Talk:International Financial Reporting Standards
|WikiProject Business / Accounting||(Rated B-class, High-importance)|
- 1 Untitled
- 2 External links
- 3 Who wants to pay for reading Standards?
- 4 European Union Official Journal
- 5 Harmonised (or Standard) Accounting Classification Code???
- 6 Wish this content can be upgraded to harmonized protocols or standards....
- 7 Where is the scope of IFRS application located???
- 8 Structure
- 9 Current project
- 10 List of countries using IFRS
- 11 Flow of the document
- 12 Links to Big 4 pages
- 13 Constant ITEM Purchasing Power Accounting
- 14 Confusion in Inventory section
- 15 In the grand scheme of things
- 16 US GAAP and IFRS
- 17 SAP
- 18 Prof Rachel Baskerville´s Capital Maintenance contribution
- 19 References
- 20 Copyright problem removed
Any chance we could have an article that aims to explain this thing to lay people, with links that point to the more technical details?
2013-06-2013 - Agreed! The introduction is extremely helpful, but it rapidly degenerates into accounting technobabble. Which I'm sure is wonderfully useful for accountants, but us laypeople could use a bit of a leg-up here! — Preceding unsigned comment added by 18.104.22.168 (talk) 09:44, 12 June 2013 (UTC)
would someone mind adding few external links for more information on IAS?
I know the answer is "why dont you write it then", but this page is severely lacking for such a massive issue. --lincs_geezer 23:00, 27 October 2005 (UTC)
Also the page listed stuff about other countries before (USA, China etc) but seems to have been wiped?--lincs_geezer 06:00, 17 November 2005 (UTC)
Who wants to pay for reading Standards?
ouh, Next to pay for Laws (excluding taxes)? Exempli gratis (e.g.) pay for tax forms etc?
Aye in the statement of principles it says one is the promotion and use of the standards, having to pay for them is hardly promotion - especially as its not a corporate organisation out to make a profit! I mean it would cost next to nothing to publish them on the website. --lincs_geezer 22:38, 26 March 2006 (UTC)
Questions about IAS / IFRS? Ask them here: http://ifrs.phpbb3.com Pete
That link dosen't work --lincs_geezer 20:43, 10 October 2006 (UTC)
It works for me but the project is killed by spam :
European Union Official Journal
The IAS as approved by the ARC are published in the Official Journal. No exposure drafts are thus available without charge, but the standards itself as part of European law are available without charge in all official languages of the European Union as in use in 2003 (including English).
Harmonised (or Standard) Accounting Classification Code???
I have tried to search the content of this topic on the internet without any satisfied results. The reason that I want this info is that there are a certain amount of literature which mentions accounting items, such as
AP 045 Cash & Equivalents
AP 047 Other Short Term Investment
AP 088 Total Assets
AP 111 Short Term Debt
AP 144 Sales Revenues
Would any expert please mention such information in the article? If the codes have not been standardised, IFRS should consider this missionary task, should it? --- at least for common accounting items. Although I'm sure that there may have differences amongst coporate accounting, public accounting and financial institution accounting, the standard could be categorized as industrial focused. If accounting software have been commercialised, then I don't understand why the common accounting items can not be harmonized or even standardised. —The preceding unsigned comment was added by 22.214.171.124 (talk) 07:55, 14 April 2007 (UTC).
- There is not a standarised coding system for the accounts used for IFRS reporting, but there is a standardised taxonomy for the names of IFRS accounts known as International Accounting Standards Expressed in XBRL for Electronic Financial Reporting, which is used a standard format for financial reporting on the internet using XBRL.
- Note that the IAS has stated that the taxonomy is not a chart of accounts, as there are a variety of ways to present financial statements which a fixed chart of accounts cannot accomodate. Also the IFRS accounts are primarily used for statutory accounts, not for management accounting, and so you will not find obvious accounts in the IFRS taxonomy that are used, say, to identify expenses (rent, telephone, stationery etc). --Gavin Collins 11:53, 23 August 2007 (UTC)
Wish this content can be upgraded to harmonized protocols or standards....
Today, I have found an info at
which is very promising for a harmonized protocol of objects-based accounting or even standards and which I assume that ISO may pay attention to.
Hopefully, this kind of exploration will be eventually upgraded to industrial harmonized protocols or even ISO standards and all the relevant commercial accounting software will be regulated by the new evolving measures. —The preceding unsigned comment was added by 126.96.36.199 (talk) 05:42, 15 April 2007 (UTC).
Where is the scope of IFRS application located???
