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BASICS OF PREPARATION OF FINANCIAL STATEMENTS
ACCORDING TO IFRS
Pirimkulov Obid Musaevich
SDVMCHBU Tashkent branch
https://doi.org/10.5281/zenodo.13762640
Accounting is an information system that determines, processes and
delivers financial information about a specific business entity to users interested
in its financial status in the form of financial statements. The goal of accounting
is to satisfy the needs of various users for information with the lowest costs for
obtaining this information.
1. Users and their information requirements
Accounting is concerned with the volume and description of financial
information used by users.
Information users can be divided into two groups: internal users, that is,
enterprise managers; external users, that is, those in the enterprise.
In turn, these groups of users of accounting information can be divided into
the following categories of users:
- managers of the enterprise;
- those who are outside the entity and have a direct financial interest in it;
- those who have an indirect financial interest in the activity of the entity.
- Those who are outside the entity and have a direct financial interest in it
include:
- Existing and future investors;
- Existing and future creditors;
- Buyers.
- Those who have an indirect financial interest in the activity of the entity
include:
- Tax authorities;
- Regulatory bodies;
- Statistical bodies;
- Other groups (auditors, consultants, consumer groups, etc.)
The Committee on International Accounting Standards (IAS) was
established in order to make the accounting principles used for the preparation
of financial statements uniform on an international scale. International Financial
Reporting Standards (IFRS) are developed and published by this Committee and
recommended for implementation and compliance everywhere.
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In order to achieve the main objective of IAS, such as presentation of
financial statements, the following should be defined
- financial information required to solve tasks;
- principles of creating an information system;
- elements of financial reporting.
The purpose of financial reporting is to provide information about financial
position, results of operations and changes in financial position. This
information is necessary for a wide range of users to make decisions.
Financial reporting requires an assessment of the economic decisions made
by users, the creation and increase of the enterprise's cash and cash equivalents,
as well as the stability and timeliness of this process. Users should have
information focused on the financial condition, results of operations and
changes in the financial condition of the enterprise in order to assess the ability
of the enterprise to generate cash and cash equivalents.
Information about the financial situation is mainly given in the accounting
balance (balance sheet). Information about the results of the enterprise's
activities is mainly presented in the profit and loss report. Changes in financial
position are shown in the financial statements through a separate statement
(changes in equity).
The components of the financial report are inextricably linked to each
other, as they reflect different aspects of the same operations and events.
Although each form of report provides different information than the others,
none of them can stand alone and provide all the information that users need to
reflect their specific needs. For example, the profit and loss statement, if used
without the information of the balance sheet and the statement of changes in
financial position, cannot provide complete information about the financial
results of the enterprise.
The financial report also includes appendices (explanatory letter),
additional materials and other information. For example, it can display
additional information about balance, profit and loss items, meeting the needs of
users. It can highlight risks and uncertainties affecting the entity, as well as any
resources and liabilities (such as mineral reserves) that are not reflected in the
balance sheet. Information about geographic and industry segments, and the
impact of price changes on the enterprise may also be provided as additional
information.
In order to fulfill the specified tasks, it is necessary to prepare the financial
report based on the accrual principle. It determines when to recognize revenue
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and when to report it in accordance with accounting criteria. According to the
principle of calculation, the income from the sale of goods is taken into account
when the buyer becomes the owner of these goods, that is, when all the risks and
rewards associated with the right of ownership are transferred to him. Until the
seller fulfills his obligations, the income should not be taken into account.
Financial statements are usually prepared based on the assumption that the
enterprise is in operation and will continue to operate in the foreseeable future.
Thus, it is assumed that the enterprise has neither the intention nor the need to
liquidate or to significantly reduce or terminate the scope of its activities. If such
an intention or necessity arises, the financial statements should be prepared on
a different basis and the basis used should be disclosed.
The main quality of information presented in financial statements is that it
is understandable by users. In this case, it is assumed that the users should have
sufficient knowledge in the field of business and economic activity, in the field of
accounting, as well as the desire to act diligently as required. However,
information related to complex questions, relevant to users making economic
decisions, cannot be excluded simply because of the difficulty of understanding
by certain users.
To be useful, information must be relevant to decision-making users.
Information that influences users' economic decisions, helps them to evaluate
past, present and future events, or that confirms them or allows them to correct
previous assessments is considered relevant.
The relevance of information is strongly influenced by its description and
importance. In some cases, the description of the information alone will not be
sufficient to determine its suitability. For example, information about a new
segment may affect the assessment of risks and opportunities regardless of the
significance of the results achieved by this new segment during the reporting
period.
To be useful, information must also be reliable. Information is reliable if it is
free of material errors or knowing misrepresentations so that users can rely on
the fact that the information is presented truthfully.
In order to be useful, the information should create a true and unbiased
picture of the financial condition of the economic entity, the results of
operations, and the movement of funds. Thus, for example, the balance sheet
should reflect the transactions and other events and the results of their
implementation, the assets, liabilities and capital of the company that meet the
recognition criteria.
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If the information in accounting documents and financial statements
reliably reflects the content of transactions and events, such information should
be considered and presented in accordance with its essence and validity, not
only with its legal form. The content of operations and other events does not
always correspond to their legal or established form.
In order to be reliable, the information provided in the financial report
should be independent of assumptions. A financial report cannot be considered
neutral if it influences decision making or opinion formation in order to reach a
predetermined result or conclusion by the selection and presentation of
information.
Adherence to the principle of prudence in decision-making is necessary for
making valuations under uncertainty in order to avoid overestimation of assets
and income, and underestimation of liabilities or expenses.
In order to ensure the reliability of financial statements, information should be
presented in a sufficiently complete volume.
References:
1. Accounting in banks based on international financial reporting standards.
Study guide. Co-author - T.: "FINANCE", 2020 - 272 p.
2. M. Bonham. Generally accepted accounting practice under IFRS. Ernst &
Young. USA, 2020.
3. International accounting standards. Translation. A. Rizakulov, B. Khasanov, A.
Usanov, Z. Mamatov. T.: - 2014.
4. Jalolova D. International accounting standards - T.: Financial Institute, 2014. -
25 p.
