingmanagers, investors, creditors andprudential regulators)?

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Quiz: objective of general purpose

financial reporting

Question 3: Which of the following could

most closely be associated with the

objective of financial reporting:

a. have a bias toward understating assetsand income and overstating liabilities


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35

Quiz: fundamental qualitative

characteristics

Question 4: The fundamental qualitative

characteristics are:

a. comparability and relevance?b. relevance and reliability?

c. relevance, reliability and

comparability?

d. relevance and faithful representation?

e. comparability, relevance and faithfulrepresentation?

35

36Quiz: qualitative characteristics

Question 5: verifiability meansknowledgeable and independent observers:

a. would reach complete agreement that a

depiction is a faithful representation?


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Question 6: which statement/s are true?

a. Relevance is a fundamental qualitative

characteristic.b. Financial information without both

relevance and faithful representation is

not useful.

c. Financial information without both

relevance and faithful representation

cannot be made useful by being more

comparable, verifiable, timely or

understandable.37


Question 6: which of the statements beloware true?

d. Financial information that is relevantand faithfully represented may still beuseful even if it does not have any of


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39Quiz: recognition

Question 7: Expenses are recognised in

comprehensive income (profit or OCI):

a. using the matching basis—on the basisof a direct association between thecosts incurred and the earning ofspecific items of income?

b. using the accrual basis—items arerecognised as assets, liabilities, equity,income or expenses when they satisfy

the definitions and recognition criteriafor those items?c. at the discretion of management?

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40Quiz: uncertain future cash flows

Question 8: Recognition criteria determinewhen to recognise an item.Measurement is determining the monetaryamounts at which to measure an item.Uncertainties about the extent of future cashflo s


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41Quiz: measurement

Question 9: How many measurement bases

does IFRSs specify for the measurement of

assets?a. one—historical cost

b. one—fair value

c. two—historical cost and fair value

d. many—including historical cost, fair

value, value in use, estimated selling

price less costs to complete and sell,etc

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42Quiz: status of Conceptual Framework

Question 10: the Conceptual Framework :

a. is an IFRS?

b. overrides all other IFRS requirements?

c. does not define standards for any

ti l t di l


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IFRS Foundation

Commonmisunderstandings


Common ‘conceptual’misunderstandings

The Framework does not… Clarification—the Framework

includes

include a matching concept accrual basis of accounting—

recognise elements when satisfy



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45

Common ‘conceptual’misunderstandings continued

Misunderstanding Clarification

Uniformity = comparability Comparability is achieved when

like things are accounted for in

the same way.

Comparability is not achieve

when accounting rules require

unlike things be accounted for in

the same way




There is a clear concept for the

historical cost of an item

The Framework provides only a

vague description—assets are

recorded at the amount of cash

or cash equivalents paid or the


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47



Principles are necessarily less

rigorous than rules

Rules are the tools of financial

engineers

There are few judgements and

estimates in cost-based

measurements

Inventory, eg allocate joint costs

and production overheads

PPE, eg costs to

dismantle/restore site, useful

life, residual value, depreciation

method

Provisions, eg uncertain timing

and amount of expected future

cash flows


Framework-basedd t di f IFRS


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49

Framework -based understanding… 49

Principles RulesConcepts

• relates IFRS requirements to the concepts in

the Conceptual Framework

• reasons why some IFRS requirements do not

maximise those concepts (eg application of thecost constraint or inherited requirements)


Framework -based understandingprovides… 50

• a cohesive understanding of IFRSs – Framework facilitates consistent and logical

formulation of IFRSs

• a basis for judgement in applying IFRSs


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51

Minimum guidance that gives effect to the principles

Presentation and

disclosure principles

Measurement

principle/s

Recognition

principle

Structure of a principle-based standard 51

Derecognition

principle

Concepts


52The ideal principle-based standard

• Scope – no exceptions

• Principles

– derived from the Framework

52


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53What if requirement not principle-based 53

• Understand why IASB deviated from the mainconcepts in the Conceptual Framework

– see Basis for Conclusions (BfC)

– If no BfC then requirement could predate ConceptualFramework (eg IAS 20))

A Guide through IFRSs cross-references all IFRSrequirements to the Basis for Conclusions

• Consider what a more principle-based requirementcould be (consider rejected alternatives, subsequentIASB DPs and EDs, etc)


54

Example:Lease classification

• Objective

• Concepts – faithful representation

– element definitions

• Broadly stated lease classification requirement

54


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55

Example:

Lease classification continued 55

– understand broadly stated requirement is inconsistent

with the Conceptual Framework

(see basis for conclusions on ED Leases)

– consider what a principle-based lease classification

principle could be (see ED Leases)

– focus on making the judgements to apply


56

Does the Framework help meunderstand IFRSs? 56• Yes, the starting point for understanding all IFRS

information is the objective and the concepts that flowlogically from that objective:

– IASB uses Framework to set IFRSs

– Teachers/Trainers use Framework -based teachingto prepare students to make judgements that are


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57

Examples:errors and changes in policies and estimates

• Objective

• Concepts

– faithful representation

– comparability• Principle

– Prior period error: retrospective restatement

– Change in policy: retrospective application

– Change in estimate: prospective application

• Rules

– impracticable exception

– transitional provisions (new requirements)

– specified disclosures

57


585858Pervasive constraint• Cost

– IASB assesses whether the benefits of reportingparticular information are likely to justify the

costs incurred to provide and use that

information.


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59Elements

Asset

• resource controlled by the

entity

• result of past event

• expected inflow of economic

benefits

Liability

• present obligation

• arising from past event

• expected outflow of

economic benefits

Equity = assets less liabilities

Income

• recognised increase inasset/decrease in liability incurrent reporting period

• that result in increasedequity except…

Expense

• recognised decrease inasset/increase in liability incurrent reporting period

• that result in decreasedequity except…

59


60Elements, examples• Asset?