One of the issues which confuses me is that
What the definition of Financial Reporting is
Where the standard is applied for???
I was hoping that either of these questions is answered in the beginning of the document but found nil.
Another issue that bothers me is that IFRS looks more like a harmonized protocol than a standard. The reason I say that is:
-- usually, a standard will not only addresse the specifications that should be achieved but also the defined procedures / mehtods to achieve the specifications. However, in IFRS I could not clearly see such expressions.
For example, in IFRS 3(a) it says: This IFRS "requires all business combinations within its scope to be accounted for by applying the purchase method."
Unfornunately, it does not mention where the purchase method is located and how readers can find it, hence the standard operators will easily get lost. People will be wondering which purchase method the document is talking about.
-- even with a protocol, if a specified method is not mentioned, an indication of a particular method, such as a common purchase method, will be provided so that at least the readers will know if the method is common or specified. —The preceding unsigned comment was added by 188.8.131.52 (talk) 08:00, 15 April 2007 (UTC).
I understand IFRS like this
Level 1 Framework
Level 2 Statements <- (level 3) Interpretations
Therefore the Framework is the foundation of where all accounting principles based on. Since there are hundred and thousands of transaction of different types around the world it is impossible to set up rule for each case. Therefore IFRS is principle base. When a transaction occur, prepare of AFS need to ensure transactions that could be classified within those statement prepare according to the statement (transaction within Scope of statement). If those transaction were outside the scope of all written statement, principle within the framework shall apply. Therefore the framework is a "safety net" to catch all exceptions. Therefore I edited those paragraph.
To use "choices" sound not very professional therefore I used the term "alternative" which closely tied up to the terms used IAS 1 par 108 - 115.
My wing hk 10:51, 18 April 2007 (UTC)
This point is specifically addressed in paragraphs 7 to 12 of IAS8, "Accounting Policies Changes in Accounting Estimates and Errors". This requires the application of all Standards and Interpretations in all cases where they specifically apply. In the absence of a Standard or Interpretation, an entity is required to use its judgement, in the first instance by seeing whether there are approximately similar requirements, and only then by reference to the Framework.
As a result the Framework is not particularly important in the practical application of IFRS.
Swinnow16 22:03, 24 June 2007 (UTC)
I kind of disagree (please forgive me and keep it professional) with you that "Framework is not particularly important in the practical application of IFRS", Base on the followings:
- The framework set up the base of future statement development (Stated in the Framework)
- Statements stated principles to classified transaction to the above 4 classification and give them common "term" and rule as to how to disclose them.
- You referred to (professional) judgement and where should those judgement base on (if you don't apply the framework)
- How can I actually disclose those transaction without the classification (at where Balance sheet or Income Statement ...) as from the framework. The classification I refer to is the Asset, Liability, Income or Expense.
My wing hk 08:42, 3 July 2007 (UTC)
Delete the following An item is recognised in the financial statements when:-
- it is probable that a future economic benefit will flow to or from an entity and
- when the item has a cost or value that can be measured with reliability.
This is the asset recognition criteria only not the framework criteria to recognise an transaction, Accrual basis is that criteria and it is mentioned in the document therefore it was deleted.
My wing hk 08:49, 3 July 2007 (UTC)
The deleted piece above ("An item is recognised in the financial statements...") is a paraphrase of paragraph 83 of the Framework. It sets out recognition criteria for any element (asset, liability, equity, income or expense). You may be right to say that the Accrual Basis is more important than the recognition criteria, but I think the recognition criteria should fairly be included!
Swinnow16 18:40, 3 July 2007 (UTC)
The page was a little too mess up, therefore the information was not flow correctly, therefore I totally miss the point, sorry about that. I saw you (Swinnow16) have a lot of interest in this article, I hope that we can keep our effort up and make it great. On the other hand I think I lead this page to discuss a lot about framework, it had evolve to a stage that it should form an article on it's own. If you feel so as well (Swinnow16) I will create a separate page and provide links to that page from this article. You can always contract me by droping message on my user talk page (click on my link and go to discussion), I create a section for all of us feels needs to improve the whole IFRS section. Oh by the way, I modify the structure of the article as well, hope it feels Ok. We still need to do the measurement bit. Keep it up.
My wing hk 13:12, 4 July 2007 (UTC)
The section relates to SME deleted as SME should not be dominated this topic
On February 15, 2007 the IASB issued a new draft, the IFRS for small and medium entities (SMEs).
