The Framework for the Preparation and Presentation of Financial Statements, also known as the Conceptual Framework for Financial Reporting, provides the foundation for setting accounting standards and deciding how to resolve accounting issues.
Full absorption costing, also known as absorption costing, is a method of accounting that captures all direct and indirect manufacturing expenses when determining the cost of the final product.
Full Disclosure refers to the obligation to release all material information pertinent to a transaction, especially in the context of securities where public information requirements are regulated.
The currency of the immediate economic environment in which an entity operates, i.e. the one in which it earns and spends cash and which chiefly determines its costs and prices. This will sometimes differ from the currency in which its accounts are presented (the presentation currency), especially where the entity is part of a multinational group.
Fund accounting is a system used by nonprofit organizations and governments to track resources and ensure accountability and compliance with legal requirements, rather than focusing on profitability.
Fundamental accounting concepts are the core principles that underpin the practice of accountancy, shaping the integrity, consistency, and efficiency of financial reporting.
A funds flow statement provides a detailed analysis of the changes in a company's working capital during a specific period, detailing the sources and applications of funds.
A Funds Flow Statement describes how a business has raised and used its funds over a specific period, detailing sources like trading profits, issues of shares, and sales of fixed assets, and uses like trading losses, dividends paid, and repayment of borrowings.
Furniture, Fixtures, and Equipment (FF&E) are tangible assets that businesses use to enrich their operations. Unlike real property, these items are typically moveable and are not permanently affixed to buildings.
Gain Contingency refers to a potential or pending development that may result in a future gain to the company, such as a successful lawsuit against another company.
The Governmental Accounting Standards Board (GASB) is an independent, private-sector organization that sets accounting and financial reporting standards for U.S. state and local governments.
General purpose financial statements are annual accounts and reports prepared by companies to serve the needs of a wide range of users, often regarded as compromise documents.
Generally Accepted Accounting Principles (GAAP) are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements. GAAP’s objective is to ensure that financial reporting is transparent and consistent from one organization to another.
Conventions, rules, and procedures that define accepted accounting practice, including broad guidelines as well as detailed procedures, ensuring consistency and transparency in financial reporting.
Generally Accepted Accounting Principles (GAAP) are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards set by policy boards and common accounting procedures accepted across the industry.
US GAAP refers to the accounting rules, standards, and concepts that guide US accountants in measuring, recording, and reporting financial transactions.
Geographic segments refer to specific geographical areas, typically countries or groups of countries, where a company operates. According to International Financial Reporting Standard (IFRS) 8, companies must disclose certain financial data for each geographic segment in their financial statements.
A geographic segment is defined as the origin or area from which products or services of an organization are supplied to a third party or another segment within the same organization. This is crucial in segmental reporting to understand performance disparities across different regions.
An international non-profit organization that encourages companies to disclose information about their ethical, social, and environmental behavior as well as their financial performance. The GRI has developed a Sustainability Reporting Framework for companies and aims to make its use standard practice.
A fundamental accounting concept that assumes an enterprise will continue its operations for the foreseeable future. It is integral in financial reporting and valuation of assets and liabilities.
The Governmental Accounting Standards Board (GASB) is an independent, private-sector organization in the United States, responsible for establishing and improving accounting and financial reporting standards for U.S. state and local governments. The GASB operates under the oversight of the Financial Accounting Foundation (FAF).
Group accounts, also known as group financial statements or consolidated financial statements, provide a comprehensive overview of the financial status of a parent company and its subsidiaries.
A business entity that is part of a larger corporate group, encompassing various companies with shared ownership or control connections, often referred to in relation to subsidiary undertakings.
Harmonization involves aligning accounting standards and practices to achieve consistent and comparable financial reporting globally.
Held-for-sale is a classification of non-current assets introduced by the International Accounting Standard 5 (IAS 5), Non-current Assets Held for Sale and Discontinued Operations. Assets classified as held-for-sale must be available for sale in their present condition and the sale is expected to be completed within one year.
A heritage asset is a tangible asset deemed historically, artistically, or scientifically significant, often recognized for its cultural or knowledge contribution and distinctive accounting treatment.
