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IASB framework provides its users with information that helps them to make financial decisions. The main objective is to provide an honest view of a business's performance and its position. IASB ensures that the financial statements are in compliance with standards and lack neither reliability nor relevance.
The concept of accrual and matching convention are relatively distinct but their impact is similar. The underlying aim of both is to record all the financial attributes in a specified period of accounting. The accrual convention is the accountants' perception of receipt or cash payment in relation to the legislation for receiving that payment e.g. balance sheet whereas matching convention is concerned with ensuring that allocation of costs is properly carried out in the given time period of recording revenue gains e.g. the cost of fixed assets is distributed through the depreciation above the asset value for matching the cost with already defined revenue generating intervals (Laughlin and Gray, 1988, p.186).
The concept of relevance illustrates that if financial information is valid, then it has the tendency to mould individual's economic decisions. Relevant financial knowledge has either collective or distinctive confirmatory or predictive value. It comprise of the concept of comparability, timeliness and understandability whereas reliability is dependent on users who must faithfully present its true meaning by honest presentation of actual transactions . In reliable financial accounting chances of bias are minimal. There is economic substance in dealings and neutrality e.g. in operating lease. In case of uncertainty IASB has established certain rules emphasizing the practice of caution in times of uncertainty. The ratio of conservatism is however low. In European countries the implementation of IASB 11, 38 and 12 are practical examples of low conservatism (Hellman, 2008). The financial information has to be fully integrated and impartial with benefits overweighing the predetermined costs.
According to para forty nine of the IASB draft, an asset is regarded as a resource monitored by a business due to the outcomes of past events, predicting the economic benefits expected by that particular business in the near future. For recognition & valuation methods used under IFRS, the expected inflows of an asset must be predictable. IASB para 89 narrates that reliability must be ensured while measuring the value and cost associated with the asset (Wyatt & Abernethy, 2008).
There are two types of assets namely the tangible assets and intangible assets. Tangible assets are classified as property, plant and equipment (IAS 16), and investment properties (IAS 40) while intangible assets are classified as the goodwill purchased. Assets can only be recognized if they promise benefits in the future and if their value can be measured reliably (Investopedia ULC, 2010). Variation in asset measurement basis are dependent on their classification.
Recognizing the tax imposed according to the financial statement defined numbers is deferred tax accounting. It is a means of evaluating fixed assets. For such accounting to take place IFRS dictates that accountants must consider the entire list of assets and liabilities as mentioned in the balance sheet, making comparison with tax values. The criticism faced by the concept is whether to count deferred tax among liabilities and the ambiguity associated with paying tax obligation (Nobes, 2003). Among countries UK and Germany rely on deferred tax recognition based on timing variation instead of temporary lapses while most nations do not utilize this accounting concept.
IASB 18 states in Para 9 that revenue is the total influx of economic advantages within a time period in a corporation especially when such rise results in improved equity values but still the definition is considered vague on the global scale.
IAS 1 allows firms to deviate from standards for a fair presentation of their positions. They must, however, include in their statements all the headings that are required by IAS. Businesses must, also, provide Balance sheets, P&L statements, Cash Flow statements and statement of changes in equity to its users of information. IFRS also hold special obligations with regard to pension holders, offering post retirement benefits
IFRS 3 mentions the possible combinations of Businesses in the form of acquisitions, and mergers (UK) or pooling (US). Laws regarding consolidation state that a subsidiary's assets and liabilities should be fully consolidated no matter how different it is from the other groups of the enterprise (Deloitte Global Services Limited, 2010).
If IASB ensures reliability and relevance of financial statements and if consolidation laws are strict then why were the fraudulent statements of Enron not identified at an earlier stage?
How do regulatory bodies ensure fairness in statements?
By allowing firms to deviate from standards, is IAS not allowing them to manipulate information?