• an oil explorer’s exploration rig

• a fish farmer’s breeding stock

• fish in the sea (from a fish harvester’s perspective)

• own shares held by an entity

60


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61Elements, examples

• Liability?

• defending a lawsuit

• promise to make good environmental damage(no legal obligation to do so)

• law requires smoke filters be fitted to factory

• lessee—short-term car rental agreement

• participant in a cap and trade emission trading

scheme

61


62Elements, examples

• Liability or equity?

• issue ordinary share

• issue compulsorily redeemable debt (fixedinterest, fixed redemption)

62


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63

Elements, examples 63

Liability or equity at 31/12/20X1?

•On 15/01/20X2 the shareholders of an entity approved

the distribution of CU40,000 dividend for the year ended

31/12/20X1 (as proposed by management on 21

December 20X1.

– CU18,000: minimum dividend required by law for the year

ended 31 December 20X1

– CU22,000: additional to required minimum dividends


Classification• Objective of financial reporting

• Financial statements portray financial effects oftransactions and events by:




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65

Classification, assets and claims

• Information about the nature and amounts of a

reporting entity’s economic resources and claims

can help users to identify the reporting entity’s

financial strengths and weaknesses.• That information can help users to:

– assess the reporting entity’s liquidity and

solvency

– its needs for additional financing and how

successful it is likely to be in obtaining thatfinancing.

(CF.OB13)© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Classification, claims

• Information about priorities and paymentrequirements of existing claims helps users to

predict how future cash flows will be distributed

among those with a claim against the reporting

entity (CF OB13)


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67Classification, liability

• Which IFRS classification of liability are?

• obligation to pay current tax

• metered power used but not yet billed bysupplier

• ‘normal’ warrantee obligation to make goodmanufacturing defect

• warrantee obligation to compensate formanufacturing defects by settling in

compensation in cash

• extended warrantee obligation

67


Classification, assets

• Different types of economic resources affect auser’s assessment of the reporting entity'sprospects for future cash flows differently.

– Some future cash flows result directly from existingeconomic resources (eg accounts receivable andinvestment property).


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69Asset classification• Which IFRS classification of asset are?

• investment in ordinary shares

• gold

• land

• land planted with plantation

• farm implements

• bird breeder’s birds

• birds in a zoological garden

• birds in a bird breeding zoo

• owner-occupied building held for sale

• owner-occupied building decided to abandon

69


70Recognition

• Accrual basis of accounting – recognise element (eg asset) when satisfy




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71Recognition, examples

• Recognise the asset?

• a hospital’s backup backup generator (expect never touse it)

• an oil explorer’s exploration rig• an oil extractor’s unproven reserves

• an oil extractor’s proven reserves

• advertising expenditure

• research and development expenditure

• internally generated brand

• lessee—short-term car rental agreement• firm order to acquire gold, cannot settle net


Measurement ‘concepts’ 72

• Measurement is the process of determining monetary

amounts at which elements are recognised and

carried. (CF.4.54)


estimates judgements and models rather than exact


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75

Fair value measurement concept 75

• Information about an entity’s financial performance in

a period, reflected by changes in economic resources

is useful in assessing the entity’s past and future

ability to generate net cash inflows (see CF.OB18)

• Income (expenses) are increases (decreases) in

economic benefits during an accounting period in the

form of enhancements (depletions) of assets (CF.4.25)

• measure element at fair value with changes in fair

value recognised as income or expense for the periodin which it arises


76

ASSET TYPE MEASUREMENT AT

INITIAL RECOGNITION

MODEL BASED

ON FAIR VALUE

BASIS OF

IMPAIRMENT TEST

IFRS 9 Financial

Instruments

Fair value For specified financial

assets and for particular

business models: fairvalue

IAS 16 Property,

Plant and Equipment

Purchase costs + construction

costs + costs to bring to the

location and condition necessary

to be capable of operating in the

manner intended by

management

Accounting policy choice:

revaluation model

Compare carrying amount

to recoverable amount.

Recoverable amount is

greater of value in use and

fair value less disposal


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77

ExampleBiological asset in agricultural activity 77

• The concepts

• The principle: a gain or loss arising on initial

recognition of a biological asset at fair value less

costs to sell and from a change in fair value less

costs to sell of a biological asset shall be included

in profit or loss for the period (IAS 41.26)

• The limited exception: inability at initial recognition

to measure fair value reliably then cost-

depreciation-impairment model (IAS 41.27)


Historical cost ‘concept’ 78

• 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


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79

Cost-based IFRS measures 79

• Few things measured at historical cost

– unimpaired land (IAS 16 + IAS 40 cost model)

– unimpaired indefinite life intangibles (IAS 38)

– unimpaired inventories (IAS 2)

• Cost-based measures are more common

– unimpaired depreciated historic cost (IAS 16)

– unimpaired amortised historical cost (IAS 38)

– amortised cost (IFRS 9)

Impairment changes to a fair value or other measure


80

ASSET TYPE MEASUREMENT AT INITIAL

RECOGNITION

COST MODEL BASIS OF

IMPAIRMENT

TEST

IAS 2 Inventory Cost of purchase and/or conversion

costs and costs to get the item to the

location and condition for sale

Cost unless impaired Lower of cost

(initial recognition)

and net realisablevalue

IAS 16 Property, Plant

and Equipment

Purchase costs + construction costs +

costs to bring to the location and

condition necessary to be capable of

operating in the manner intended by

management.

Accounting policy choice:

cost less accumulated

depreciation and

impairment, if any

Compare carrying

amount to

recoverable

amount.


