Answer to Question #208707 in Economics for Joseph zimba

Question

 Using hypothetical but realistic organizations, present different scenarios that may lead to a deviation from the proper use of the following accounting standards:

1. IAS 16 Property, plant and equipment

2. IAS 40 Investment Property

3. IAS 36 Impairment

4. IAS 37 Provisions, contingent assets and contingent liabilities

5. IAS 2 Inventories

6. IAS 38 Intangible assets 

7. IFRS 15 Revenue

8. IFRS 16 Leases

The entity that you create must have a name and actual transactions (with figures). Student groups are encouraged to be as creative and innovative as possible. The accounting standard in each case must first be explained in the groups own words, not as provided in the notes or plagiarised from literature, before a deviation may be discussed.

The example of deviation from the proper use of the standard must include recognition, measurement and de-recognition of the element in a particular case.

Answer 1

Scope of the Principles for the Preparation and Presentation of Financial Statements

The Principles apply to the financial statements of all commercial, industrial, and trading companies in the public or private sector.

1) "Principles of preparation and presentation of financial statements" consider ": the purpose of financial statements;

2) qualitative characteristics that determine the usefulness of the information in financial statements;

3) definitions of the recognition rule and methods for assessing the elements that make up the financial statements;

4) the concept of capital and capital maintenance.

The Principles cover financial statements, including consolidated statements. The reporting is submitted at least annually and is targeted at the needs of a wide range of users. Some users may receive additional information in addition to financial statements. However, many users mainly have to rely on financial statements as a source of financial information.

The preparation of reporting forms is part of the process for the preparation and presentation of financial statements.

Users and their information needs

The main users of financial statements are:

1. Investors investing capital (which has a certain risk), as well as their consultants who are interested in the risk and return on investment. They need to know whether to buy, hold or sell an investment (as well as the company's ability to pay dividends).

2. Employees and their representatives have a stake in the stability and profitability of their employers. It is also important for them to assess the company's ability to provide employment and pay wages and retirement benefits.

3. Lenders. Lenders need to know if their loans and interest will be paid on time.

4. Government represented by various ministries.

Among the above needs can be identified common to all users. Thus, if financial statements meet the information needs of investors, then they will also meet most of the needs of other users.

The primary responsibility for the presentation of financial statements rests with the management of the company.