Questions on IAS 8

Transcript

00:00Hello there, financial explorers.

00:05Welcome to the fascinating world of accounting policies.

00:08You know those guidelines that businesses use to record and present their financial

00:12information.

00:13Think of them as the secret sauce that makes financial statements understandable and comparable.

00:19Now you might be wondering, why should I care about accounting policies?

00:22Well my friend, they are crucial for painting a clear picture of a company's financial health.

00:27Just like a compass guides a ship, accounting policies guide businesses in navigating the

00:32complex world of financial reporting.

00:35Without these policies, companies could play fast and loose with their numbers, making

00:40it difficult to compare apples to apples.

00:42Imagine trying to understand a foreign film without subtitles.

00:46Chaos.

00:47That's why we need accounting policies, to provide a common language for understanding

00:51a company's financial story.

00:54So buckle up and get ready to dive into the fascinating world of accounting policies.

00:58Trust me, it's more exciting than it sounds.

01:04In the vast universe of accounting, there's a guiding star known as IAS 8, the International

01:10Accounting Standard 8.

01:12It's like the rule book for accounting policies, setting the standards for how companies should

01:16develop and apply these policies.

01:19IAS 8 ensures consistency and transparency in financial reporting across different companies

01:24and countries.

01:26It's like having a universal translator for financial statements.

01:29This standard provides a framework for defining accounting policies, recognising and applying

01:34changes in accounting policies, correcting errors in prior periods.

01:39Think of IAS 8 as the ultimate GPS for navigating the often complex world of accounting policies.

01:46It provides businesses with a clear road map to ensure their financial reporting is

01:50accurate, reliable and comparable.

01:53So whether you're a seasoned financial whiz or just starting, understanding IAS 8 is essential

01:59for deciphering the mysteries of financial statements.

02:03Get ready to unlock the secrets of this powerful accounting standard.

02:09Picture this.

02:10You're comparing two companies in the same industry.

02:13One company's profits are skyrocketing while the other seems to be struggling.

02:17But here's the catch.

02:19They might be using different accounting policies.

02:21That's why understanding these policies is crucial.

02:25Accounting policies directly impact a company's reported financial performance and position.

02:30They can influence key metrics like profitability, how much profit a company makes, assets, what

02:35a company owns, liabilities, what a company owes.

02:40Different accounting policies can lead to different reported numbers even if the underlying

02:44economic reality is the same.

02:47That's why it's like comparing apples to oranges if you don't consider the accounting methods

02:51used.

02:52By understanding accounting policies you can make informed investment decisions, choose

02:57companies with transparent and conservative accounting practices, assess a company's true

03:02financial health, see beyond the surface and understand the underlying profitability and

03:07stability, compare companies fairly, level the playing field by understanding how accounting

03:14choices impact reported numbers.

03:17All right, let's break down the essential principles of IAS 8 that will make you sound

03:24like an accounting whiz.

03:26One, accounting policies should be relevant to the economic decisions of users think useful

03:32information.

03:33One, information should be accurate, complete and free from bias.

03:38No funny business here.

03:40One, you should be able to compare a company's financial statements over time with other

03:44companies.

03:45Consistency is key.

03:46One, information should be presented clearly and concisely.

03:50No need for a PhD in accounting to understand it.

03:54IAS 8 also emphasises the importance of focus on what truly matters.

03:59Minor details that won't impact decisions can be simplified.

04:03Be cautious and don't overstate assets or income.

04:06It's better to under-promise and over-deliver.

04:10Assume the company will continue to operate in the foreseeable future, unless there's

04:14evidence to the contrary, of course.

04:16These principles form the bedrock of sound accounting policies.

04:19They ensure financial statements are reliable, comparable and relevant for decision making.

04:26It's all about painting a true and fair view of a company's financial position.

04:34Section 5.

04:35Judgment Day.

04:36Selecting the right accounting policies.

04:39Choosing the right accounting policies is a bit like picking the perfect outfit for

04:42a special occasion.

04:44You want something that fits well, reflects your style and makes you feel confident.

04:48When selecting accounting policies, companies need to consider the nature of their business.

04:54A tech company might have different accounting needs than a manufacturing giant.

04:59Industry practices.

05:00What are other companies in the same industry doing?

05:03Consistency matters for comparability.

05:05The specific requirements of accounting standards.

05:08IAS 8 provides guidance, but there might be specific rules for certain transactions or

05:13events.

05:14Sometimes there might not be a clear-cut answer in the accounting rulebook.

