IAS 8 Best summary policies estimates and errors

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IAS 8 Best summary policies estimates and errors comprises a high level summary of the three items in this standard:

  1. Accounting policies,
  2. Accounting Estimates
  3. Errors

1. Accounting policies

Definition:

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

Selection and application of accounting policies:

  • If a standard or interpretation deals with a transaction, use that standard or interpretation
  • If no standard or interpretation deals with a transaction, judgment should be applied. The following sources should be referred to, to make the judgement:
    • Requirements and guidance in other standards/interpretations dealing with similar issues
    • Definitions, recognition criteria in the framework
    • May use other GAAP
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IAS 34 Interim financial statements

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IAS 34 Interim financial statements provide all there is to know for producing Interim financial statements, what, where, when and what is in them.

Objective

IAS 34 prescribes the guidelines for an entity regarding the preparation of interim financial statements by providing information about the minimum contents of interim financial reports along with the recognition and measurement principles for such financial reports. These interim financial reports will provide the most recent activities, circumstances and financial affairs of the reporting entity

Scope

IAS 34 does not define, which entity is required to publish the interim financial reports, the time period after the end of interim period within which these financial reports should be published and how frequently these Read more

Financial reporting models

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Financial reporting models – This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘.

Financial reporting models Literature suggests that voluntary disclosure of financial reporting is associated with participatory, democratic ownership structures. Conversely, secretive attitudes are fostered by the centralization of equity ownership around dominating interest groups and by institutionalized systems of collective bargaining.

Over the years the purpose of annual reports changed by its changing group of users. Three ownership models that explain the purpose of annual reports are firstly described. After that the agency theory (see below) and creative accounting by CEO succession (follow link) are worked out as explaining tools.

(1) Proprietary

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Some challenges in measurement bases for financial reporting

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Some challenges in measurement bases for financial reporting – When applied to financial reporting the term measurement can give a misleading Some challenges in measurement bases for financial reporting impression of certainty and objectivity. In daily life, measurements are typically made of the physical characteristics of physical objects – such as height, weight, temperature and so on. If accurate measurement tools are employed, information of this sort is objective and uncontroversial (a ‘fact’). The subjects of measurement in financial reporting, however, are abstract concepts of uncertain meaning such as income and net assets (an ‘estimate’). Some challenges in measurement bases for financial reporting

For this reason alone, their measurement is always liable to be controversial.

All measurements in financial reporting are expressed in monetary termsRead more

Historical cost measurement

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Historical cost measurement – The historical cost of an asset is the amount paid for it and the historical cost of a liability is the amount received in respect of it or the amount expected to be paid to satisfy it.

Historical cost accounting is interpreted to require that the amount at which an asset is stated in the accounts should not exceed the amount expected to be recovered from either its use or its sale (its recoverable amount). Historical cost as it is understood is therefore recoverable historical cost.

Recoverable amount is usually considered to be the higher of an asset’s realisable value and its value in use. The resulting recoverable historical cost tree for determining Read more

Assessing information quality for measurement

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Assessing information quality for measurement – The Conceptual Framework provides the foundation for Standards and Accounting Guidelines that:

  1. contribute to transparency by enhancing the comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.
  2. strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money. Standards and Accounting Guidelines based on the Conceptual Framework provide information needed to hold management to account. As a source of comparable information, those Standards and Accounting Guidelines are also of vital importance to regulators.
  3. contribute to economic efficiency by helping investors to identify opportunities and risks, thus improving capital allocation. For businesses, the
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Enhancing qualitative characteristic

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Enhancing qualitative characteristic – A qualitative characteristic that makes financial information more useful if the information both is relevant and provides a faithful representation.

Comparability, verifiability, timeliness and understand-ability are qualitative characteristics that enhance the usefulness of information that both is relevant and provides a faithful representation of what it purports to represent. The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered to provide equally relevant information and an equally faithful representation of that phenomenon.

Comparability

An enhancing qualitative characteristic that enables users to identify and understand similarities in, and differences among, items. Enhancing qualitative characteristic Enhancing qualitative characteristic

The Conceptual Framework provides the following guidance … Read more