My report on The International Accounting Standard Board (IASB) - frameworks and standards.

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Financial Accounting assignment

My report on The International Accounting Standard Board (IASB) will consist of the following:

1. Conceptual framework: definition of IASB, objectives of IASB framework, advantages and disadvantages of IASB

2. Regulatory Framework: legal framework, international accounting standards, bodies associated with IASC Foundation

3. Reporting on six international accounting standards: IAS1, IAS2, IAS7, IAS10 1AS18, IAS38

Conceptual Framework:

The International Accounting Standard Board (IASB) a London-based, privately funded organisation was founded on April 1st 2001. It issued its 'Framework for the Preparation and Presentation of Financial Statements.'  known as conceptual framework, which seeks to set and enforce standard for accounting procedures, and to set out the concepts that shape the preparation and presentation of financial statements for external users. The IASB consists of 15 board members, who are selected upon their professional competence and practical experience and their current chairman is Sir David Tweedie.

IAS 8 requires that in resolving accounting issues which are not addressed in an International Accounting Standard or International Financial Reporting Standard. Management must use its judgment in developing and applying an accounting policy that results in information that is relevant and reliable.

The user groups of financial statements are: present/potential investors, employees, creditors, customers, governments and in all the general public. All of these categories of users rely on financial statements to help them in decision making. IASB states that as investors are providers of risk capital to the entity, financial statements that meet their needs, will also meet most of the general financial information needs of other users.

The IASB framework concludes that statements cannot provide all the information that users may need to make economic decisions. For example financial statements show effects of past events and transactions, and decisions most users have to make relate to future transactions. While all of the information needs of these user groups cannot be met by financial statements, there are information needs that are common to all users, and general purpose financial statements focus on meeting these needs.

The IASB framework consists of:

Objectives of financial statement

Qualitative characteristics that determine the usefulness of  the information contained in the financial statements

Definition, recognition and measurement of elements from which financial statements are constructed.

Objective of financial statements: 

The objectives are to provide information on financial position, show the financial performance of an organisation, state any changes in financial position:

Information on the financial position of an organisation include information about economic resources controlled by the entity, the financial structure, the liquidity and solvency position of the entity and also the ability of that entity to adapt to a changing and dynamic environmen.t

Financial performance of an organisation shows the net assets of an organisation which indicate its profit levels. Financial performance information is essential since as it helps users: to assess economic benefits generated from its existing resource base and to determine the efficiency with which the entity might employ additional resources

Changes in financial position show how cash is used or generated from operating activities. It allows users to assess the cash adaptability of the organisation and the way in which cash is distributed.

Qualitive Characteristics:

The attributes that make the information in financial statements useful to investors are four principal qualitative characteristics:

Understandability

Relevance

Reliability

Comparability

Understandability is information which should be presented in a way that is readily understandable by users who have a reasonable knowledge of accounting and who are willing to study the information with reasonable care

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Information in financial statements is relevant when it influences the economic decisions of users by helping them evaluate past, present, or future events. Timeliness is another component of relevance. To be useful, information must be provided to users within the time period in which it is most likely to bear on their decisions.

Reliability is information that is free from material error and bias and can be depended upon by users to represent events and transactions faithfully.

Users must be able to compare the financial statements of an entity over time so that they can identify trends in its financial ...

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