Framework-based Teaching of IFRS Judgements

Abstract

International Financial Reporting Standards (IFRS) are principles-based accounting standards that provide less prescriptive, interpretive and implementation guidance than do some national standards. Thus, considerable judgement in the application of IFRS is often required. We suggest a three-step approach to teaching IFRS judgements (concepts, to principles/rules, to the judgements required in the application of those rules), and provide accounting educators with guidance and resources that will help them create and enhance students' awareness of the importance of making professional judgements in the application of IFRS. We consider both pervasive issues, such as the going concern assumption, materiality and related disclosures, and issues encountered in the application of most IFRSs, such as presentation and disclosure, classification, recognition/de-recognition, and measurement. We illustrate past judgements with examples from corporate annual reports, regulatory enforcement decisions published by the ESMA, and other sources for classroom use.

Keywords:

• International financial reporting standards
• judgements
• framework-based teaching

Acknowledgements

This paper draws from a series of IFRS Teaching Workshops sponsored by the IFRS Foundation Education Initiative and the IAAER. The authors are grateful to Michael J.C. Wells, Mary Barth, Katherine Schipper, Holger Erchinger, Paul Munter and David Cairns for their valuable contributions to those workshops and accordingly to this paper.

Notes

Deloitte's IASPlus identifies 91 countries for which IFRS or its full equivalent is or will be required for all public filings by 2012, six countries for which IFRS is required for some companies, and 26 countries which allow, but do not require, the use of IFRS. See http://www.iasplus.com/country/useias.htm (accessed 30 December 2010).

The most recent pronouncements of other standard setting bodies may be consulted as long as they use a similar conceptual framework and do not conflict with any of the IASB's pronouncements.

European Securities and Markets Authority (ESMA). Available at http://www.esma.europa.eu/index.php?page=groups&id=58 (accessed 3 January 2011). ESMA was previously known as the Committee of European Securities Regulators (CESR) until 1 January 2011.

Available at http://www.ifrs.org/IFRS+for+SMEs/Training+material.htm (accessed 30 December 2010).

The IASB is in the process of updating the Board's Framework. Chapters 1 and 3 addressing the Objectives of Financial Reporting and The Qualitative Characteristics were issued in September 2010. The text of these two updated chapters is available at http://eifrs.ifrs.org/eifrs/files/136/conceptual%20fw%202010_130.pdf (accessed 3 January 2011). An eIFRS subscription is required to access this site. Chapter 4 remains as included in the 1989 version of the Framework. Please note that the normal annual cost of eIFRS access is £200; full time students and academics receive a discount of 45%. We recommend, however, that accounting educators and students consider joining IAAER as one of the membership benefits is free access to eIFRS. Annual membership in IAAER is US $25 for individual members and US $20 for students (visit www.iaaer.org for more information). To learn more about eIFRS, a free preview is provided at: http://eifrs.iasb.org/eifrs/Preview (accessed 2 January 2011). See also Larson and Street (2011) in this issue of Accounting Education: an international journal to learn more about eIFRS.

Available at http://www.austrianairlines.ag/InvestorRelations/FinancialReports/~/media/Austrian%20Airlines/Corporate%20Site/Investor%20Relations/Other%20Formats/2008/Konzern%20GB08%20englisch-s.ashx#selected. (accessed 30 December 2011).

Available at http://corporate.bbg.co.uk/en/~/media/Files/B/Bradford-And-Bingley-Corporate/pdf/results-and-publications/year-2008/ar2008_03_04_09.pdf (accessed 30 December 2010).

Available at http://www.hyporealestate.com/eng/pdf/AR2008_09_04_24_final_GL.pdf (accessed 30 December 2010).

Company Watch—Austrian Airlines, 1 September 2008. Available at http://www.allbusiness.com/company-activities-management/company-structures-ownership/12833072-1.html (accessed 30 December 2010).

Well's 2010 presentation contains a discussion of the difference between changes in estimates versus correction of errors.

Educators need to select cases carefully from the ESMA database for classroom use. Some ‘decisions’ are no longer applicable as the relevant international financial reporting standard has been revised.

Available at http://www.annualreport2009.bayer.com/en/Bayer-Annual-Report-2009.pdfx (accessed 31 December 2010).

http://annualreport07.unilever.com/ (accessed 31 December 2010).

Available at http://www.salzgitter-ag.de/MDB/Investor_Relations/Downloads_english/Financial_Reports/2009/szag_ar_2008.pdf (accessed 31 December 2010).

Available at http://www.kghm.pl/index.dhtml?category_id=324&year=2007 (accessed 2 January 2011).

Available at http://www.lloydstsb-annualreport.com/ (accessed 30 December 2010).

At the time this paper went to press, the expected release date of the final standard on defined benefit plans was by the middle of 2011.

Free versions of IFRS including those available on the websites of the IASB and European Union do not include the basis for conclusions. However, the basis for conclusions is available through an annual subscription to the IFRS Foundation's eIFRS. See footnote 5 to learn more about accessing eIFRS at a low cost (i.e. US $25 for faculty and US $20 for students, annually).

See also Street (2002).

See Schipper (2009). Available at http://www.iasb.org/NR/rdonlyres/650900EB-1B71-4DD1-A1D9-BF30702E6B73/0/IFRSteachingresearchAAAhandout.pdf (accessed 30 December 2010).

Available at: http://www.gsk.com/investors/annual-reports-archive.htm (accessed 30 December 2010).

At the time this paper went to press, the IASB anticipates the standard Revenue from Contracts with Customers will be issued in the second quarter of 2011.

The authors wish to thank Mike Wells for suggesting these teaching resources.

Available at http://www.ifrs.org/Current+Projects/IASB+Projects/Fair+Value+Measurement/ed0610/ed.htm (accessed 30 December 2010).

Available at http://www.iasb.org/NR/rdonlyres/0E37D59C-1C74-4D61-A984-8FAC61915010/0/IASB_Expert_Advisory_Panel_October_2008.pdf (accessed 30 December 2010).

Available at http://web.ifac.org/download/Staff_Audit_Practice_Alert.pdf (accessed 30 December 2010).

Available at http://web.ifac.org/download/a028-2010-iaasb-handbook-isa-540.pdf (accessed 30 December 2010).

Available at http://www.agfa.com/co/en/binaries/AG2007_UK_tcm222-37510.pdf (accessed 30 December 2010).

A CGU (cash generating unit) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets (IAS 36.6).

Module 17 of the Training Material for the IFRS® for SMEs—Property, Plant and Equipment is available at http://www.ifrs.org/NR/rdonlyres/2882F652-B451-4159-A514-5ED3BADD5AC2/0/Module17_version2010_1.pdf (accessed 3 January 2011).