CH3 - Financial Report Standards
CH3 - Financial Report Standards
CH3 - Financial Report Standards
• Generally,
- Standard-setting bodies set the standards and
- Regulatory authorities recognize and enforce the
standards.
• However, regulators often retain the legal authority to
establish financial reporting standards in their jurisdictions
and can overrule private sector standard-setting bodies.
Reporting Elements
Qualitative Characteristics
Objective
To Provide Financial Information
Useful in Making Decisions about
Providing Resources to the Entity
o Reporting
Constraint Ele
Cost (cost/benefit considerations)
Underlying Assumption
Accrual Basis
Going Concern
objective. o
o
o
Expenses
Capital Maintenance Adjustments
Past Cash Flows
o
o
Liabilities
Equity
o Reporting
Constraint Ele
Cost (cost/benefit considerations)
Underlying Assumption
Accrual Basis
Going Concern
Financial Position
represents an economic o
o
o
Income
Expenses
Capital Maintenance Adjustments
o
o
o
Assets
Liabilities
Equity
Relevance*
- Verifiability: Independent people Faithful Representation
Comparability, Verifiability,
Timeliness,
Understandability
movements occur.
o Reporting
Constraint Ele
Cost (cost/benefit considerations)
- Going Concern: Assumption
that the company will continue Underlying Assumption
Accrual Basis
in business for the foreseeable Going Concern
future. *Materiality is an aspect of relevance.
• Fair presentation
• Going concern
• Accrual basis
• Materiality and aggregation
• No offsetting
• Frequency of reporting
• Comparative information
• Consistency
Use of Estimates
“The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to use judgment and make estimates that affect the reported
amounts of assets and liabilities and disclosure of contingent gains and losses at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The level of uncertainty in estimates and
assumptions increases with the length of time until the underlying transactions
are completed. As such, the most significant uncertainty in the Company’s
assumptions and estimates involved in preparing the financial statements
includes pension and other retiree benefit cost assumptions, stock-based
compensation, asset impairment, uncertain tax positions, tax valuation
allowances and legal and other contingency reserves. …Actual results could
ultimately differ from those estimates.”
Excerpt from footnotes in Colgate Palmolive Company’s 2011 Annual Report