Financial Statement Presentation

Correct and complete information of reporting entity’s financial position and financial performance

Financial statements shall present correct and complete information of the financial position, financial performance and cash flows of an entity. Correct and complete information requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in:

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Qualitative characteristics of information in financial statements

What types of information are useful to users for making decisions about the reporting entity using the general purpose financial report compiled by the reporting entity? And equally important what are the cost constraints on the reporting entity’s ability to provide useful financial information?

Understandability Continue Reading “Qualitative characteristics of information in financial statements”

Recognition of Assets, Liabilities, Income and Expenses in Financial Statements

In short an overview

Assets

An entity shall recognise an asset in the statement of financial position when it is probable that the future economic benefits will flow to the entity and the asset has a cost or value that can be measured reliably. An asset is not recognised in the statement of financial position when expenditure has been incurred for which it is considered not probable that economic benefits will flow to the entity beyond the current reporting period. Instead such a transaction results in the recognition of an expense in the statement of comprehensive income (or in the income statement, if presented). Continue Reading “Recognition of Assets, Liabilities, Income and Expenses in Financial Statements”

Measurement of Assets, Liabilities, Income and Expenses

In short an overview

Measurement is the process of determining the monetary amounts at which an entity measures assets, liabilities, income and expenses in its financial statements. Measurement involves the selection of a basis of measurement. IFRS in summary specifies which measurement basis an entity shall use for many types of assets, liabilities, income and expenses. Continue Reading “Measurement of Assets, Liabilities, Income and Expenses”

Recognition of Assets, Liabilities, Income and Expenses

In short an overview

Recognition is the process of incorporating in the financial statements an item that meets the definition of an asset, liability, income or expense and satisfies the following criteria:

  1. it is probable that any future economic benefit associated with the item will flow to or from the entity, and
  2. the item has a cost or value that can be measured reliably.

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Financial Reporting of Performance

In short an overview

Performance is the relationship of the income and expenses of an entity during a reporting period. Reporting entities are allowed to present performance in a single financial statement (a statement of comprehensive income) or in two financial statements (an income statement and a statement of comprehensive income). Total comprehensive income and profit or loss are frequently used as measures of performance or as the basis for other measures, such as return on investment or earnings per share. Income and expenses are defined as follows: Continue Reading “Financial Reporting of Performance”

Financial Position

In short an overview:

The financial position of an entity is the relationship of its assets, liabilities and equity as of a specific date as presented in the statement of financial position. These are defined as follows:

  1. an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity;
  2. a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits; and
  3. equity is the residual interest in the assets of the entity after deducting all its liabilities.

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Substance of contractual rights and contractual obligations

Accounting for something in accordance with its legal form, instead of its economic substance, does not result in a faithful representation.

  • accounting for something in accordance with its legal form (even with appropriate disclosures) cannot result in a faithful representation if the economic substance of the item is different; and
  • substance over form is an aspect of reliability.

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Executory contracts

Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. Hence an executory contract contains a combined right and obligation constituting a single asset or liability. The entity has an asset if the terms of the exchange are favorable; otherwise, it has a liability. Continue Reading “Executory contracts”