Overview of accounting standards (core contents)
As commonly known, there are many accounting standards, they cover a lot of contents that appear to have many overlaps. However, an overview look of the standards shows that they only revolve around a few core contents:
- Recognition criteria in the financial statements: To be recognized as assets, liabilities, equity, revenue and expenses, all criteria must be met but not otherwise. For example, if a piece of land contains oil reserves that cannot be extracted, the land’s owner cannot recognize said oil as an asset.
- Classification in the financial statements: After being recognized in the financial statements, the next step is to determine the specific classification of each item. For example, recognized as assets but whether classified as inventory or fixed assets?
- Initial measurement: The value at the initial recognition is based on the value determined at the transaction date or reporting date? This value will remain the same or will be needed to adjust in the next accounting periods?
- Subsequent measurement: After the initial measurement, the value remains the same, or should it be adjusted to fair value at different points of time?
- Presentation and disclosure of financial statements: What information should be presented and disclosed about the data? Financial statements do not simply reflect the numbers, but relevant information is needed to justify that data, as well as being presented in a way that meets specific criteria so that users can understand the financial statement adequately and clearly.
If one thinks that accounting is simply the act of copying numbers from documents to accounting books and financial statements, then that is completely mistaken. It always has to go through a series of professional judgments and considerations as mentioned in those 5 principles above to satisfy the requirements of providing useful and relevant information to users of financial statements.
Since the standards only revolve around the principles, when reading any standard, the readers should always clearly identify which of the above principle(s) is referred to then it will be easier to apply them.
Systematization of accounting standards
Why are there only 5 core principles, but so many accounting standards are needed?
To meet the needs of users of financial statements in a variety of industries and situations, the standards must present many necessary items and contents. Each item and content have its characteristics, and they vary under different conditions and circumstances, so the system of standards must be designed to accommodate that diversity. However, for systematization, these standards can be grouped into the following groups:
Group 1: Foundation-level standards, which provide common principles to apply to all other standards.
Group 2: Standards that only specialize in a certain core principle but have a wide-range impact on many items in the financial statements.
Group 3: Standards that cover several core principles but only have an impact on a specific item in the financial statements.
Group 4: Standards with content specific for the presentation and disclosure in financial statements.
For a better understanding of the above groups of standards, please refer to here
For the complete pack of International Financial Reporting Standards (IFRS), please refer to here