05:18That's when professional judgment comes into play.

05:21It's like being a financial detective using your knowledge and experience to choose the

05:25most appropriate policy.

05:27But remember, transparency is key.

05:30Companies need to disclose the accounting policies they've chosen so users of financial

05:34statements can understand the decisions made.

05:40Section 6.

05:41Applying accounting policies.

05:43Making it real.

05:45Selecting the right accounting policies is just the first step.

05:48Now comes the action-packed part.

05:51Applying those policies to real-life transactions and events.

05:54This involves identifying the economic substance of transactions and what's really going on.

05:59Don't be fooled by appearances selecting the appropriate accounting treatment.

06:03Which policy best reflects the economic reality of the transaction?

06:07Making necessary estimates and judgments.

06:10Sometimes you need to make educated guesses based on the available information.

06:14Applying accounting policies consistently is crucial.

06:17It ensures that financial statements are comparable over time and that the numbers tell a reliable

06:22story.

06:24Think of it like baking a cake.

06:26You wouldn't use different measurements or ingredients every time you bake the same cake,

06:30right?

06:31Consistency is key to getting the desired result.

06:38Section 7.

06:39Example.

06:40Time.

06:41Bringing accounting policies to life.

06:42Let's say you're a furniture retailer.

06:44You need to decide on an accounting policy for your inventory.

06:47Last in, first out, or FIFO?

06:49This assumes you sell the oldest inventory first.

06:51Last in, first out, or LIFO?

06:53This assumes you sell the newest inventory first.

06:56Weighted average cost.

06:57This calculates the average cost of all your inventory.

07:00The choice of inventory method can impact your reported profit and the value of your

07:05inventory.

07:06For example, during rising prices, FIFO will generally result in a higher profit than LIFO.

07:11That's just one example of how accounting policies can impact financial statements.

07:19Section 8.

07:20Changes on the horizon.

07:22Dealing with accounting policy shifts.

07:24Change is inevitable, even in the world of accounting.

07:27Sometimes companies need to change their accounting policies due to new accounting standards being

07:31issued.

07:32It's like getting a software update.

07:34You've got to keep up with the latest version.

07:37Changes in a company's operations or business environment, such as a merger, acquisition,

07:42or even a global pandemic, can necessitate a policy change.

07:46When a company changes an accounting policy, it needs to do so retrospectively.

07:51This means going back and restating prior period financial statements as if the new

07:56policy had always been in place.

07:59It's like rewinding the clock and adjusting the script to reflect the new reality.

08:02This ensures that financial statements are comparable over time.

08:06Even with a policy change, companies need to disclose the reasons for the change, the

08:11impact on their financial statements, and any significant judgments made.

08:16Transparency is key to maintaining trust and credibility with users of financial information.

08:25Section 9.

08:26The big no-no errors and how to fix them.

08:28Errors in accounting can have serious consequences.

08:31IAS 8 guides on correcting prior period errors.

08:35Errors occur when financial statements don't reflect economic reality.

08:38This could be due to mathematical mistakes.

08:41Fraud or deliberate manipulation is a big no-no.

08:44Errors must be corrected retrospectively.

08:47Restate prior period statements to reflect corrections.

08:50Present a true and fair view, even if it means acknowledging past mistakes.

08:58Section 10 IAS 8.

08:59In action, real-world impact.

09:01IAS 8 might seem like a technical accounting standard, but it has a real-world impact on

09:06businesses and investors alike.

09:08For businesses, IAS 8 provides a clear framework for developing and applying accounting policies,

09:14ensuring consistency and transparency in financial reporting.

09:18For investors, IAS 8 helps investors make informed decisions by providing a level playing

09:23field for comparing companies across different countries and industries.

09:27By promoting comparability and transparency, IAS 8 fosters trust and confidence in the

09:34global capital market.

09:36It's like having a universal language for financial reporting, making it easier for

09:40investors to understand and compare companies from all corners of the world.

09:48Section 11.

09:49Wrapping up why understanding accounting policies rocks.

09:52Congratulations, you've reached the finish line.

09:56You're now well-versed in the world of accounting policies and IAS 8.

10:00Understanding accounting policies helps you make informed investment decisions.

10:04It's like having x-ray vision for financial reporting.

10:07By understanding IAS 8, you can compare companies fairly.

10:11IAS 8 contributes to a more stable and efficient global economy.

10:16Remember the importance of accounting policies and the role of IAS 8.

10:20Now go forth and conquer the world of finance.

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