Theory – Chapters 23 & 24

1. Introduction to the Regulatory Framework

Elements of Regulation
Formats of Financial Statements
Financial Reporting Standards setting process
Integrated Reporting
Please refer Mind Map 1 – Regulatory Framework

2. IASB Conceptual Framework

A common platform to develop Accounting Standards
Developed by The International Accounting Standards Board
Chapters of the Conceptual Framework
➢ Objectives of Financial Statements
➢ Underlying Assumptions
➢ Qualitative Characteristics – Pl ref Mind Map 14.14
➢ Elements of Financial Statements
➢ Measurement of Profit and Capital Maintenance
Please refer Mind Map 2 – The Conceptual Framework

3. Financial Reporting Standards Setting Process

IFRS Foundation – The supervisory body of the IASB and provides funding
International Accounting Standards Board (IASB) – Prepares Accounting Stds
IFRS Interpretations Committee – Provides interpretations on issues arising
IFRS Advisory Council – Advisory body to the IASB and IFRS Foundation
Please refer Mind Map 3 – Standards Setting Process

4. Key Terminology
Asset
➢ ”A Resource Controlled by an Entity, as a result from a past event from
which future economic benefits are expected”
➢ Non-Current Assets - Buildings, Machinery, Motor Vehicles
• Used for more than 1 year
• May be not the legal owner eg. Finance Lease
➢ Current Assets - Stocks, Trade Receivables, Cash and Bank
 • Held for conversion into cash in the normal course of trading
Liability
➢ An entity’s obligation to transfer economic benefits as a result of past
transactions or events
➢ Non Current Liabilities – Long Term Loans, Debentures
• Settled after 12 months
➢ Current Liabilities – Trade Payables
• Settled within 12 months
Income
➢ “The recognition of the inflow of economic benefits to the business entity
during the period”
• Revenue – Income earned in the ordinary course of activities
Expense
➢ “The recognition of the outflow of economic benefits during the period”
• Cost of Sales, Administration Exp, Distribution Exp, Finance Costs
Revenue – Cost of Sales = Gross Profit
Gross Profit – Expenses = Net Profit
Please refer Mind Maps 4.1, 4.2 & 4.3 on Terminology

5. Formats of Financial Statements

Statement of Financial Position
Statement of Profit or Loss Account
Statement of Other Comprehensive Income
Statement of Cash Flows
Statement of Changes in Equity
Done during the course – Chapter 4, 18, 22

6. Integrated Reporting
A new way of reporting
Both historical and forward looking
Value creation in Short Term, Medium Term and Long Term
6 Capitals
➢ Financial, Manufactured, Intellectual, Human, Social n Relationship,
Natural
Please refer Mind Maps 6.1 & 6.2

7. Business Environment
What is a Business?
➢ Entity that regularly enters into transactions that are expected to provide a
reward measurable in monetary terms
 Profit oriented Businesses – Limited Liability Companies
Not for Profit organizations – Charities, Local and Central Govt
Business Stakeholders – Any party who has an interest in an organization
➢ Shareholders, Management, Employees, Public, Competitors,
Government, Suppliers & Customers
Please refer Mind Map 7

8. Stewardship
Relationship of Accountability ( BOD # Shareholders)
Principles of Stewardship
➢ Integrity, Objectivity, Professional Competence and Due Care,
Confidentiality, Professional behaviour
➢ To ensure assets / business is safeguarded
Please refer Mind Map 8

9. Accounting Records
Various Records used in an Accounting Process
➢ Purchase Requisition, Quotations, Purchase Order, GRN, Invoice,
Debit/ Credit Notes, Payment Voucher, Remittance Advice, Receipt,
Account Statements
Please refer Mind Map 9

10. Financial Accounting vs Management Accounting

➢ External Users vs Internal Users
➢ Prepared Annually vs Prepared Monthly
➢ Regulatory Requirement vs Internal requirements
➢ Past performance vs Budgets, Forecasts etc
➢ Adheres to Acc Standards vs Meets the needs of the management
Please refer Mind Map 10

11. Coding Systems

Characteristics of a good coding system
➢ Unique, useful, compact, meaningful, self-checking, expandable, std size
Capital and Revenue Transactions
➢ Benefits for more than 1 year vs benefits during the current year
How to organize the ledger?
➢ Cash Books
 ➢ Sales and Purchase Ledgers
➢ General Ledger
How to estimate Allowance for Receivables?
➢ Thru experience, individual assessment, Use overall %, Using Age
analysis
Please refer Mind Map 11

12. Intangible Assets

Definition - “An identifiable non-monetary asset without physical substance”
Purchased Intangibles – Capitalized and amortized
Internally generated Intangibles – Generally not recognized
Purchased Goodwill – Capitalized as an intangible asset and tested annually
for any impairment
Non-Purchased Goodwill is not recognized
Research Expenses – Expensed to the Profit or Loss Account
Development Expenditure to be capitalized as an Intangible if criteria is met
Please refer Mind Map 12

13. Impairment of Assets

Where the Carrying Value is Higher than the Recoverable Value
Recoverable Value is the Higher of FV less cost to sell or Value in Use
Please refer Mind Map 13

14. Qualitative Characteristics of Financial Statements

Fundamental Characteristics
➢ Faithful Representation – Complete, Free from Error, Neutrality
➢ Relevance - Materiality
Enhancing Characteristics
➢ Comparability – Consistency & Disclosure
➢ Verifiability
➢ Timeliness
➢ Understandability
Please refer Mind Map 14