ABSTRACT
IFRS apply a conceptual framework for accounting for transactions. The aim is not to provide an all-inclusive set of rules, but to rely on a model which describes key principles that ought to inform the development of suitable accounting policies. However, increasing commercial complexity coupled with political interest and pressure to improve accounting standards after a series of highly publicised corporate scandals has led to an increasing rules-based approach by our standard setter. The result is that what we presently refer to colloquially as ‘IFRS’ actually includes 16 IFRSs, 29 IASs and numerous interpretations equating to well over 3 000 pages of text. Before starting to complain about the time that it is going to take to become familiar with each of these, think about your American counterparts. US GAAP – which attempts to codify the accounting for transactions using a prescriptive approach – is possibly ten times the volume of IFRS! In other words, the alternative to reading through this chapter and related references would be to study roughly 27 000 pages of US GAAP. At an average of 2 minutes per page (and assuming an effective 8 hours of reading per day), that would equate to 900 hours, 112 days or a third of a year just spent reading accounting standards.
When preparing financial statements, from whose perspective are they prepared – the business entity or the owner/s? How do we identify the resources and obligations of a business entity as well as the income earned and expenses incurred? And how do we measure performance – by cash flows or some other measure? These questions relate to the three fundamental accounting concepts that form the basis of your concepts-based introduction to financial accounting. This chapter will introduce you to these concepts – the entity concept, the definitions of the elements of financial statements and the accrual basis of accounting, along with some other fundamental accounting concepts.