The IASB admitted that full IFRS compliance is too much of a burden for small and medium size businesses and compiled a simplified set of accounting principles that are appropriate for smaller, non-listed companies. Listed companies, even the small ones, are not eligible for this simplified option. The exposure draft removes choices for accounting treatment, eliminates topics that are not generally relevant to SMEs and simplifies methods for recognition and measurement. Thus, the standard reduces the volume of accounting guidance applicable to SMEs by more than 85 per cent when compared with the full set of IFRSs.(IASB newsletter). The IASB expects to finalize and adopt IFRS for SMEs in the middle of 2008. In practice, adoption of IFRS may be a matter of European Union and national governments. Individual business may draw up their balance sheets according to these standards by choice to provide comparable documents across borders for international investors. For the first time, the IASB will provide standardized translations for an IFRS.
Regards My wing hk 14:39, 19 April 2007 (UTC)
List of countries using IFRS
I saw this line appear in version history of the page IFRS are used in many parts of the world, including ""in decreasing order of stock market capitalization""the European Union, Russia, South Africa, Hong Kong, Australia, and Singapore. according to market capitalisation the list should be as follows List of stock exchanges European Union, Hong Kong, Australia, Russia, South Africa, Singapore and Pakistan
Dont forget New Zealand! 184.108.40.206 09:55, 1 June 2007 (UTC)
- This section is made redundant, since the IAS maintains a list of country who use or comply with IFRS . --Gavin Collins 11:56, 23 August 2007 (UTC)
Flow of the document
As previously stated (see under structure), the article needed to review whether it should create a new topic. Now the article not only need to separate review the separation of IFRS + Framework and a large part in "Features of IFRS" is IAS 1 which also need to be consider to spirit. At the moment, I re-organised the article because personally, IAS 1 should not come before future development which is a huge process (of IASB) at the moment + how IFRS is structured. Whether you want to put it before Framework section is editor's preference. My wing hk 12:51, 12 July 2007 (UTC)
The "Features of IFRS" section actually describes some of the requirements of IFRS. It refers to 18 separate IFRS standards, all with cross references to the standards themselves. It is intended to include a brief description of the valuation requirements for every item on the income statement and balance sheet which has common application and which IFRS addresses. However, I used the heading "features of IFRS" rather than "key requirements of IFRS" so that the article has a neutral point of view.
Swinnow16 22:28, 12 July 2007 (UTC)
Links to Big 4 pages
I have re-inserted the links to the IFRS pages of Deloittes, KPMG and Ernst & Young. These had been removed by Hu12 quoting Wikipedia's External Links policy, although oddly the PwC link was left outstanding.
It seems to me that these are valuable links with good quality information with much more detail than we have on the IFRS page of Wikipedia. I do not think that they are "spam" although they are no doubt intended to promote the firms to large corporates. I added some of these links in the first place last year to make sure that all of the Big 4 were represented.
I have deleted the references suggesting that accountants can choose to measure items on a constant purchase power basis. There is a discussion in the paragraphs 102 to 110 of the Framework which sets out alternative methods of measurement of profit. However:-
- There are several IFRS standards which prevent the use of constant purchase power methods of measurement. For example IAS16 deals with Property Plant & Equipment. It permits two methods; either historical cost or revaluation based on fair value. The charge for depreciation relates to the carrying value, whether historical cost or fair value. It is not acceptable to index up the original cost of an asset by reference to subsequent inflation or to base the depreciation charge on that indexed amount. There are similar requirements in respect of intangible assets( IAS38) and inventories (IAS2). There are also restrictions in IAS1 and IAS8 which would prevent an entity from restating data previously reported for previous years at current prices;
- The Framework is not an IFRS statement; it says so in paragraph 2. Paragraph 10 and 11 of IAS8 states that the Framework is only relevant if there is no applicable IFRS statement. As a result IAS16, IAS38 and IAS2 take precedence over the Framework;
- I think the purpose of an article of IFRS should be to describe the actual practice, not to describe a notional alternative.
The IFRS article is quite long. I think it would make sense to transfer the material on the Framework to a separate article.
- The Framework, Par. 104 (a) states: "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power."
- The word "can" means it is a choice open to all accountants since 1989 to measure financial capital maintenance (not variable real value non-monetary items - as you suggest) in units of constant purchasing power.
- I fully agree with the several correct IFRS statements which prevent the use of constant purchasing power methods of measurement for the valuation of variable real value non-monetary items, e.g. IAS16 Property, Plant and Equipment, intangible assets( IAS38) and inventories (IAS2) during the accounting period including at the financial report date.
