IFRS Emphasis on Financial Statement Presentation

There are many differences between financial statements that prepared using International Financial Reporting Standards and financial statements that are not prepared using International Financial Reporting Standards. Further, financial statements that are prepared in accordance with International Financial Reporting Standards use fair market value in the preparation of financial statements. Also, financial statements that are prepared in accordance with International Financial Reporting Standards are more relevant.

In addition, financial statements that are prepared following International Financial Reporting Standards are a better decision making data. Furthermore, financial statements that are prepared in accordance with International Financial Reporting Standards are more consistent with accounting bodies. Likewise, financial statements that are prepared in accordance with International Financial Reporting Standards are more understandable. Definitely, financial statements that are prepared in accordance with International Financial Reporting Standards are more reliable.

Lastly, preparing the financial statements in accordance with International Financial Reporting Standards is a plus in terms of financial reporting equity(Miller 1992). Financial statements that are prepared that are International Financial Reporting Standards inspired use fair market value in the recording of financial statements. Fair market value has been described in the related literature portion of this research. Fair market value is described as the amount that the seller is willing to offer to all parties interested in buying the seller’s products.

And, fair market value is the purchase price that the buyer is willing to pay in order possess a product. This can be explained using economics. Economics explains that as the number of buyers or demand will decrease as the purchase price of goods will increase. For, many customers would later realize that it is not worth spending so much money on a product that is unreasonably priced. The decline in the demand for the products would decrease because the customers would now be enticed to buy from the other suppliers or even change their choice from their current product to an alternative but as effective one(Miller 1992).

Likewise, the seller would increase their supply of goods produced if the selling prices of their goods increase. A higher sales price would increase the company’s profits. However, the seller can only increase his or her selling price as high as allowable. For, the customer would not buy a product that is unreasonably too high. Both the sellers and the buyers then meet halfway in order to satisfy their need. The seller’s need to sell at a profit will be satisfied if the buyer’s need to buy at a reasonable price is also met. This meeting price is known as the equilibrium price. Another name for equilibrium price is the market price.

One way of determining the fair market value of an asset stated in the company’s balance sheet is to see the current market price of the same product sold in the market. Another way of determining the fair market value is to use the historical cost as basis when there is no current selling or buying activity to determine the fair market value of a product. Statement of Financial Accounting Standards (IFRS) no. 107 shows the assets liabilities and shareholders equity should be restated to their fair market values(Cocheco 1992). Currently there is a trend to reformulate the balance sheet, income statement and statement of cash flows.

In addition, Financial Accounting Standards Board (FASB) no. 1991 states that fair market value is the proper way of presenting the financial statements. Likewise, Statement of Financial Accounting Standards (SFAS) no. 119 and FASB no 1994 emphasises that the business entity must prepare the derivatives using fair market values when preparing the balance sheet, income statement and statement of cash flows. The derivatives include trading in commodities futures as well as option contracts. The stock market in the United Kingdom is basically founded on the fair market value theory.

This is the reason why the prices of shares of stocks in the Stock exchanges are very volatile to unmoving. On the other hand, one of the non -IFRS standard way of financial statement presentation is based on historical cost. Historical cost is the fair market value of the asset, liability or shareholders’ equity when the asset was bought in the past. Historical cost is also the fair market value of the liability at the time that the liability had occurred in the past. Likewise, Historical cost is the fair market value of the stockholders’ equity transaction at the time that the shares of stocks were transacted in the past (Barth 2006).