International Financial Reporting: IFRS Report - University Name

This report provides an in-depth analysis of International Financial Reporting (IFRS), focusing on the conceptual framework and its evolution. It compares the 1989 IASB framework with the new one, detailing objectives, underlying assumptions, and elements of financial statements. The report explores the use of fair value in financial reporting, presenting arguments both for and against its adoption, and contrasts it with the historical cost method. It covers key aspects such as relevance, faithful representation, verifiability, comparability, timeliness, and understandability of financial information. Furthermore, it discusses the concepts of capital and capital maintenance, and how fair value measurement enhances comparability and consistency in financial reporting. The report aims to provide a comprehensive understanding of IFRS and its practical implications in financial statement preparation and presentation.

Running head: INTERNATIONAL FINANCIAL REPORTING
International financial reporting
University Name
Student Name
Authors’ Note

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Table of Contents
Introduction:...............................................................................................................................3
Conceptual framework for financial reporting:..........................................................................3
Background:...............................................................................................................................3
Objectives of financial reporting:...............................................................................................3
Underlying assumptions:............................................................................................................3
Elements of financial statements:...............................................................................................3
Concept of capital and capital maintenance:..............................................................................3
Use of fair value in preparation and presentation of financial statements:................................3
Conclusion:................................................................................................................................3

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Introduction:
The evaluation of the scope of new conceptual framework for financial reporting is
the main purpose of the report. Presentation and preparation of financial report is explained in
the report by comparing the 1989 IASB framework with that of new framework. Report also
demonstrates the arguments that are against the use of fair values and the arguments that are
in favour of the use of fair value in the presentation of financial reporting. In the financial
statements preparation the fair value has been compared to the historical method valuation
techniques.
Conceptual framework for financial reporting:
Background:
The primary purpose of conceptual framework issues by International Accounting
standard board (IASB) is to assist the board in reviewing existing financial reporting standard
and the development of future financial reporting. Concepts are set out in the conceptual
framework that provides details regarding the presentation of financial statements and the
manner of preparation of the financial statement for external users. Such framework intends
to assist the financial statements preparers in applying the international financial reporting
standard board and assisting board in promoting harmonization of regulations. The purpose
of framework is to interpret information that financial information presented in the financial
statements comply with the financial reporting standard (Cascino and Gassen 2015). The
intention for the framework is to reduce the number of different accounting treatments that
are officially recognized by IFRS. Conceptual framework also has the purpose of providing
information who is interested in working for IASB with the information about the approaches
of IFRS formulation. The need of conceptual framework arises from the requirement of
information about the reporting entity financial position (Hoyle et al. 2015). Such

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information might be related to economic resources of entity and any claim against the
reporting entity. Effect of economic transactions, other events, and any change in claims and
economic resources of reporting entity is also depicted in the financial report. All such
information provided in the financial report in accordance with the conceptual framework
would provide useful information for decision-making purpose.
Objectives of financial reporting:
The external user uses the financial statement for decision making and it is the main
purpose of the financial reporting. It helps users in providing useful information about cash
flows including the uncertainty and timing of cash flows. Information that are critical for
determining the business liquidity is provided in the financial reporting (Weygandt et al.
2015).
Financial reporting helps users such as lenders, potential investors and creditors for
making decisions regarding selling, purchasing, equity and debt or settlement of other types
of credit and loans. The main users seeking information about the resources of entity uses
financial reporting for not only assessing the prospect of future net cash flow of entity but
also efficiently and effectively managing the existing resources of entity for discharging their
responsibilities (Shenkar et al. 2014).
It helps in assessing the prospects of entity in discharging the responsibilities for
using the resources of entity along with prospects of entity for existing potential and existing
investors and future net cash flows. Examples of some of the responsibilities to be discharged
in lieu of financial reporting is protecting resources of entity from economic factors that
might have unfavourable effect such as technological and price change (Wang 2014).

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Underlying assumptions:
There are generally two underlying assumptions for preparing the financial statements
based on financial reporting and this involves accrual basis and going concern. For meeting
the objectives of financial reporting, statements of financial reports are prepared using the
basis of accounting for accrual. The main purpose is the recognition of events and
transactions are done when they occur and are recorded and reported in the financial
statements. The accrual bases of accounting are applied for the preparation of the financial
statement for obligations to make payment in future (Stubbs and Higgins 2014). Using
accrual basis for preparing the financial statements provides the information about past
transactions and are considered useful in the decision making process. Preparation of
financial statements is done on the assumption that entity is regarded as going concern so that
their operation will be continued for the near future (Nobes 2014). Therefore, it is assumed
that reporting entity neither intend to curtail the materiality of scale of operations and nor it
has the need to liquidate. If the entity have such intention, preparation of financial statements
are conducted in a different manner and disclosing the basis used for preparation.
Qualitative characteristics:
The attributes of Qualitative characteristics are helpful in providing useful
information to the financial statements users. The fundamental characteristics are the
representation of financial statement in a faithful and relevant manner. The fundamental
characteristics includes verifiability, comparability, understand ability and timeliness.
Relevance- In order for information presented in the financial report to be useful to
investors for decision-making purpose, they must be relevant. Information are said to be
relevant when it has the quality of influencing the users economic decision by assisting them
to evaluate present, past or future events. Future financial position of entity is predicted by

