Financial report of International Accounting Standards Committee

Published:

International Accounting Standards Committee (IASC) stated that the point of financial statements is to afford information about the activity that is useful to a wide range of users in making economic decisions.

Financial statements act as a review of all dealings which have been taking place in business. The financial statements consist of the income statement account, the balance sheet and the cash flow statement.

Principal qualitative characteristic of financial information

Materiality. That means material. It is relevant to the client. In other meaning, a piece is material, client have done different things if he or she do not know about the item. In contribution materiality of financial information not only depends on the financial value but also depend on the character of the transaction. There are other items in financial statements which involve controlling precision as may have a large authority on the operation of the project or may lead to mistaken belief by clients of financial information. Example includes the directors' payment, because the director's act as agents of the shareholders any slight under statement in their recompense may create a center of attention a chorus of disapproval from the shareholders.

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Relevance.

The simply meaning of relevance is in sequence capable to honestly authority the judgment making process of the client. To be appropriate financial information should contain the past as well as present records and be able to provide a yard stick for the future(Ref: International accounting Standards Board 17 May 2005, London Project: Conceptual Framework). Relevance is a quality emphasized in every accounting framework. That is hardly new. There is at least one cross-cutting issue about relevance, about the meaning of predictive value, which is discussed below after reviewing what the staff considers a non-issue: that relevance belongs among the qualitative characteristics and consists of predictive value, confirmatory value, and timeliness.

Review of relevance:

Making a difference in a decision

Predictive value

Feedback value

Timeliness

(Ref: Intermediate Accounting (12th Edition) Chapter 2 Keiso, Weygandt, and Warfield)

Reliability

According to IASC abstract support, to be reliable information must be impartial, that is free from bias. Financial statements are not neutral if, by the variety or arrangement of information, they are authority the making of a judgment in order to get a fixed effect or takings.

Overview of Reliability

Verifiable

Representational faithfulness

Neutral- free of error and bias.

(Ref: Intermediate Accounting (12th Edition) Chapter 2 Keiso, Weygandt, and Warfield)

Combination of relevance and reliability overview:

Relevance and reliability are the two primary qualities that make accounting information useful for decision making.

For a example

In a project, for financial statement income statement is part which worn to explain the financial illustrate of a project. In an enterprise, income statement shows the profit and loss in accounting stage.

The profit the enterprise needs to be opening into ordinary and extra ordinary objects. According to IAS 8 regular actions are any activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of, incidental to, or arising from these activities. On the other hand extra ordinary items are income or expenses that arise from events or transactions that are clearly distinct from ordinary activities of the enterprise and therefore are not expected to recur frequently or regularly.

There are other items of income and expenses within the operating activities which are supposed to be disclosed separately because of their rare occurrence or significance in monetary value. The items include the following:

The write down of inventory to the net practicable value or property, plant and equipment to recoverable amount, as well as the reversal of such write downs.

A restructuring of the activities of an enterprise and the reversal of any provisions for the costs of restructuring.

Disposal of items of property, plant and equipment.

Disposals of long-term investments.

Discontinued operations.

Litigation settlement; and

Other reversals of provisions.

There are two ways in which income statement can be produced, one based classification of expenses by function and the other where expenses are classified by nature of the expenses.

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Income statement on expenses classified by function:

T & T Income statement for the year ended 31st December 2004

 

2004

2003

 

SK

SK

Revenue

450,000

410,000

Cost of sales

(230,000)

(180,000)

Gross profit

220,000

230,000

Other operating income

25,000

40,000

Distribution costs

(70,000)

(60,000)

Administration costs

(80,000)

(45,000)

Other operating costs

(10,000)

(5,000)

Profit from operations

85,000

160,000

Finance cost

(12,000)

(10,000)

Income from associates

24,000

20,000

Profit before tax

97,000

170,000

Income tax expense

(35,000)

(30,000)

Profit after tax

62,000

140,000

Minority expenses

(14,000)

(12,000)

Net profit from ordinary activities

48,000

128,000

Extraordinary items

5,000

(7,000)

Net profit for the period

53,000

121,000

Income statement on expenses classified by their nature:

T & T Income statement for the year ended 31st December 2003

 

2003

2002

 

Mk

Mk

Revenue

450,000

410,000

Other operating income

25,000

40,000

Changes in inventories of finished

goods and other work in progress

(180,000)

(190,000)

Work performed by the enterprise

capitalized

40,000

34,000

Raw materials consumed

(170,000)

(50,000)

Staff costs

(45,000)

(49,000)

Depreciation

(25,000)

(30,000)

Other operating expenses

(10,000)

(5,000)

Profit form operations

85,000

160,000

Finance cost

(12,000)

(10,000)

Income from associates

24,000

20,000

Profit before tax

97,000

170,000

Income tax expenses

(35,000)

(30,000)

Profit after tax

62,000

140,000

Minority interest

(14,000)

(12,000)

Net profit or loss from ordinary activities

48,000

128,000

Extra ordinary

5,000

(7,000)

Net profit for the period

52,000

121,000

The enterprise can produce abbreviated income statement which may not contain all the above mentioned sections. IAS 8 requires that even if the enterprise produce concentrated accounts but the following should still appear on the face of income statement.

Revenue.

The results of operating activities;

Finance costs;

Share of profits and losses of associates and joint ventures:

Tax expenses;

Extraordinary items;

Minority interest; and

Net profit or loss for the period.

(Ref: http://eprints.ouls.ox.ac.uk/archive/00001060/01/AUDIT_MATERIALITY)

(Ref: http://cbdd.wsu.edu/kewlcontent/cdoutput/TOM505/page17.htm)

(Ref: Transport Financial Analysis, Page 17 of 43 pages. Chapter: 6: Preparation of Financial Statements)