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81

Example:allocating depreciation: concepts 81


a period, reflected by changes in economic resources

(eg PPE) is useful in assessing the entity’s past and

future ability to generate net cash inflows (CF.OB18)

• Expenses are decreases in economic benefits during

an accounting period in the form of depletions of

assets… (CF.4.25)

• Depreciation represents the consumption of the assets

service potential in the period. – land with an indefinite useful life is not depreciated because

its service potential does not reduce with time© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Example:allocating depreciation: principle 82

• Depreciation is the systematic allocation of the

depreciable amount of an asset over its useful

life (IAS16.6).

–essentially a cost allocation technique


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83

Example: allocating depreciation:application guidance (1) 83

• Systematic allocation (application guidance):

– depreciation method must closely reflects the pattern

in which the asset’s future economic benefits areexpected to be consumed by the entity.

– unit of measure for depreciation is different from that

for an item of PPE. By depreciating significant parts of

an item of PPE separately, depreciation more faithfully

represents the consumption of the assets service

potential. (IAS16.BC26)



• Depreciable amount =

– cost model: historical cost less residual value

– revaluation model: fair value less residual value

• Residual value =


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85


• Useful life (entity specific) =

– the period over which the asset is expected to be available for

use by the entity; or

– the number of production or similar units expected to be

obtained from the asset by the entity.

• Consequently, depreciation continues when idle (if

useful life = period)

• However, depreciation ceases when classified as

held for sale because IFRS 5 measurement is

essentially a process of valuation, rather than

allocation (IFRS5.BC29)© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Presentation and disclosure• Objective of financial reporting

• Presentation: financial statements portray financialeffects of transactions and events by:




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87

Subclassification


• ‘Definition’: a class of asset is a grouping of assets

of a similar nature and use in an entity's operations


Example, subclassification

• How many classes of property, plant andequipment?

– plot on which HQ is built

– vacant plot, intend to construct new HQ


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89Framework’s role in applying IFRSs 89

Does the Framework help me apply IFRSs?

• Yes, Framework is in IAS 8 hierarchy (see next

slide) – Preparers use the Framework to make the

judgements that are necessary to apply IFRSs

– Auditors and regulators assess those

judgements

– Investors, lenders and others consider those judgements when using IFRS financial

information to inform their decisions© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

90If no specific IFRS requirement

• Use judgement to –develop a policy that results in relevant

information that faithfully represents (ie

complete, neutral and error free)

90


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91In other words, if no IFRS requirement… 91

Framework-based approach would ask:

• What is the economics of the phenomenon (eg

transaction or event)?• What relevant information using the accrual

basis of accounting faithfully present that

economic phenomenon to inform decisions of

investors and lenders (potential and existing)?

• Is there anything in IFRSs that prevents me

from providing that information?


92Example: non-cash distribution 92

Before IFRIC 17, entity distributes non-cash

asset (eg land or shares in another) whose fairvalue = CU1 mill. Carrying amount of asset =cost = CU1K

• Economics = reduce owners’ claims against theentit b distrib ting to them an asset orth


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93Example: non-cash distribution 93

Before IFRIC 17… (continued)

• Does IFRSs prevent providing that information?No. Therefore:

– recognise CU999K income (previouslyunrecognised increase in the value of theasset derecognised).

– recognise CU1 million distribution to owners.


94Example: share-based payment 94

Before IFRS 2, entity pays employee in own shares.

Par value of shares issued = CU1K. Fair value ofservices provided = CU1 million = fair value of shares.

• Economics = entity paid employees CU1 million forservices. Employees invested CU1 million in entity.


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IFRS Foundation

Framework-basedteaching of IFRSs

Support for Framework -based teaching 96

• IFRS Foundation education initiative works with

others to support Framework -based teaching

– create awareness

– develop material (starting with PPE and non-financial

li biliti )


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Range of IFRS classes 97

Can I use Framework -based teaching in my IFRS class?

• Yes, the starting point for all IFRS teaching should be

the objective of IFRS financial information and the

concepts that flow logically from that objective

• However, the extent of IFRS requirements taught are

likely to vary by course level and to suit the objectives

of the course

989898The IASB’s Conceptual Framework

• Framework sets out agreed concepts that

underlie IFRS financial reporting

– the objective of general purpose financial

reporting

qualitative characteristics


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Framework-based teaching… 99

Principles RulesConcepts

• relates the IFRS requirements being taught to

the concepts in the Conceptual Framework

• explains why some IFRS requirements do not

maximise those concepts (eg application of thecost constraint or inherited requirements)

Framework -based teaching provides… 100

• a cohesive understanding of IFRSs

– Framework facilitates consistent and logical

formulation of IFRSs

• a basis for judgement in applying IFRSs


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101What is Framework -based teaching?

In the context of IFRSs, Framework -based

teaching relates the concepts in the IASB’s

Conceptual Framework to the particular

IFRS requirements being taught

101

102Framework -based teaching• Because

– the Framework sets out agreed concepts thatunderlie IFRS financial reporting, and

– Framework -based teaching relates the concepts in

the Framework to the particular IFRS requirements

102


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103Teaching suggestions—objective

• Contrast objective of IFRS financial statements

with objectives of other financial statements

• Debunk myths

– Myth 1: objective = record of historical costs

– Myth 2: objective = support tax return

– Myth 3: financial statements are designed to meet all the

information needs of all users

• Before teaching the class the IFRS requirements

for a transaction or event, discuss whatinformation about that transaction or event would

best meet the objective

103

104Framework -based IFRS teaching 104

Framework -based teaching relates the concepts in

the Framework to the particular IFRS requirementsbeing taught

• Because the objective of the Framework is to

facilitate the consistent and logical formulation of


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To a large extent, IFRS financial statements arebased on estimates, judgements and models ratherthan exact depictions

• Because the Framework established the conceptsthat underlie those estimates, judgements andmodels it provides a basis for the use of judgementin resolving accounting issues

