International Accounting: Introduction Agenda 1. Introduction 2. Organisation of the IASB/IFRS Foundation 3. EC Regulation 4. Accounting principles and accounting standards 5. Components of financial statements 6. Definitions of assets, liabilities, income and expenses 2 1
Intention of accounting Introduction Philosophies of accounting Stewardship of management and accountability for the resources entrusted: Financial Accounting (UGB) Basis for taxes and dividends Reliability National legislative body Strict guidelines for accounting treatments Laws Predominance of the prudence principle Limited reporting Relevance for economic decisions: Business Reporting (IFRS/US-GAAP) Fair presentation Qualitative requirements Management Approach Extensive and detailed reporting International comparability 3 EC regulation (2005) Introduction Arguments to adopt IAS/IFRS Qualification to benefit from the capital markets More and detailed information to meet the information needs of shareholders (financial and non-financial information) Benchmark Standardization of the internal group reporting Improved information for creditors/lenders 4 2
Agenda 1. Introduction 2. Organisation of the IASB/IFRS Foundation 3. EC Regulation 4. Accounting principles and accounting standards 5. Components of financial statements 6. Definitions of assets, liabilities, income and expenses 5 Organisation of the IASB Foundation and development International Accounting Standards Board (IASB) Foundation of IASC on 29.06.1973 by professional associations (e.g. chartered accountants etc.) Foundation of the IASB in April 2001, located in London. IASB taking over the duties and responsibilities of the IASC. In regard of the restructuring of the IASC, the IASC Foundation (IASCF) as a foundation under private law located in Delaware, USA, was established On behalf of public interests the IASB shall develop worldwide accepted accounting standards of high quality and understandability. To provide investors with relevant information, high quality, transparency and comparability of the reporting is required. Together with the FASB the IASB started a project called conceptual framework with the objective to develop standardized international accounting rules and to abolish divergences between IAS/IFRS and US-GAAP 6 3
Organisation of the IFRS Foundation Source of information: Website of the IFRS Foundation: www.ifrs.org 7 Agenda 1. Introduction 2. Organisation of the IASB/IFRS Foundation 3. EC Regulation 4. Accounting principles and accounting standards 5. Components of financial statements 6. Definitions of assets, liabilities, income and expenses 8 4
EC Regulation of July, 19, 2002 All EU listed companies should be required to prepare their consolidated accounts in accordance with a single set of accounting standards, namely IAS/IFRS, from 2005 the latest. Options for member states: Preparation in accordance with IAS/IFRS Consolidated accounts for non-listed companies Preparation of annual accounts (stand alone) for listed and non-listed companies 9 EC Regulation Legal form Corporate enterprises Private companies Consolidated accounts Publicly traded Non-publicly companies traded companies IFRS mandatory IFRS optional Publicly traded companies IFRS mandatory Non-publicly traded companies IFRS optional Annual accounts Local GAAP mandatory Local GAAP mandatory Additional financial statements in accordance with IFRS for information purposes allowed 10 5
Agenda 1. Introduction 2. Organisation of the IASB/IFRS Foundation 3. EC Regulation 4. Accounting principles and accounting standards 5. Components of financial statements 6. Definitions of assets, liabilities, income and expenses 11 Fair Presentation no function as a basis for dividends (no blocking of dividends by using accounting rules) Matching Principle Financial position Balance sheet Mark-to-Market Accounting principles IFRS Accounting philosophy Need for Information Performance Financial position Cash flow statement Notes and supplementary schedules (e.g. segment reporting) Decision Usefulness Income statement transparancy - profit contributions and result - gains and losses due to exceptional events or circumstances Changes in equity and Other Comprehensive Income no function as tax base (no tax driven accounting) objective: reduction (or as the best case avoidance) of options 12 6
IASB-Framework: General accounting principles Underlying Assumptions Accrual Basis Going Concern Qualitative Characteristics: Understandability Comparability Relevance Reliability Constraints on relevant and reliable information: Timeliness Balance between benefit and cost Balance between qualitative characteristics Faithful Representation Substance over form Neutrality Prudence Completeness 13 14 Accounting principles Fair Presentation (IAS 1) Fair presentation of Financial positions Financial performance Cash flows Application of IFRSs results in fair presentation No rectification by disclosure of the accounting policies used or by notes or explanatory material in case of inappropriate accounting policies Explicit and unreserved statement of the compliance with IFRSs in the notes only in case of compliance with all the requirements of IFRSs Overriding principle only in extremely rare circumstances (IAS 1.19) 7
Accounting standards as at 03/2015 Standards IAS: 25 IFRS: 17 Framework Intentions Assumptions Principles Components Interpretations SIC: 5 IFRIC: 15 15 Accounting principles Hierarchy of the IFRS-System step 1 Applying SIC/IFRIC Interpretations step 2 Applying IAS/IFRS Standards step 3 Applying requirements and guidance in Standards and Interpretations dealing with similar and related issues step 4 step 5 Applying the definitions, recognition criteria and measurement concepts for assets and liabilities, income and expenses in the Framework Considering the most recent pronouncements of other standardsetting bodies that use a similar conceptual framework, other accounting literature and accepted industry practices 16 8
Accounting principles No application of new IFRS IAS 8.30 f.: When an entity has not applied a new IFRS that has been issued but is not yet effective, the entity shall disclose: The fact of non-application and Known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity s financial statements in the period of initial application Including disclosures about The nature of the impending change or changes in accounting policy The date by which application of the IFRS is required and the date it plans to apply the IFRS initially 17 Agenda 1. Introduction 2. Organisation of the IASB/IFRS Foundation 3. EC Regulation 4. Accounting principles and accounting standards 5. Components of financial statements 6. Definitions of assets, liabilities, income and expenses 18 9
All entities Statement of financial position (formerly: balance sheet) Statement of comprehensive income (formerly: income statement) Statement of changes in equity Statement of cash flows Notes management report" (in general on a voluntary basis) Components of financial statements Instruments of reporting Listed entities (additional) Segment reporting Earnings per Share Interim financial reporting 19 Example: UNIQA 2016 20 10
Agenda 1. Introduction 2. Organisation of the IASB/IFRS Foundation 3. EC Regulation 4. Accounting principles and accounting standards 5. Components of financial statements 6. Definitions of assets, liabilities, income and expenses 21 Assets Definition: resource, controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity ( generating cash inflows ) Recognition of assets, if 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 22 11
Liabilities Definition: a present obligation (legal or constructive), existing at the balance sheet date arising from a past event the settlement is expected to result in an outflow from the entity of resources embodying economic benefits Recognition of liabilities, if it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably 23 Income Income Revenues arise in the course of ordinary activities sales dividends interests rent, royalties, fees etc. Gains Represent increases in the value of assets or reductions in the value of liabilities disposal of non-current assets currency translation revaluation of marketable securities other unrealised gains 24 12
Expenses Expenses Expenses arise in the course of ordinary activities cost of sales wages and salaries depreciation Losses Represent reductions in the value of assets or increases in the value of liabilities disposal of non-current assets unrealised losses currency translation disasters like fire or flood 25 13