A hidden asset or reserve refers to asset value that is understated on the balance sheet of a company due to accounting conventions or deliberate action by management.
Funds held in reserve but not disclosed on the balance sheet, often referred to as off-balance-sheet reserves or secret reserves. Used historically within some UK banking institutions, these reserves are now effectively prohibited due to their potential for earnings manipulation and lack of transparency.
Historical Cost Accounting is a system of accounting based primarily on the original costs incurred in a transaction. Often employed to enhance objectivity, ease of application, and audit verification.
The accounting principle under which assets are recorded and carried in the books of account at their original purchase cost.
Human Information Processing (HIP) refers to the cognitive processes involved in thinking, remembering, interpreting, and making decisions. Understanding HIP is important for accountants as it provides insights into how people use information in decision-making, which can inform the selection of the most appropriate information and formats for financial reporting.
Human Resource Accounting (HRA) involves reporting and emphasizing the value of the contributions of skilled and loyal employees to a firm's earning potential, and matching an organization's job requirements with the skills and abilities of its labor force in terms of measuring employee productivity contributions.
The International Accounting Standards Board (IASB) is the independent, private sector body that develops and approves International Financial Reporting Standards (IFRS). The IASB was formed to achieve transparency, accountability, and efficiency in financial markets around the world through consistent and high-quality accounting standards.
The IASC Foundation, now known as the IFRS Foundation, was established to oversee and develop a globally accepted set of accounting standards known as International Financial Reporting Standards (IFRS).
The term IFRIC stands for the International Financial Reporting Interpretations Committee, which is responsible for developing interpretive guidance on accounting issues under the International Financial Reporting Standards (IFRS).
The IFRS Advisory Council is a formal advisory body that provides strategic advice and counsel to the International Accounting Standards Board (IASB) and the Trustees of the IFRS Foundation on the development and implementation of International Financial Reporting Standards (IFRS).
An abbreviation for International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs) which provides simplified financial reporting standards for small to medium-sized entities.
The IFRS Foundation is a not-for-profit organization responsible for the development and oversight of the International Financial Reporting Standards (IFRS). These standards provide a common global language for financial reporting, ensuring transparency, accountability, and efficiency in financial markets worldwide.
Impairment is an accounting principle that outlines the process of reducing the book value of an asset when its fair market value drops below the asset's carrying amount on the balance sheet. It is a critical concept in financial reporting that ensures that the value of assets is not overstated in an organization's balance sheet.
Impairment refers to the reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount, often due to obsolescence, damage, or market value decline.
An impairment review is a critical process conducted by entities to assess whether the carrying amount of a fixed asset or goodwill may not be recoverable due to certain events or changes in circumstances.
The term 'in transit' refers to goods or cash that have been sent from one part of an entity to another and are currently in the process of being transported. This concept is integral to accounting as funds or goods in transit need to be carefully monitored and recorded to ensure accurate financial reporting.
The income statement, also known as the profit and loss statement, provides a detailed summary of a company's revenues, expenses, and profits over a specific period of time. It offers crucial insights into the financial performance of a business.
An Income Tax Return (ITR) is a form filed with a tax authority that reports income, expenses, and other relevant financial information. Tax returns are used by individuals and businesses to calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes.
An income-generating unit (IGU) is a distinct segment within a business or an investment that is capable of generating revenue independently. Understanding IGUs is crucial for effective financial reporting and valuation.
The method used for a cash-flow statement in which the operating profit is adjusted for non-cash charges and credits to reconcile it with the net cash flow from operating activities.
A comprehensive look at inflation accounting, its definition, examples, related terms, FAQs, online resources, and suggested books for further studies.
Information inductance refers to the extent to which a person's behavior is affected by the information they are required to communicate. This concept highlights the potential biases in the presentation and interpretation of key financial data.
The increasing amount of financial information that companies are required to provide, some of which is beyond the user's ability to assimilate, analyze, and interpret.
The ICAEW (Institute of Chartered Accountants in England and Wales) is a professional membership organization that promotes, develops, and supports more than 150,000 chartered accountants worldwide. It provides qualifications, educational resources, advocacy, and maintains high standards in accounting practice.