• By relating those concepts to the IFRS requirementsFramework -based teaching

– enhances the ability of students to exercise the judgementsthat are necessary to apply IFRSs

– prepares students to continuously update theirIFRS knowledge and competencies

106

Examples 1a, b and c:Errors and changes in policies and estimates

• Objective

• Concepts – faithful representation

– comparability

• Principle

106


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107Examples 1a,b and c: continued 107

Teaching suggestions:

– build from objective to concepts to principles and rules

– explain how specified disclosures give effect to principle

– focus on judgements

eg differentiating changes in accounting estimates

from changes in accounting policies and correction

of prior period errors

– test understanding, eg use integrated case studies

108What if requirement not principle-based 108• When teaching the requirement

– explain why IASB deviated from the main conceptsin the Framework (see Basis for Conclusions (BfC).If no BfC then requirement could predateFramework (eg IAS 20))

di h t i i l b d i t


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109

Example 2:Lease classification

• Objective

• Concepts

– faithful representation

– element definitions• Broadly stated lease classification requirement

– capitalise in-substance purchases (finance leases)

– other leases = executory contracts (operating leases)

– is this requirement principle-based?

• Rules

– guidance (eg contingent rentals)

– specified disclosures

109

110

Example 2:

Lease classification continued 110

Teaching suggestions: – explain broadly stated requirement is inconsistent

with the Framework (see BfC ED Leases)

– discuss what a principle-based lease classification


56/180




IFRS Foundation

Framework-basedteaching of IFRSsProperty, plant and equipment

Why PPE material first? 112

• As jurisdictions implement IFRSs many find that

the accounting for PPE is a special challenge(Upton, IASB’s Director of International Activities, 2010)

– IFRS requirements for PPE require many

estimates and judgements


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113

Reference material: PPEcourse work & open-book assessment

Stage 1 Stage 2 Stage 3

Extracts from

Framework + basic

IFRS principles from

Section 17 of the

IFRS for SMEs or

IAS 16

(eg, see handout)

A Guide through IFRSs

(includes full text of

Framework + IFRSs and

accompanying material

with extensive cross-

references and

annotations, eg IFRIC

agenda decisions) + the

IFRS for SMEs and

accompanying

documents

Stage 2 material +

Local GAAP (if any) +

main principles in IASB

DPs and EDs

114114IFRS Foundation - Materials


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115

Class material: PPE


Reference material

(previous slide) +

notes (eg see

handout) +

video/web clips +

basic tutorials (eg

see handout)

Reference material

(previous slide) + notes

(eg see handout),

video/web clips +

tutorials + IFRS financial

statements + select

regulatory decisions +

relevant press coverage

+ main principles in

issues being considered

by IASB

Reference material

(previous slide) +

advanced tutorials and

integrated case studies +

IFRS financial statements

+ relevant regulatory

decisions + relevant press

coverage + IASB DPs

and EDs and select

agenda papers

116116Teaching steps

Accounting for PPE

– Objective

– Identification


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117

Relate PPE accounting & reporting toobjective & main concepts (pervasive)


Explain why

relevant and

faithfully

represented

information about

PPE (particularly

manufacturers and

retailers) is useful to

the primary user

group.

Reinforce with class

discussion + tutorial.

Assess understood.

Stage 1 + (don’t limit to

manufacturers and

retailers, eg include

service industry

buildings and explain in

more detail).

Reinforce teaching with

class discussion +

tutorials.

Assess understood.

Reinforce understanding

and develop competence

in making the judgements

that are necessary to

account for assets.

Some ideas:

- cross-cutting issues

class discussions

- advanced tutorials

- integrated case studies- GAAP comparisons &

improvements.


“Provide financial information about the reporting

entity that is useful to existing and potential

investors, lenders and other creditors in making

decisions about providing resources to the entity.”


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• Primary users

– provide resources, but cannot demand

information – common information needs

• Assess the prospects for future net cash inflows

– buy, sell, hold

– efficient and effective use of resources


• Relevance

– Predictive value

– Confirmatory value

Materiality entity specific


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121

121Enhancing Qualitative Characteristics

• Comparability : like things look alike; different things

look different

• Verifiability : knowledgeable and independent

observers could reach consensus, but notnecessarily complete agreement, that a depiction is

a faithful representation

• Timeliness: having information available to

decision-makers in time to be capable of influencing

their decisions

• Understandability : Classify, characterise, andpresent information clearly and concisely

122122Pervasive constraint

• Cost

– IASB assesses whether the benefits of reporting

particular information are likely to justify the

costs incurred to provide and use that


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123123

Identification, classification andrecognition

• Property, plant and equipment

– identification

– classification – recognition

• Focusing on stages 1 and 2, linking to stage 3

• Full IFRS and the IFRS for SMEs

– Similar accounting principles

Elements

Asset

• resource controlled by the

entity

• result of past event

Equity = assets less liabilities

Income

• recognised increase inasset/decrease in liability incurrent reporting period

124


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125125Stage 1: Identification of PPE

• Definition of PPE in IFRS

• PPE are tangible assets

a. used in the production or supply of goods or

services, for rental to others or administrative

purposes AND

b. expected to be used for more than one period

• Examples 1 to 3 of the stage 1 teaching material

• Step 1: definition of an asset per the ConceptualFramework

• Step 2: definition of PPE

126126Stage 2: Identification of PPE

• Definition of PPE in IFRS

• PPE are tangible assetsa. used in the production or supply of goods or services,

for rental to others or administrative purposes AND

b. expected to be used for more than one period


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127127Stage 2: Classification of PPE

Primary considerations for classification:

• Presentation

– subclassification – function within the business—information being

provided to users

• Use of judgement

– ‘portions’ of properties

– example: portion for rental and other for use inadministrative function

128128Stage 2: Classification of PPE continued

Primary considerations for classification continued:

