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Advanced Financial Accounting Sample Assignment (pdf)

   

Added on  2021-04-16

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RUNNING HEAD: ADVANCED FINANCIAL ACCOUNTING Qualitative Characteristics of Useful Financial Information

Advanced financial accounting 1Task 1The conceptual framework of financial reporting addresses the basic concepts, which are to be applied at time of preparing and presenting financial statements to the external users. The chapter 3 of the framework covers qualitative characteristics of financial information. Under this, the concept of materiality is explained. It states that a data is consider to be material onlywhen its omission and misstatement leads to the changes in the decision of primary users of financial statements. In other words, materiality is defined as an aspect of relevancy which is based on the nature of the items. (Ey.com. 2013).According to IAS 1 – Presentation of Financial Statements, companies are required to take into account the facts by which the users of financial statements get influenced, at time of making decisions (Iasplus.com. 2018). In other words, the data contained in the statements and which can change the decision of the users is considered to be material. IAS 8 - Accountingpolicies,changesinAccountingEstimates andErrors, explains materiality as, the items which are omitted or misstated will considered to be material, only if they could affect decisions taken by the users. The effect can be by their size or nature and individually or collectively (Iasplus.com. 2018). The decisions are totally based on the company’s financial reports, which are prepared at the end of every fiscal year. Task 2IASB issued an IFRS Practice Statement 2: Making Materiality Judgements (PS) and an Exposure Draft (ED): Definition of Material, on September 14, 2017. Both are the outcomes of Materiality project. The PS provides guidance to the organizations in making materiality judgements at time of preparing final accounts as per IFRS. It also assists the users of financial information in understanding how the materiality judgements are been made by the entities in preparing the final accounts. The PS includes:(Ifrs.org. 2017).Materiality’s general characteristicsThe PS explains materiality through following characteristics:

Advanced financial accounting 2Definition: The PS includes the same definition of materiality as it was given in the conceptual framework. Any changes made in the ED, will led to the amendments in PS. Pervasive: The judgements on materiality are pervasive as they are been related to recognition, disclosure, measurement and presentation. In addition to this, PS states that there is no need for the entities to provide immaterial disclosures, even if it is required as per IFRS. Judgement: The Company’s circumstances and information needs of users, both are taken into consideration while making materiality judgements. Users and their needs: Generally, the existing investors or lenders are the primary users of financial information. They are expected to have a knowledge about how to analyse and evaluate the financial statements. The entities consider the effect of information on the users’ decisions and their needs, at time of making materiality judgements. Effect of publically available data: materiality assessment is been done irrespective of the fact that whether the information contained in financial statements is available from other source (Ey.com. 2017).Laws and regulations The Practice Statement states that companies are required to make interaction between materiality judgements and local laws. It clarifies that:The financial statements of a company must in compliance with the IFRS standards including all the requirements related to materiality.In order to meet the regulatory requirements, companies has to provide additional information irrespective of the fact that it is immaterial as per IFRS standards (Ey.com. 2017).Materiality judgements processThe PS contains four-step process that is used for preparing judgements related to materiality. The steps define how the company can identify an information to be material for the purpose of measurement, disclosure, recognition and presentation. The following four steps are:

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