QUALITATIVE CHARACTERISTICS OF IASB FRAMEWORK
The IASB framework was approved by the IASC board in April 1989 for publication in July 1989 and adopted by the IASB in April 2001. Its main objective is to help IASB to introduce or revise accounting standards. It helps the users to deal with the issues which are not addressed by the standards.
The main purpose of financial statements is that it delivers the information of an enterprise regarding its position as well its liquidity. It also shows the performance of the enterprise including the changes occurring in the company’s financial status.
QUALITATIVE CHARACTERISTICS OF IASB FRAMEWORK
The information available should be meaningful to the users. This principle is about the ability of the users to get the meaning of the information available in taking a decision. It is very common that it is a hard job to people who have less knowledge of it but this characteristic of accounting states that it should be clear and understandable to any person who has a limited knowledge of accounts. There is a fine balancing act needed by the preparers. Statements of finance must be prepared in a manner that they must be very much understandable and clear to the person who is using it.
Financial statements of a firm or between different firms must be comparable by the users over a period of time. By doing so, user can know the current condition of its financial performance and position. For financial analysis, comparison of financial statements becomes much more helpful.
The user can predict the future of the company by accessing the past information about the company’s performance and its position of finance. This can be used as the platform. Even information about other issues of the company can be obtained according to this characteristic. The users are always having keen interest in such matters like salaries of employers, its dividend, etc. Also the capacity of the company to fulfil its claims and commitments can be estimated. Hence this characteristic is very useful.
Information provided must be worthy to rely to take the particular decision. Information available to the user must be reliable so on the basis of that information; user can take a genuine decision in the situation of any issue. If information is relevant, it is not necessary that it is reliable.
The transactions as well as other accounting operations must be represented fairly and in a faithful manner. By doing so it becomes easy at the time of reporting and auditing, because the user can just match with the entries available and as the entry is done faithfully, no issues arises at that time.
Substance over form:
All transactions should be accounted according to the substance it possess and not simply for their legal form. This means that all the transactions should all be recorded and written down. For example if a business sells any one of its property to another company it should be noted down in accounts as well for the year.
Information used must be neutral as well as it should be free from bias. It must be provided in an objective manner.
For any business, there are likely to have some uncertainties along with the estimated predictions. Hence while taking any decisions at the time of uncertainty; it is also necessary to put into claws those uncertainties as a symbol of caution. This caution is termed as prudence in the language of accounting which is a very important part of financial statements. The types of uncertainties include doubtful debts, claims of warranty, etc.
For information to be reliable it is required to be complete within the limits of cost as well as materiality. Any omissions in it can cost the business a loss. If information is not complete, it can also affect the image and reputation of the business of showing false details. Hence the information must be totally complete.
THE USER GROUPS OF IASB FRAMWORK
Acceptance of IASB definitely has a number of advantages for preparers, users and standard setters. The users of this information generally consist of people from different classes of life. Hence they prove to have the general knowledge about the published accounts and thus use it according to their needs. This may differ in application but the relevant information from each rule is kept the same and cannot be changed.
The users groups may include;
Organization will be able to cut accounting costs connecting with translating accounts from one type of standards to another if there are foreign operations. Uniform accounting standard accepted by countries will allow companies to exercise better control of their financial resources and simplify consolidation process when preparing annual reports (Nobes and Parker, 2006; Taylor, 2009).
This group will be interested in the accounts of a particular business as they have the money and they want to invest in the business. Their interest in the business can be totally different from any other user in the group as their purpose is just to have return profit of what is being invested.
Buyers of a particular business are interested in the business to buy it because they have the interest as they think that they can make a profit from a business. Also they need to foresee that the business is having future and that they can earn more income.
The employees of the company are interested in this because they want to see that how the company is functioning and how good is the future of the company. The thing that keeps them interested in the business is that they know that their job is secured and they can make their future in the business.
The shareholders are interested in this because they know that they want to see how the business is performing like the employees but the reason behind this is different as they are interested in making profit and they want to keep an eye on the money they are spending in the business.
Creditors are interested as they want to be aware about the company with which they are working will not run off and that the future of the company is secured.
Governments want to monitor and look into the business as it has to impose the tax on a company which is thus making a profit of some amount and then they use that money in other ways which in return help the growth of the economy which ultimately in turn helps the community as well.
Public is interested in accounts of a particular company because they are usually playing two roles. They can be either investing in the company or they are investors in the company and they want to be sure that their money is being used in the right way. Public can be future investors so if the accounting framework is systematic and understandable, they can take their decision for investment by studying company’s financial reports in depth. Also they need to see that they make profit for the company and for themselves.
In conclusion we can say that the IASB framework is very useful in preparation of financial statements as well as maintaining and following the accountancy standards more precisely. It has qualitative characteristics like relevancy, reliability, comparability and understandability. These characteristics help the users in understanding the information given in the financial reports.
Government, employees, customers, lenders public, etc. are the users of these financial statements. These users grab the information available in the financial statement and apply them in their respective field in order to take required judgment. This information is used to predict the potential change in its economic resource. Also it can be used to estimate the effectiveness of a business future and its liquidity.
Information regarding changes in financial position of an entity is useful in order to assess its investing, financing and operating activities during reporting period.
In spite of being lots of applications of the framework in different fields, it has its own limitation. All the components are related to each other in the financial statement but each component has its own individual importance. Also, a user can’t get complete information by referring a single component. He needs aid of all these components in order to satisfy his need. For example if we want to measure the performance of a certain entity, we need 3 components- a balance sheet, an income statement and also statement of change in financial position. The contents of each component are entirely different still we need to compare 3 of them together to have detailed information.
IASBframework, Available from http://www.managementaccountant.in/2009/07/iasb-framework-financial-statements.html, accessed on 26/03/2010
http://www.iasb.org/IFRSs/IFRS.htm, accessed on 26/03/2010
Atrill, P etal. , (1992) accounting for business, butterworth-heinemann ltd, oxford ox2 8dp.