• Scope exclusions

– IFRS 5

biological assets (related to agricultural activity)


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129129

Stage 2: Classification of PPE—Examples

• How would you classify the following:

• Example 1: Cattle and farm implements (p. 29)

• Example 2: Land, trees grown for timber

• Example 3: Guard dogs

• Example 4: Bird breeder

• Example 5: Bird breeding zoo

• Examples 6-8: PPE held for sale

– examples in IFRS 5

See PPE framework based teaching notes pp. 29-30

130130Stage 2: Classification of PPE continued

Unit of account:

• Example 9 of the stage 2 teaching material

– use of judgement in the absence of guidance

related back to the Frame ork


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131

Classification:Unit of account for PPE


IAS 16 does not prescribe the

unit of measure for recognition of

PPE (an item of PPE)

consequently use judgement.

Focus on teaching the

judgements necessary to identify

an item of PPE. Some examples:

-immaterial items

-individually insignificant items

(eg moulds, tools & dies?)

Reinforce understanding and

develop competence in

identifying the unit of account.

Some ideas:

-cross-cutting issues class

discussions

-advanced tutorials

-integrated case studies

-GAAP comparisons &

improvements.

Recognition

• Accrual basis of accounting

– recognise element (eg asset) when satisfy



132


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Recognition continued

What does probable mean?

• Its meaning is determined at the standards level.

Therefore, inconsistent use across IFRSs

– IAS 37: more likely than not

– Could include other uncertainties which would lead

to a more complicated process (ie fair value)

• Stage 2 teaching material: Example 11-14

133

Recognition continued

• Would you recognise the following as an item of

PPE?

• Example 11: Backup generator

• Example 12: Day-to-day servicing

134


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135

Recognition of PPE


PPE asset recognition

principle is from the

Framework :

- probable FEBs associated

with the item will flow to

the entity

- cost of the item can be

measured reliably

(IAS16.7)

Creates awareness of judgements (eg what is

material, probable and

reliable).

Stage 1 + focus on

teaching the

judgements

necessary to identifyPPE. Some egs:

- immaterial items

- backup generator

at hospital

- day-to-day

servicing- replacement parts

- major inspections

Reinforce

understanding and

develop competence

in making the judgements necessary

to recognise assets.

Some ideas:- cross-cutting issues

class discussions


- integrated casestudies

- GAAP comparisons

& improvements.

Measurement

• Measurement is the process of determining the

monetary amounts at which the recognisedelements are carried.

• IFRS measurements are largely based on

ti t j d t d d l

136


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137

Measurement of PPE 137

• Because measuring PPE requires significant

estimates and judgements, it is important that students

be taught those requirements in a way that prepares

them to make those judgements and estimates.

Measurement concepts 138

• Measurement is the process of determining monetary

amounts at which elements are recognised andcarried. (¶4.54)


estimates, judgements and models rather than exact


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139

Measurement section of Framework 139

• Measurement section of Framework is weak―only

lists some measurement methods used in practice:

– historical cost: cash paid or fair value of consideration

given – current cost: cash that would be paid if acquired now

– realisable (settlement) value: cash that could be

obtained by selling the asset now

– present value: present discounted value of future net

cash inflows that the item is expected to generate

– market value: listed but not described in Framework .

For fair value see IFRS 13

IFRS measurements for some assets 140• PPE and intangible assets: initial = cost, then

– cost model (cost-depreciation-impairment) or

– revaluation model (fair value-depreciation-impairment)

• Investment property: initial = cost, then

– cost model (cost-depreciation-impairment) or


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Measurement of PPE

• Measurement at cost

– Stage 1: cost (recognise and relate with investment

analysis); elements of cost (recognise, list, select);

awareness of elements with higher J&E (illustrate self-

constructed PPE, borrowing costs etc)

– Stage 2: focus on J&E

– Self-constructed assets

– Borrowing costs (discussion questions, page 36)

– Deferred payment (example 16)

– Decommisioning (example 17)

– Assets exchange (examples 19 and 22)

– Business combination (example 21)

141

Measurement of PPE at recognition


At initial recognition: cost = cashprice equivalent at recognition date.

Cost comprises:

- purchase price

- costs directly attributable to bring

Stage 1 + focus on judgements to measure

cost. Some egs:

- self constructed

- borrowing costs

Reinforceunderstanding &

develop

competence in

judgements to


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143

Measurement after recognition 143

• Choice between cost and revaluation

– Stage 1: recognise the differences between policies;

discuss the extent each measurement meets the objective;

relate to assets definition and recognise impairment,

compare cost and revaluation (awareness)

– Stage 2: compare cost and revaluation; J&E required for

revaluation and impairment

Allocating depreciation: concepts 144


a period, reflected by changes in economic resources(eg PPE) is useful in assessing the entity’s past and

future ability to generate net cash inflows (see ¶OB18)

• Expenses are decreases in economic benefits during


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145

Allocating depreciation: principle 145

• Depreciation is the systematic allocation of the

depreciable amount of an asset over its useful life

(IAS16.6).

– essentially a cost allocation technique (IAS16.BC29)

• Systematic allocation (application guidance):

– Depreciation method must closely reflects the pattern in which

the asset’s future economic benefits are expected to be

consumed by the entity.

– Unit of measure for depreciation is different from that for an itemof PPE. By depreciating significant parts of an item of PPE

separately, depreciation more faithfully represents the

consumption of the assets service potential. (IAS16.BC26)

Allocating depreciation:application guidance (1) 146

• Depreciable amount =

– cost model: historical cost less residual value

– revaluation model: fair value less residual value

• Residual value =


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147

Allocating depreciation:application guidance (2) 147

• Useful life (entity specific) =

– the period over which the asset is expected to be available for

use by the entity; or

– the number of production or similar units expected to beobtained from the asset by the entity.