Intercompany transactions, also known as intragroup transactions, refer to the exchanges of goods, services, or charges between companies within the same corporate group. For the purposes of preparing consolidated financial statements, these transactions must be eliminated or adjusted to accurately reflect the group's transactions with external parties.
Interim financial statements are financial reports covering a period of less than one full fiscal year, typically used by companies to provide updated information to stakeholders between annual reports.
Interim financial statements are financial reports issued for periods shorter than a full fiscal year, often used by companies to report on financial health and performance at interim intervals.
An intermediate holding company is a corporate entity that functions as both a holding company for a group of companies and as a subsidiary of a larger parent company. This dual role allows it to qualify for specific exemptions from publishing consolidated financial statements.
An Internal Control Questionnaire (ICQ) is a structured set of queries used by auditors and management to evaluate the effectiveness of an organization's internal controls.
Internal control risk refers to the likelihood that internal controls within an organization will fail to prevent or detect financial reporting inaccuracies, leading to potential financial misstatements. It is a critical component auditors assess to ensure the accuracy and reliability of financial statements.
International Accounting Standards (IAS) are issued by the International Accounting Standards Board (IASB) to standardize accounting principles and procedures across different countries to enhance comparability and transparency in financial statements.
The London-based privately funded organization responsible for developing a single set of high-quality, understandable International Financial Reporting Standards (IFRS) for general-purpose financial statements.
An independent, privately funded organization responsible for developing and promoting international accounting standards to ensure high quality and comparable financial reporting globally.
The International Accounting Standards Committee Foundation (IASCF) was an independent, private-sector organization responsible for developing a single set of high-quality, understandable, and enforceable international financial reporting standards through its standard-setting body, the International Accounting Standards Board (IASB).
The International Financial Reporting Interpretations Committee (IFRIC) assists the International Accounting Standards Board (IASB) by providing guidance on the application and interpretation of International Financial Reporting Standards (IFRS).
The IFRS for SMEs, issued by the International Accounting Standards Board in 2009, simplifies the core principles of full IFRS to suit smaller, non-listed companies.
International Financial Reporting Standards (IFRS) are a set of accounting rules that standardize how businesses report their financial outcomes globally, ensuring transparency, accountability, and efficiency in financial markets.
International Financial Reporting Standards (IFRS) are a set of international accounting standards issued by the International Accounting Standards Board (IASB) since 2001, aimed at creating consistent financial statements that are comparable across international boundaries.
International Financial Reporting Standards (IFRS) are a set of accounting standards developed and maintained by the International Accounting Standards Board (IASB). They aim to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.
The IFRS-AC is a council of diverse experts who advise the IASB on setting global accounting standards, ensuring these standards are relevant and practical for financial statement users and preparers.
The IFRS Foundation oversees the activities of the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee, and aims to develop globally accepted financial reporting standards.
The International Integrated Reporting Council (IIRC) is a global coalition promoting integrated reporting, where financial and sustainability information are combined to reflect comprehensive value creation.
A global alliance promoting integrated reporting to showcase how organizations create value over time, combining financial and non-financial performance metrics.
International Public Sector Accounting Standard (IPSAS) sets forth accounting principles specifically tailored to the public sector, ensuring reliable and transparent financial reporting globally.
An independent organization, operating under the auspices of the International Federation of Accountants (IFAC), that aims to enhance the quality and transparency of public sector financial reporting worldwide. The Board issues International Public Sector Accounting Standards (IPSAS) that place a particularly strong emphasis on the accruals concept.
The International Valuation Standards Council (IVSC) is an independent not-for-profit organization dedicated to the development of international standards for the valuation of assets, including both tangible and intangible assets.
Intragroup transactions refer to business dealings, including sales, loans, and other financial activities, that occur between different divisions, subsidiaries, or entities within the same corporate group. These transactions need to be carefully managed and recorded to ensure accurate financial reporting and regulatory compliance.
An inventory certificate is a management representation to an independent auditor regarding the inventory balance on hand. It typically details the method used in computing inventory quantity, pricing basis, and condition.