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the information generated from past performance. Information should not be in the form of an
explicit forecast if they are to give predictive value (Shenkar et al. 2014).
Faithful representation- In order for the information to be reliable, they must faithfully
represent all the transactions and any other associated events. Therefore, the balance sheet of
reporting entity should make representation of all the transactions that would help in meeting
the criteria of recognition. Most of the financial information presented has the risk of being
presented less faithfully that they purports portray. The fact that such information’s are less
faithfully represented is due to inherent difficulties in either applying the measurement and
presentation techniques or identifying the transactions (Henderson et al. 2015).
Verifiability- Verifiability is the factor that helps in assuring that information’s are
faithfully represented what is purports to present. Evidence helps in supporting the financial
information and individual information enable them to see whether such information’s are
represented faithfully. If the information can be audited, then it is verifiable.
Comparability- In order to identify the trends in the financial performance of
organization, users must be able to compare the financial statements of reporting entity. For
evaluating the relative financial position of entities, financial statements of different entities
should be prepared in such a way that it would assist comparability. The important
implications of comparability are that users are informed about the accounting policies that
are engaged in preparation of financial statements (Adams 2015).
Timeliness- Information reported may lose its relevance if there is any undue delay in
presenting the information. It is required by management to create balance between the
reliable information provision and relative merits of timely reporting. All the aspects of
transactions are necessary to be reported if the information is to be provided on timely basis.
This will help in impairing reliability of the financial information’s. On other hand,

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information is considered highly reliable if the reporting is delayed until the aspects are
known. Satisfying the economic decision making needs of users helps in achieving the
balance between reliability and relevance (Biddle et al. 2016).
Understandability- Understandability is one of the essential qualities of information
that is provided in the financial statements, as it is readily understandable by users. For
enhancing the understandability factors, it is assumed that users have reasonable knowledge
of business and economic activities along with willingness to study the information with
reasonable diligence. However, the information should not be excluded on the ground that it
might be difficult to understand by users because of its complexities and should be included
in the financial statements because of its relevance.
Elements of financial statements:
Assets- The resources are the assets that are controlled by entity from the economic
benefits are normal to flow to entity. The economic benefit for future is embodies in the
assets is the potential to make direct and indirect contribution to cash equivalent and cash of
entity. Assets might also take the form of convertibility into cash or capability of reducing
cash outflows.
Liabilities- Liabilities is the financial element indicating present obligations of
organization. Such obligations might be enforceable legally as a statutory requirements or a
binding contract. The conceptual framework creates distinction between future commitment
and present obligations and obligations arises when acquisition of assets are done by entering
into an irrecoverable amount (Cheng et al. 2014).
Income- Framework incorporates the income definition as encompasses both gains
and revenue. Ordinary activities of entities leads to arising of revenue and is known by
several names such as interest, sales, dividends, royalties and fees. Income helps in enhancing

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several kinds of assets and settlement of liabilities helps in generating liabilities. Unrealized
gains of an organization arising from long-term assets carrying amount and marketing
securities revaluation is also included in the definition of income (Christensen et al. 2015).
Expenses- In the ordinary course of business the expenses are the cost incurred by the
organization and it also encompasses loss. The asset depletion or outflow such as inventory,
cash and cash flow, plant equipment and property are usually taken the form. Unrealised
expenses such as those arising from increase effects of rate of exchange are involved in the
definition of expenses.
Equity- Equity is the interest of ownership in the entity that has different rights in
relation to repayment of contributed equity and dividend receipt. Measurement of liabilities
and assets forms the basis of amount of equity that is depicted in the balance sheet.
Concepts of capital and capital maintenance:
Needs of financial statements users should form the basis of selection of appropriate
concept of capital.
Financial capital- Almost all the entities in the financial statements preparation make
use of concept of financial capital. The synonymous of Capital with the equity or net assets of
company under the financial concepts of capital such as invested purchasing power and
invested money (Hribar et al. 2014). If the financial statement users are concerned about the
purchasing power of invested capital or maintenance of nominal capital, then financial capital
concept should be adopted.
Physical capital- Capital under physical concept is regarded as entity based physical
capital that includes operating capability. Physical capital concept is used when the user’s
main concern is operating capability of entity (Leuz and Wysocki 2016).

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Use of fair value in preparation and presentation of financial statements:
Fair value measurement as per IFRS 13 that requires disclosure of fair value
measurements and it seeks to increase the comparability and consistency of measurements
using a fair value hierarchy. As per the hierarchy, input is characterized into techniques of
valuation into three levels. The characteristics of assets and liabilities are taken into account
by reporting entity that is being measured by considering the price of assets and liabilities at
the measurement date. Historical value is the old accounting principle that depicts the
economic conditions when assets are purchased. Using historical concepts for preparation of
financial statements, a lack of inaccuracy is created within the financial reports. Fair value
method on other hand helps in facilitating the comparison of similar assets (Lara et al. 2016).
Since the valuations of instruments of finance are done at the time and using the discount rate
of same, there can be efficient comparison of assets with the market. Valuing the financial
instruments using the historical cost, valuation of identical assets with identical cash flow
would be done differently based on time they are purchased. For the same assets under fair
value accounting, different entities record different prices depending upon the credit standing
and market accessibility. Moreover, difference in assets price due to factors affecting the
industry is eliminated by fair value (Collier 2015).
Conclusion:
From the analysis of conceptual reporting framework, it can be inferred that there are
several uses of such framework in the financial information representation by reporting
entity. Framework is concerned with the general purpose financial reporting such as
consolidated financial statements. The importance of conceptual framework assists financial
statements preparers in developing accounting policies. Therefore, it can be said that such
framework is of great importance to both users and preparers of financial statements.
Moreover, it has been ascertained that valuation of financial statements using fair value are

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more significant compared to historical value measurement because of several benefits
offered by fair value.
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