• Consequently, depreciation continues when idle (if

useful life = period) – example 24

• However, depreciation ceases when classified as held

for sale because IFRS 5 measurement is essentially aprocess of valuation, rather than allocation

(IFRS5.BC29)

Measurement of PPE after recognition


Accounting policychoice: cost model or

revaluation model.

Which model provides

primar sers most

Stage 1 + focus on teaching the judgements necessary to

measure PPE after initial

recognition. Some examples:

sef l life

Reinforceunderstanding and

develop competence

in making the

judgement necessary


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149

Derecognition of assets 149

• Derecognition of an asset refers to when an asset

previously recognised by an entity is removed from

the entity’s statement of financial position

– Derecognition requirements are specified at the

standards level.

– Derecognition does not necessarily occur when the

asset no longer satisfies the conditions specified for its

initial recognition (ie derecognition does not

necessarily coincide with the loss of control of theasset ).

Derecognition of assets 150

• Stage 1: recognise disposal of PPE and conditions

in which no future economic benefits expected;discuss revenue x gain (awareness)

• Stage 2: analyse and compare different J&E


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151

Derecognition of PPE


PPE is derecognised:

-on disposal, or

-when no future

economic benefits are

expected from its use

or disposal (IAS16.67)

Stage 1 + focus on

teaching the judgements

necessary to determine

when to derecognise PPE.For example:

-applying the criteria for the

sale of goods in IAS 18 to

determine when to

recognise the sale of an

item of PPE (see IAS16.69

and BC34)

Reinforce

understanding and

develop competence in

making the judgementsnecessary to

derecognise assets.

Some ideas:-cross-cutting issues

class discussions

-advanced tutorials

-integrated case studies-GAAP comparisons &

improvements.

Presentation and disclosure


• Presentation: financial statements portray financial

effects of transactions and events by:



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153

Presentation and disclosure of PPE


Statement of financial

position: why present PPE

separately from other assets

(relate to objective + QCs)?Statement of

comprehensive income or

notes: why present

depreciation separately from

other expenses (relate to

objective + QCs)?

Offsetting: why is gain (orloss) on disposal of PPE

presented net?

Stage 1 + focus on teaching

the judgements necessary to

present and disclose PPE,

egs- identify (see slide 11)

- sub-classify PPE into

separate classes

(grouping of assets of a

similar nature and use in

the entity’s operations, eg

how many classes of

land―

vacant land, landon which buildings are

situated and landfill site?)

Reinforce

understanding and

develop competence

in presenting assetsand related income &

expenses.

Some ideas:

- cross-cutting

issues class

discussions


- integrated casestudies.

Stage 3 case study

• Stage 3 teaching materials

• The Open Country Safari Company Case Study


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155Questions or comments?

Expressions of individual views

by members of the IASB and

their staff are encouraged.

The views expressed in this

presentation are those of thepresenter. Official positions of

the IASB on accounting matters

are determined only after

extensive due process

and deliberation.


IASB’ ti d


79/180

www.ifrs.org

www.ifrs.org


80/180

The Major Projects

Crisis (MoU)

Financial instruments

Fair value

measurement

Consolidation

Derecognition

Other (Non MoU) Insurance contracts© 2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Other (MoU)

Revenue recognition

Leases

Post-employment

benefits

Financial statement

presentation

Liability/Equity


IFRS d ti


81/180

161Use of IFRSs – the ideal

Ideally, adopt IFRSs as the reporting framework:

• IFRSs as issued by the IASB in full

• Audit report and basis of presentation note refer to

conformity with IFRSs

• Without local ‘endorsement’

Use of IFRSs means all standards and all

interpretations

• Sometimes the ideal is hard to achieve

162Use of IFRSs – variations from ideal

Problems with local ‘endorsement’:

• Urge to tinker

• Time delay

• Politicisation


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163Get rule-based standards if

• Preparers and auditors

– refuse to exercise judgement

– don’t act with integrity

– ask for detailed interpretations – refuse to accept raw economic facts

• Regulators

– want one answer in spite of different economicfacts

• Courts

– lawyers fail to defend reasonable judgements

163


164

Rules/application guidance

Rules (interpretations)Rules (exceptions)

Principles

Structure of some IFRSs 164


83/180

165

Example:Business combinations

• Objective

• Concepts

– elements definitions

– representational faithfulness

• Core principle – an acquirer of a business (scope)

– recognises assets acquired and liabilities assumed(recognition principle)

– at their acquisition-date fair values (measurementprinciple)

– discloses information that enables users to evaluate

the nature and financial effects of the acquisition(disclosure principle)

165


166

Example:Business combinations continued

• Rules

– exceptions to the recognition principle

– exceptions to the measurement principle

specified disclosures

166


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167

Example:Business combinations continued 167

To understand build from objective through concepts

to core principle and rules

– recognition—understand reason for removing

(i) the probability criterion; and(ii) the explicit reliability of measurement criteria(see Basis for Conclusions on IFRS 3 paragraphs BC125–BC130)

– understand reasons for exceptions to IFRS 3:

– recognition principle

– measurement principle

(see Basis for Conclusions on IFRS 3)


168

Example:Business combinations continued 168

Focus on judgements, eg

– identifying a business

– measuring fair value in the absence of an active market etc


85/180




IFRS Foundation

Improving theConceptual Framework

170170Improving the Conceptual Framework

• Objective (‘old’ project)

– To develop an improved and common conceptual framework

that will provide a sound foundation for the development ofaccounting standards

• Phases (‘old’ project)