- I agree that IAS16, IAS38 and IAS2 take precedence over the Framework - since these Standards relate to variable real value non-monetary items.
- The Scope of the Framework includes:
- Par. 5. The Framework deals with:
- (c) the definition, recognition and measurement of the elements from which financial statements are constructed; and
- (d) concepts of capital and capital maintenance.
- Capital is not a variable real value non-monetary item. Capital is a constant real value non-monetary item - like e.g. all the items in Shareholders Equity, etc.
- The Framework, Par. 110 states: "The selection of the measurement bases and concept of capital maintenance will determine the accounting model used in the preparation of the financial statements."
- When accountants choose to measure financial capital maintenance in units of constant purchasing power, they choose to implement the Constant Item Purhasing Power Accounting model instead of the traditional Historical Cost Accounting model. This choice is open to all accountants since April 1989 as stated in the Framework, Par. 104 (a).
- There is no applicable IFRS statement regarding the valuation of constant real value non-monetary items, e.g. all elements in Shareholders Equity, etc. Par. 104 (a) of the Framework is thus valid as an IFRS basis for accountants to choose to measure financial capital maintenance in units of constant purchasing power thus implementing the constant purchasing power financial capital concept and capital maintenance concept instead of the HC capital concept and capital maintenance concept.
- The IASB approved option of measuring financial capital maintenance in units of constant purchasing power has nothing to do with the valuation of variable real value non-monetary items as you discussed in such detail above. It is all about "concepts of capital and capital maintenance" [par. 5 (d)] which " will determine the accounting model used in the preparation of the financial statements" [par. 110]. Nothing at all about the valuation of variable real value non-monetary items like PPE, intangible assets and inventory. It is stated under the section: Concepts of Capital and Capital Maintenance in the Framework.
- IAS29 requires accountants to "restate data previously reported for previous years at current prices" during hyperinflation. Since there is no applicable IFRS statement regarding such restatement during non-hyperinflationary periods, the Framework´s Par. 104 (a) is valid for such purpose.
The fact that the IASB dedicated 10 paragraphs (10%) of the Framework in 1989 to the option of measurement of finacial capital maintenance in units of constant purchasing power is overwhelming proof that it is not "a notional alternative" as you state.
Accountants can choose to measure, not all-encompassing "items" as you state, but, financial capital maintenance, as stated in the Framework, Par. 104 (a), in either nominal monetary units or units of constant purchasing power.
The Framework, Par. 104 (a): "Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power". Accountants thus do have a choice. All accountants implementing IFRS, knowingly or unknowingly, make that choice between Historical Cost Accounting and Constant Item Purchasing Power Accounting - as per Par. 104 (a) during non-hyperinflationary periods.
I think it is rather irresponsible of you to state that the CPP financial capital maintenance concept is a "notional alternative." You lose credibility stating that.
As a result of the Framework, Par. 104 (a) all accountants in the world implementing IFRS choose - knowingly or unknowingly - either the HC or the Constant Item Purchasing Power Accounting model. They all choose the HCA model since it is the traditional accounting model. The IASB requires them to implement IAS 29 which is based on the inflation accounting Constant Purchasing Power Accounting model under which all non-monetary items (variable and constant items) are inflation-adjusted by means of the CPI during hyperinflation.
Well, not really. The article is about IFRS. IFRS does not offer a choice between a historical cost basis and a constant purchasing power basis (CPP).
The starting point with CPP is to state all items on the balance sheet and income statement at a constant price level. IAS29 describes these adjustments in paragraphs 11 and 26.
IAS29 is mandatory for a business in a hyperinflationary economy; there’s no choice.
Fortunately there are few hyperinflationary economies as defined by IAS29 so most businesses do not need to apply it. However, they cannot choose to state all items on the balance sheet and income statement at a constant price level under IFRS and therefore cannot choose CPP:-
(a)It is not possible to restate assets and liabilities on the balance sheet to take account of changes in the general price index since the items first arose. Amongst other standards, IAS2 does not permit this for inventory, IAS16 does not permit this for property, plant and equipment and IAS38 does not permit this for intangible assets;
(b)It is not possible to restate the income statement to take account of changes in the general price index since the transactions took place. Amongst other standards, IAS18 does not allow this for revenue, IAS19 does not allow this for employee costs and IAS16 does not allow this for depreciation;
(c)It is not possible to restate the results of corresponding periods (last year’s comparatives) to take account of changes in the general price index since the transactions took place. The IFRS standards which apply here are IAS1, paragraphs 38 to 46, and IAS8, which limit restatements of comparatives to corrections of errors and changes of accounting policies.
