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With the completion of the stable platform of international accounting
standards in 2004, the International Accounting Standards Board
(IASB) established itself as a world leader in the preparation of
accounting standards. As many countries agreed to adopt these standards,
or equivalents to them, influential national standard-setters such
as the United Kingdom, Australia and New Zealand acknowledged that
the time had come for an international approach to standard setting.
This new set of international accounting standards is expected to
have major implications for the way in which accounting is undertaken
in practice and the way in which accounting is taught in tertiary
institutions. As with business, a global perspective is required.
For universities, educating students to become a part of a global
business environment requires placing greater emphasis on understanding
accounting principles rather than applying specific local regulations.
Applying International Accounting Standards helps accounting
students and practitioners to understand the complexities of international
accounting standards and to apply the stable platform of standards.
It examines standards not related to specific industries that are
therefore of wide application. The book has four sections:
- Part 1: Framework. The first chapter in this section
provides an overview of the IASB as an organisation. To understand
the workings of the IASB, it is useful to view its history as
well as its current structures and decision-making processes.
The second chapter contains an analysis of the Framework in relation
to the accounting standards. A detailed knowledge of the Framework
used by the IASB in its development of accounting standards enables
the interrelationships between the standards themselves to be
better understood.
- Part 2: Elements. The three elements of accounting are
assets, liabilities and equity. This book uses primarily companies
as the organisational structure under review, so equity is analysed
in relation to the component parts of share capital, retained
earnings and other reserves. For assets, the key classes analysed
are: inventories; intangibles; leases; and property, plant and
equipment. Provisions and contingencies constitute the liability
focus, while other standards that cover both assets and liabilities
(such as income tax and financial instruments) add to the coverage
of the elements. Because of their effects on the recognition and
measurement process, the standards on business combinations and
impairment are included in this part.
- Part 3: Disclosure. An introduction to the process of
selecting and changing accounting policies, as well as the concept
of materiality, is provided in the first chapter of this section.
The remaining two chapters provide details about what must be
disclosed in the balance sheet, income statement, statement of
changes in equity and the cash flow statement.
- Part 4: Economic Entities. This section focuses on organisational
structures where an entity has investments in other entities.
Much detail is provided on the rationale for and preparation of
consolidated financial statements, including the translation of
the financial statements of foreign subsidiaries. Accounting for
investments in associates and joint ventures is also analysed.
The section closes with an examination of how information about
the segments of such organisational structures is prepared.
The five authors of this book have different backgrounds and employment
situations. Between us, we have had a long and close association
with national accounting standard-setting bodies, and involvement
in the practical application of accounting standards. Specifically,
in relation to international accounting standards, members of our
author team have been part of the process of developing the stable
platform, primarily working through national standard-setting bodies
and providing commentary to the IASB, as well as eveloping internationally
equivalent standards for the local jurisdiction. In addition, we
have been employed in helping entities understand the change in
accounting standards, and have also actively participated in the
implementation process.
In writing their chapters, we have endeavoured to ensure that the
following common themes flow throughout the book:
- Accounting standards are underpinned by a conceptual framework.
Accounting standards are not simply a rulebook to be learned by
rote. An understanding of the conceptual basis of accounting,
and the rationale behind the principles espoused in particular
standards, is crucial to their consistent application in the variety
of situations a practitioner is likely to face.
- International accounting standards are principles based.
Although a specific standard is a stand-alone document, the principles
in any standard relate to and are interpreted in conjunction with
other standards. This reinforces the conceptual basis of the standards.
To appreciate the application of a specific standard, an understanding
of the reasoning within other standards is needed. We have endeavoured
where applicable to refer to other accounting standards that are
connected in principle and application. In particular, extensive
references are made to the Basis for Conclusions documents accompanying
each standard. This material, although not integral to the standards,
explains the reasoning process used by the IASB as well as providing
indicators of changes in direction being proposed by the IASB.
- Accounting standards have a practical application. The
end product of the standard-setting process is applied by accounting
practitioners in a variety of organisational structures and practical
settings. While a theoretical understanding of a standard is necessary,
practitioners must be able to apply the relevant standard. The
author of each chapter has demonstrated the practical application
of the accounting standards by providing case studies, examples
and journal entries (where relevant). The references to practical
situations require the reader to pay close attention to the detailed
information provided, but such a detailed examination is essential
to an understanding of the standards. Having only a broad overview
of the basic principles is insufficient.
Many people have been directly and indirectly involved in the writing
of this book. Our task was made possible because of the discussions
and debates we have had with many colleagues, and with the staff
associated with the standard-setting bodies, particularly at the
Australian Accounting Standards Board. We thank them for their patience
and tolerance, as well as the impartation of their knowledge. Writing
a book takes time, and this has left less time for family and friends.
We thank them also for their support.
Finally, at a time when the world seems to produce situations
and pronouncements of ever-increasing complexity, we hope that this
book assists in the lifelong learning process that practitioners
and students alike must continuously engage in.
Keith Alfredson
Ken Leo
Ruth Picker
Paul Pacter
Jennie Radford
October 2004
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