How can I make money holding a company?
Possession in the future
Price appreciation
Dividend
Have equity stake on that firm
Who set the standards?
Standard-setting bodies
Who recognise and enforce the standards?
Regulatory authorities
Who set IFRS?
International Accounting Standards Board (IASB)
Who set GAAP?
The U.S. Financial Accounting Standards Board (FASB)
A NON regulatory authorities but an international association of securities regulators?
IOSCO
Main scope of IOSCO
- Develop international standards of market regulation to protect investors and address systematic risk
- exchange information and cooperate in enforcement to enhance invest protection and promote confidence
- development of markets, infrastructure and regulation
Difference in Inventory btw GAAP and IFRS?
- IFRS not allow LIFO whereas GAAP yes
Measurement of Certain Asset classes (IFRS)
Certain assets are initially recognized at cost. For subsequent measurement:
- continue with a cost model
- revalue the assets within each class to fair market value
Measurement of Certain Asset classes (GAAP)
does not permit use of revaluation model
Impairment (IFRS)
IFRS allow for reversal of impairments put to a certain amount if there is an indication that an impairment loss has decreased
Impairment (GAAP)
does not allow reversal of impairments
Certain NONFinancial liabilities recognition
is governed by the probability that a liability has been incurred under both U:S GAAP and IFRS. bt what is “probable” is different btw them
Definition of Probable under IFRS
more likely than not to occur
Definition of Probable under GAAP
The future event or events are likely to occur
Recognition of a Liability btw IFRS and GAAP
A liability will be recognized earlier under IFRS than under U.S Gaap
Two fundamental qualitative characteristics
Relevance : information that could potentially make a difference in users’ decision
Faithful Representation: Information that Faithfully represent an economic phenomenon that it purports t represent. Complete, neutral and free from error
Four enhancing qualitative characteristics
- Comparability: companies report and record information in a similar manner
- Veriafibility: Independent people using the same methods arrive at similar conclusions
- Timeliness: Information is available before it loses its relevance
- Understandability: Reasonably informed users should be able to comprehend the information
Element directly related to the measurement of FINANCIAL position
- Asset: resources controlled by the company as a results of past events and from which future economic benefits are expected to flow to the enterprise
- Liabilities: Present obligations of an enterprise arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits
- Equity: Residual interest in the assets after subtracting the liabilities
Element directly related to the measurement of PERFORMANCE
- Income: Increases in economic benefits in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity
- Expenses:Decreases in economic benefits n the form of outflows or depletions of assets or increases in liabilities that result in decrease in equity
Contraint
The benefits of information should exceed the costs of providing it
Underlying Assumptions
- Accrual basis: Financial statement should reflect transactions in the period when they actually occur, not necessarily when cash movements occur
- Going Concern: Assumptions that the company will continue in business for the foreseeable future