1. Objective of financial reporting and qualitative


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171

171Phase 1 completed in 2010Objective of financial reporting

Objective of financial reporting is to provide financial

information about the reporting entity that is useful to existing

and potential investors, lenders and other creditors in

making decisions about providing resources to the entity

Note:

• other aspects of the Conceptual Framework flow

logically from the objective (CF.OB1)

• Conceptual Framework sets out the concepts that

underlie IFRS financial statements and assist the IASB

in the development of future IFRSs and in its review of

existing IFRSs (CF.Purpose and Status)


172

Phase 1 completed in 2010Fundamental qualitative characteristics


decisions




Ph 1 l t d i 2010 E h i


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173

173Phase 1 completed in 2010 EnhancingQualitative Characteristics

• Comparability : like things look alike; different things look

different

• Verifiability : knowledgeable and independent observers

could reach consensus, but not necessarily complete

agreement, that a depiction is a faithful representation

• Timeliness: having information available to decision-makers

in time to be capable of influencing their decisions

• Understandability : Classify, characterise, and present

information clearly and concisely


174174174

Phase 1 completed in 2010Pervasive constraint

• Reporting financial information imposes costs, and it is

important that those costs are justified by the benefits of

reporting that information.

• In applying the cost constraint, the IASB assesses whether

the benefits of reporting particular information are likely to

justify the costs incurred to provide and use that information


88/180

175

175Elements

Existing element definitions:

• Asset : Resource controlled as a result of past events and

from which future economic benefits are expected to flow

• Liability : Present obligation arising from past events, the

settlement of which is expected to result in outflow ofresources embodying economic benefits

• Equity : Assets minus liabilities

• Income (expense): Increases (decreases) in economic

benefits during period from inflows or enhancements

(outflows or depletions) of assets (liabilities) or decreases

(incurrences) of liabilities from in increases (decreases) in

equity, other than contributions from (distributions to) equity


176Elements

• How can we improve the element definitions?

• What does expected mean? Is it different from probable?

• Why focus on future inflow/outflow of economic benefits,

rather than present position?

• Why do we need to identify past transactions?

Elements


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177

177Elements‘Workin g’ asset defini t ion

• An asset of an entity is a present economic resource to which

the entity has a right or other access that others do not have.

– Present means that on the financial statement date the economic

resource exists and the entity has the right or other access that

others do not have.

– Economic resource is scarce and capable of producing cash inflows

or reducing cash outflows, directly or indirectly, alone or together with

other economic resources. Economic resources that arise from

contracts and other binding arrangements are unconditional

promises and other abilities to require provision of economic

resources, including through risk protection.

– Right or other access that others do not have enables entity to use

the economic resource and its use by others can be precluded or

limited. It is enforceable by legal or equivalent means.


178

Elements‘Workin g’ l iabi l i ty defini t ion

• A liability of an entity is a present economic obligation for

which the entity is the obligor

– Present means that on the financial statement date the economic

obligation exists and the entity is the obligor.

– Economic obligation is an unconditional promise or other

requirement to provide or forgo economic resources, including


90/180

El t d iti /d iti


91/180

181

181Elements and recognition/derecognition

• This phase of the project has been deferred

• Board is not trying to fundamentally change what meets

current definitions, just trying to clarify and improve

• Has proven to be quite challenging

• Perhaps standards-level projects will provide insights

– Financial instruments with characteristics of equity

– IAS 37 (Provisions)

– Insurance

– Revenue…


Reporting entity

• Nothing in current Conceptual Framework on reporting entity

• These are tentative decisions in CF project to date

• Circumscribed area of economic activity

– Activities are being, have been, or will be conducted

– Activities can be objectively distinguished

M t


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183

183Measurement

• Framework should set forth concepts for determining

appropriate measurement attribute for a particular asset or

liability in a given circumstance

• However, there is little in current Framework on

measurement – List of measurements used in standards

– No concepts or basis for choosing among them

• Large hole in the literature

• Has resulted in ad hoc standards-level decisions in multiple-

measurement environment


184Measurement

• Current thinking is measurement concepts should be based

on objective of financial reporting, qualitative characteristics

and elements definitions – Objective of financial reporting is the place to start

– Qualitative characteristics and cost constraint would be

measurement selection factors

Measurement


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185

185Measurement

• One approach being considered

– Determine view of financial reporting that best meets the

objective of financial reporting

– Statement of financial position view

– Income statement view – Holistic view (statements of financial position and income)

– Then identify implications of that view and the

fundamental qualitative characteristics for historical cost-

based and fair value measures

• Is it necessary to expand on relevance and faithful

representation in measurement chapter?

– How and why?


186Measurement

• Path of this project phase has taken several turns

– Range from highly conceptual to writing down what is in

existing standards

• The measurement phase is controversial

– People have firmly held (although often loosely defined) views

M i thi i fi i l t t t i f d t l

Conceptual Framework versusstandards level projects


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187

187Conceptual Framework versusstandards-level projects

• How can standard setting continue without finishing the

Conceptual Framework project first?

– we have a Conceptual Framework in place today (not perfect)

– Standards-level projects inform Conceptual Framework

project and vice-versa (eg liabilities and equity) – Standards need improvement and Conceptual Framework

project is likely to take many years; investors cannot wait for

better information

• Would a completed Conceptual Framework help standard

setting?

– Yes, particularly measurement

– Also, disclosure and presentation


Agenda consultation 188188

• Public agenda review every three years

• Will help the IASB establish a broad strategic direction for its

work plan:

– establish a balance between: – improvements (new IFRSs); and

maintenance (implementation)

Agenda ConsultationThe IASB’ s ini t ial thinking


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Agenda ConsultationThe IASB s init ial thinking 189

• Development of financial reporting

– Investing in researching key strategic issues

– Completion of the conceptual framework

– Completing MoU projects

– Selected standards-level projects• Maintenance of existing IFRSs

– Post-implementation reviews

– Responding to implementation needs

• Expansion of research function

189


Agenda ConsultationFeedback to date

• 246 comment letters, 4 Roundtables

Results will feed into the Board’s agenda setting process

• Common views:

– Complete the four current projects

– Focus on maintenance over development of IFRSs in the

190190


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IFRS Foundation

Framework-basedunderstanding and teaching

of IFRSsIFRS Conference – Qassim University

May 2012


Guillermo Braunbeck, Project Manager, Education Initiative, IASB

Outline

• Why global standards?

