Discuss about the Measurement of Financial Elements as Per IFRS.
In the present times, it is very important to have the rule set for doing the proper implementation of each and every work. This is important so as to ensure that the different companies are implementing the global concepts which may prove to be useful for the purpose of accounting. It is necessary for the different companies to comply with the global standards. This is because if the financial accounting is done on the global basis, it is important to ensure that the global standards are met. In this report the discussion will be focused on the five different elements of the accounting standards which have been defined in International FRS conceptual framework and the ways in which the same can be measured by the different listed companies.
International Financial Reporting Standards has been designed in order to ensure that there should be the common global language for the business affairs so as to understand and ensure that the different company accounts can be understood and can be compared across the different boundaries of the world. These may prove to be the important consequences of the growth of the international shareholding in the world. It has been observed that in the recent times, these have been replacing the different accounting standards which are there at the national level. These are the standards which may be easily replacing the different national standards in the world. The need for the financial elements has been done in order to ensure that there should be the proper accounting around the world. The five elements of financial statements can be related to the measurement of the financial position of the company may include the following:
Asset: An asset may be defined as the resource which may be controlled with the help of the entity or can be done through the number of past events and from which there are a number of futuristic economic benefits which may be flowing to any given entity. Asset might be defined as some of the probable economic benefits which may be enjoyed or are being controlled by an specific entity because of the past events and its transaction (Epsteinc & Jermakowicz, 2008). One of the key characteristics of the same is that the assets give the representation of the probable economic benefits in the future. Any receivable may be the asset if and only if there may be a probability that there is a future benefit with the same. The employees which are the part of the company may give the representation of the future economic benefits which are enjoyed by any company. Though, they are not generally owned or controlled by the company directory and don’t qualify as assets (De George et al, 2012).
Liabilities may be defined as the obligations which may be there around and entity and something which may arise from some of the past events for which the settlements may be expected from the result or from the outcome of any specific entity. This may include the embodying the economic benefits i.e. assets. Most of these liabilities include the future payment of cash, the amount and the time for the same which may be specified by the contract which may be enforced. In the real sense, the liability may be something which may not be required in cash. Instead of this, it is something which can require that the company may transfer some of the other assets to some of the other service providers. An example of the same is the warranty liability which may be created for the seller. A liability may not be required to be represented by the help of the written agreement (Hooks et al, 2010). Also the same can’t be enforced by the law. For example, a company may also ensure that the salary may be terminated for the give period of time which may otherwise not be required to do so. This leads to the creation of the liability at the given date of termination.
Equity: A nominal equity may be defined the nominal residual interest which may be there in some of the nominal assets related to the entity after doing the deduction of the liabilities according to its nominal value (Borio et al, 2005). Thus, equity or the net assets for any given corporation may be defined as the residual interest which may be there in the assets which may be related to the entity which remains after deducting the liabilities. The financial performance of any company can be defined with the help of the statement of comprehensive income which may consists of the income statement and the statement which may also be including some of the other comprehensive income (Wüstemann & Kierzek, 2005). The financial performance may also include some of the elements which may be required for the application of the IFRS Standards.
Revenues: These may be defined as the inflows or some of the other kind of enhancement of some of the assets of the settlement of the liabilities which may be observed from some of the ways including the proper delivery and the production of goods, by providing some of the services effectively or by the other activities which helps in the ongoing major or central operations of the company (Silva & Couto, 2007). The overall revenues increases in the overall economic benefits which may be observed by the company during the given accounting periods in the form of the payments such as the out flaws or the depletion of some of the assets and incurrence of some of the liabilities because of the decrease in the overall value of equity.
Statement of cash flows: This may include the operating cash flows, the investing cash flows and the financing cash flows. The operating cash flows include the principle revenue producing activities which are related to the entity which can actually be calculated by the application of the indirect method (Bonsón et al, 2009). The profit and loss can actually be adjusted for the effects which may be related to the transaction which is a non-cash transaction and the items which can be associated with the cash flows. Investing cash flows may be defined as the process including the acquisition and the disposal which can be there in case of the long term asset which may not be included in the cash equivalents. Financial cash flows may include those activities which may be the part of result of the changes in the overall size and the actual composition which may be related to the given equity and borrowing related to the entity (Mackenzie et al, 2012).
It is important to measure the implication of the five elements of IFRS for the listed companies (Barth, 2013). This is important as it helps in doing the overall determination of the allocation of the capital which may be there across the companies, countries which are within the individual businesses. These are useful for the listed companies as they can help them in the determination of the facte if the company will undergo a failure or a success. This is also important because it is an evolutionary process. Listed companies are generally very big and they undergo a number of activities (Peng & Bewley, 2010). There are some of the economic activities which have the large influence on the company and reporting is necessary under this case. These are more and more important in case of the listed companies as there is more and more companies in the world being listed in different markets.
It is important to do the measurement of the financial elements as specified by IFRS in case of listed companies. After completion of the analysis of the financial element there is an important for the implication of the same in the listed companies. In order to do the measurement it is important to identify the assumptions (Beest et al, 2009). The assumptions in the same include the economic identity assumption and going concern assumption. Economic entity assumption may be defined as the one which includes the fact that each and every different economic events can be identified within he given economic entity. For example, if someone needs to have the ownership of the stocks of Forex, it is important that the information should be related to the United States Operations but also related to the EU and other international operations. The financial information under which there is a controlling interest should be combined with that of the FedEx. Another key assumption is that in case of the absence of the information, there can be an indefinite operation in the business (Marden et al, 2009). The financial elements of the listed companies may assume that the business is a growing concern.