Detailed overview of investment properties, including definitions, examples, FAQs, related terms, and resources for further study.
The International Public Sector Accounting Standards Board (IPSASB) is a global standard-setting body responsible for developing and promoting the adoption of International Public Sector Accounting Standards (IPSAS) to enhance the quality and transparency of public sector financial reporting.
A joint venture is a commercial undertaking jointly entered by two or more entities, limited by time or activity, where each participant accounts for their own share of assets, liabilities, and cash flows.
Kiting is a fraudulent financial practice used to make the cash position of a company appear more favorable than it actually is by transferring funds between accounts just before the end of an accounting period.
LIFO (Last-In-First-Out) is an inventory valuation method where the most recently produced items are considered sold first.
The method of presenting an asset in the balance sheet where the asset linked to financing is shown gross, with the financing deducted within a single asset caption.
Long-term debtors refer to individuals or entities that owe money to an organization but are not expected to make payment within the near future, typically beyond a 12-month period.
Loss carryforward involves the practice of applying current year's net operating losses to future years' net incomes for tax purposes. It's typically employed when a loss carryback is not feasible.
The Lower of Cost or Market (LCM) accounting method involves recording inventory at its historical cost but writing it down to market value if that is lower. Market value is defined as replacement cost, capped by net realizable value (NRV) and cannot be less than NRV minus a normal profit margin.
A letter written by an auditor to the management of a client company at the end of the annual audit to suggest possible improvements to the company's accounting and internal control systems or to communicate other beneficial information.
Marking to market, also known as fair value accounting, is the practice of valuing financial assets and liabilities according to their current market prices. It is a commonly applied method in accounting and finance but remains controversial due to its impact on financial statements.
The matching concept in accounting requires that expenses be matched with the revenues they generate within the same accounting period, ensuring accurate financial reporting.
Materiality is an important accounting principle determining the significance of financial information and its impact on decision-making. This concept is essential for accurate financial reporting and is influenced by the size, nature, and circumstances of an item.
MD&A (Management Discussion and Analysis) provides a narrative explanation of a company's financial statements, offering insights into the company's performance, financial condition, and future outlook in a comprehensive manner.
A medium-sized group is a defined financial categorization of companies that meet specific criteria regarding net worth, turnover, and number of employees. This term is used for regulatory and reporting purposes.
Mercantile agencies are organizations that provide businesses with credit ratings and reports on other firms that are or might become customers. Notable examples include Dun & Bradstreet, which offers extensive credit and financial information services.
Merger accounting is a method that treats two or more businesses as combining on an equal footing. It's favored in scenarios of group reconstruction where it's applied without restating net assets to fair value.
Minimum lease payments refer to the regular rental payments excluding executory costs, which are made by the lessee to the lessor in a capital lease. These payments are reported as an asset and a liability at the discounted value of future minimum lease payments by the lessee.
A condition that is recognized when the accumulated benefit obligation (ABO) is greater than the fair value of plan assets. When this occurs, an additional liability must be recorded if an accrued pension liability is already present.
Negative goodwill occurs when the purchase price of an acquired company is less than the fair value of its net identifiable assets and liabilities, leading to gains in financial statements.
The net basis is the method used to calculate a company's earnings per share (EPS), incorporating both constant and variable elements in the company's tax charge. Under International Accounting Standard 33, listed companies must display EPS on the net basis in their profit and loss statements.
Net Book Value (NBV) represents the carrying value of an asset on a company's balance sheet, calculated by subtracting accumulated depreciation or amortization from its original cost. It reflects the current value of a company's assets for accounting and investment decision purposes.
Net purchases refer to the total amount spent on purchases after accounting for returns, allowances, and discounts. This metric is crucial for businesses in tracking the actual cost of goods that remain in stock.
Net Realizable Value (NRV) is the estimated selling price of goods, services, or assets minus any costs associated with making the sale, including completion and disposal costs.
Net Sales refers to the revenue that remains after deducting returns and allowances, freight out, and cash discounts allowed from the gross sales.
The principle that financial information provided by a company should be free from bias, ensuring objectivity and reliability in financial reporting as defined by the International Accounting Standards Board (IASB).