• The progress

• Understanding principle-based standards

• Framework-based understanding and teaching of

2

Benefits of global standards 3


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Benefits of global standards

• Efficient allocation of capital globally

– attracting investment through transparency

– reducing the cost of capital

– increasing world-wide investment

• Reducing costs and increased efficiency

– facilitates standardising information systems

– eliminates wasteful reconciliations

– audit efficiencies

– education and training

3


44



THE MOMENTUM TOWARDS GLOBAL ADOPTION OF IFRSs

The World is Getting Smaller

The vision 5


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The vision

…one single set of high

quality global standards..

..used on the global

capital markets.

5

6What does principle-based mean?

• There is overwhelming support for principle-

based accounting standards• But what does principle-based mean?

• In this presentation

6



99/180


• Conceptual Framework sets out agreed concepts that

underlie financial reporting

– objective, qualitative characteristics, element definitions, …

• IASB uses Conceptual Framework to set standards – enhances consistency across standards

– enhances consistency over time as Board members change

– provides benchmark for judgments

• Preparers use Conceptual Framework to develop

accounting policies in the absence of specific standard

or interpretation

– IAS 8 hierarchy7© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

8When no IFRS specific requirement… 8

Framework-based approach would ask:

• What is the economics of the phenomenon (egtransaction or event)?

• What relevant information using the accrual



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9

j p g

Provide financial information about the reportingentity that is useful to existing and potentialinvestors, lenders and other creditors in makingdecisions about providing resources to the entity

Note:

• other aspects of the Conceptual Framework flowlogically from the objective (CF.OB1)

• Conceptual Framework sets out the concepts thatunderlie IFRS financial statements and assist theIASB in the development of future IFRSs and in its

review of existing IFRSs (CF.Purpose and Status)




decisions




11Does the Framework help meunderstand/apply IFRSs? 11


101/180

pp y• Yes, the starting point for understanding all IFRS

information is the objective and the concepts that flowlogically from that objective:

– IASB uses Framework to set IFRSs

– Teachers/Trainers useFramework

-based teachingto prepare students to make judgements that arenecessary to apply IFRSs

– Preparers use Framework to make the judgementsthat are necessary to apply IFRSs

– Auditors and regulators assess those judgements

– Investors, lenders and others consider those judgements when using IFRS financial informationto inform their decisions


Common ‘conceptual’misunderstandings

The Framework does not… Clar if icat ion—the Framework

includes

include a matching concept accrual basis of accounting—recognise elements when satisfy




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13


Uniformity = comparability Comparability is achieved when

like things are accounted for in

the same way.

Comparability is not achievewhen accounting rules require

unlike things be accounted for in

the same way




Principles are necessarily less

rigorous than rules

Rules are the tools of financial

engineers

There are few judgements and

estimates incost-based

Inventory, egallocate joint costs

andproductionoverheads

Support for Framework -based teaching 15


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15

• IFRS Foundation education initiative works with

others to support Framework -based teaching

– create awareness

– develop material (starting with PPE and non-financialliabilities)

– workshops 2012: Brighton (BAFA), Llubijana (EAA),

Melbourne (AFAANZ), Washington DC (AAA), Saudi

Arabia (QU), Brazil (CFC)

– encourage those certifying accountants to examine

their students’ ability to make the judgements thatare necessary to apply IFRSs


Range of IFRS classes 16

Can I use Framework -based teaching in my IFRS class?

• Yes, the starting point for all IFRS teaching should bethe objective of IFRS financial information and the

concepts that flow logically from that objective

H th t t f IFRS i t t ht



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Framework -based teaching relates the concepts in

the Framework to the particular IFRS requirements

being taught

• Because the objective of the Framework is to

facilitate the consistent and logical formulation of

IFRSs Framework -based teaching

– provides students with a cohesive understanding of

IFRSs

– prepares students to continuously update their

IFRS knowledge and competencies


• Education initiative has developed a number of

materials to help Framework -based teaching

(FBT):

– Applied approach of FBT (PPE) with:

– Reference materials

19Questions or comments?


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Expressions of individual views

by members of the IASB and

their staff are encouraged.

The views expressed in this

presentation are those of the

presenter. Official positions ofthe IASB on accounting matters

are determined only after

extensive due process

and deliberation.


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Part 1 Framework based teaching

The Conceptual Framework

The objective of the IASB’s Conceptual Framework for Financial Reporting (the Conceptual Framework ) is to facilitate the consistent and logical formulation of IFRSs (see paragraph 8


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of the Preface to IFRSs). In other words, the Conceptual Framework sets out the agreed

concepts on which the IASB bases IFRSs. Consequently, most IFRS requirements are

consistent with the concepts set out therein. However, application of the cost constraint(1)

continues to result in IFRS requirements that do not maximise the qualitative characteristics

or other main concepts in the Conceptual Framework .

The objective of general purpose financial reporting is to provide financial information about

the reporting entity that is useful to existing and potential investors, lenders and other

creditors in making decisions about providing resources to the entity.(2)

Those decisions

involve buying, selling or holding equity and debt instruments, and providing or settling loans

and other forms of credit (see paragraph OB2 of the Conceptual Framework ). In order to

assess an entity’s prospects for fu

Documents

q Assim Hand Out