There are four different principles which can be used for the purpose of measurement. This includes the historic cost principle, the realization principle, the matching principle and the full disclosure principle. The historical cost principle is the principle which states that the asset and the liability related measurements should be actually related to the amount which has either been given or received during the exchange transaction. GAAP is something which can be used for the measurement of the assets and the liabilities which may be there on the original transaction value which is actually the historical cost. In case of the asset, it is actually the fair value of something which can be given in an exchange (Picker et al, 2013). An example of the same is that in case a company borrows a total cash of value of $1 million and did the signature for the interest bearing note which may promise to do the repayment of the cash in future, the gross value of liability may turn out to be $1 million which would be the overall cash received in exchange. This is important for the companies which are listed for the number of reasons. Firstly, it helps to privde the important information related to the cash flow. This is because it helps to represent the cash or the cash equivalent.
Another principle is the realization principle which includes the different elements of FRS. This is used for the purpose of determination of the accounting model which may be a challenging task. This may include when there is the overall completion of the process of earning and the assurance for the collection (Beuren et al, 2008). This kind of criteria is useful for the different listed companies as it helps them to ensure that there is no recording of the revenue event. The timing in case of the revenue is the key elements for the listed company. The Statement report includes the revenue of the company over the period of one year.
Revenues are important to be analyzed for the listed company as it help to analyze if the company is making the required profits or not. Before doing any kind of investment, it is important to do the analysis if the company is making any kind of revenues. The future earnings may be defined as the key factor as the future prospects of the business of the company and the earnings can be determined on the basis of the stock prices (Tsalavoutas et al, 2010). The total revenues which are earned by the company can be analyzed through some of the elements such as sales, costs, assets and liabilities.
Conclusion
Thus it can be concluded that the different financial elements which have been defined in International Financial Reporting System are considered to be important for the analysis of the different ways in case of listed companies. It is important to understand the different elements which are the part of the financial reporting as they can be used for measurement of the listed companies. In this research paper, the measurement of the listed companies has been analyzed and understood. This has been done by consideration of the measurement of different element and the different measurement principle under which the same can be useful. Further there has been a critical analysis of the different principle and techniques which can be used for the financial analysis. The report contains the detailed discussion related to the analysis of measurement of financial elements in case of the listed companies.
References
Epstein, B. J., & Jermakowicz, E. K. (2008). Wiley IFRS 2008: Interpretation and Application of International Accounting and Financial Reporting Standards 2008. John Wiley & Sons.
Stent, W., Bradbury, M., & Hooks, J. (2010). IFRS in New Zealand: effects on financial statements and ratios. Pacific accounting review, 22(2), 92-107.
Wüstemann, J., & Kierzek, S. (2005). Revenue recognition under IFRS revisited: conceptual models, current proposals and practical consequences.Accounting in Europe, 2(1), 69-106.
Silva, F. J., & Couto, G. (2007). Measuring the impact of International Financial Reporting Standards (IFRS) in firm reporting: the case of Portugal.Available at SSRN 969972.
Mackenzie, B., Coetsee, D., Njikizana, T., Chamboko, R., Colyvas, B., & Hanekom, B. (2012). Wiley IFRS 2013: Interpretation and Application of International Financial Reporting Standards. John Wiley & Sons.
Peng, S., & Bewley, K. (2010). Adaptability to fair value accounting in an emerging economy: A case study of China’s IFRS convergence. Accounting, Auditing & Accountability Journal, 23(8), 982-1011.
Marden, R. E., & Brackney, K. S. (2009). Audit risk and IFRS. The CPA Journal, 79(6), 32.
Picker, R., Leo, K., Loftus, J., Wise, V. J., Clark, K., & Alfredson, K. (2013).Applying international financial reporting standards. Milton: Wiley.
Tsalavoutas, I., Evans, L., & Smith, M. (2010). Comparison of two methods for measuring compliance with IFRS mandatory disclosure requirements.Journal of Applied Accounting Research, 11(3), 213-228.
Beuren, I. M., Hein, N., & Carlos Klann, R. (2008). Impact of the IFRS and US-GAAP on economic-financial indicators. Managerial Auditing Journal,23(7), 632-649.
Van Beest, F., Braam, G., & Boelens, S. (2009). Quality of Financial Reporting: measuring qualitative characteristics. Nijmegen Center for Economics (NiCE). Working Paper, 09-108.
Barth, M. E. (2013). Measurement in financial reporting: The need for concepts. Accounting Horizons, 28(2), 331-352.
Bonsón, E., Cortijo, V., & Escobar, T. (2009). Towards the global adoption of XBRL using International Financial Reporting Standards (IFRS). International Journal of Accounting Information Systems, 10(1), 46-60.
Borio, C. E., & Tsatsaronis, K. (2005). Accounting, prudential regulation and financial stability: elements of a synthesis.
De George, E. T., Ferguson, C. B., & Spear, N. A. (2012). How much does IFRS cost? IFRS adoption and audit fees. The Accounting Review, 88(2), 429-462.
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