Strictly speaking a business cannot choose to prepare its IFRS accounts on a historical cost basis either. IAS39 requires fair values to be applied in valuing investments and derivative financial instruments. A historical cost basis of accounting is not acceptable for these items.
The Framework is not part of IFRS. It was written in 1989 by the IASB’s predecessor body in advance of the bulk of IFRS standards as they apply today. Every IFRS standard except one has been issued or revised since the Framework was written. To select just one standard, IFRS2 requires costs to be recognised for share-based benefits for employees even if no liability arises and no change in net worth takes place. This does not fit the “concepts of capital” as described in the Framework. The Framework does not actually describe IFRS.
I think an article about IFRS should describe the actual practice, not a notional alternative.
- You simply restate what you have stated before with more detail. It seems as if you have not read one word of what I responded. Now I will have to take them one my one, and ask for each one of them whether you agee that what I state is all part of IFRS. I will do that in due course. PennySeven (talk) 15:51, 28 February 2009 (UTC)
- Please read my previous answer again. I have responded to all your statements already.
- You state: "The Framework is not part of IFRS."
- "In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8." PennySeven (talk) 20:48, 1 March 2009 (UTC)
- You have answered this question about the Framework not being an IFRS - I agree - yourself above: "The Framework is not an IFRS statement; it says so in paragraph 2. Paragraph 10 and 11 of IAS8 states that the Framework is only relevant if there is no applicable IFRS statement. As a result IAS16, IAS38 and IAS2 take precedence over the Framework"
- There is no applicable IFRS statement regarding the valuation of constant real value non-monetary items, e.g. issued share capital, retained earnings, all other items in Shareholders Equity, trade debtors, trade creditors, deferred tax assets and liabilities, taxes payable and receivable, all other non-monetary receibles and payable, etc. Par. 104 (a) of the Framework is thus relevant as a basis for accountants to choose to measure financial capital maintenance in units of constant purchasing power thus implementing the constant purchasing power financial capital concept and capital maintenance concept instead of the HC capital concept and capital maintenance concept. PennySeven (talk) 20:58, 1 March 2009 (UTC)
- The Framework, Par. 110 states: "110. The selection of the measurement bases and concept of capital maintenance will determine the accounting model used in the preparation of the financial statements. Different accounting models exhibit different degrees of relevance and reliability and, as in other areas, management must seek a balance between relevance and reliability. This Framework is applicable to a range of accounting models and provides guidance on preparing and presenting the financial statements constructed under the chosen model. At the present time, it is not the intention of the Board of IASC to prescribe a particular model other than in exceptional circumstances, such as for those entities reporting in the currency of a hyperinflationary economy. This intention will, however, be reviewed in the light of world developments."
- You are 100% correct. IAS29 is about the use of Constant Purchasing Power Accounting as mandated by the IASB - not optional - as an inflation accounting model. CIPPA as approved by the IASB in the Framework, Par. 104 (a) (the CIPPA I promote - "unofficially" on behalf of the IASB) is about CIPPA at all levels of inflation and deflation.
- There are two types of Constant Purchasing Power Accounting: (1) The failed and discredited 1970-style inflation accounting model which was based on the principle of updating ALL non-monetary items - both variable real value non-monetary items, e.g. property, plant, equipment, shares, inventory, etc as well as constant real value non-monetary items, e.g. issued share capital, retained income, all other items in shareholders equity, trade debtors and creditors, salaries, wages, rentals, etc, by means of the Consumer Price Index - a general price index - during high inflation, and
- (2) Constant Item Purchasing Power Accounting as approved by the IASB in the Framework, Par. 104 (a) in 1989. This IASB approved version of CPPA is completely ignored by almost all accountants except the IASB (not by me and I am an accountant) since they all think that any CPPA mention means 1970-style failed and discredited CPP accounting - as you assumed too and which is the reason for all your disagreements and opposed viewpoints.
- I agree. CPPA as the failed and discredited 1970-style inflation-accounting model. See the South African Institute of Chartered Accountants explanation:
South African Institute of Chartered Accountants: Yes, this does have conceptual appeal and was experimented with in the UK and US in the 1970s, when inflation was high. Yet the markets brushed aside the inflation-adjusted figures because:
- • The capital markets are acutely aware of the extent of inflation and are perfectly capable of allowing for this in determining the value of shares; and
- • Businesses are affected by the specific price changes of the products with which they are dealing; changes that may bear little relationship to a general price index like the CPI.
- It therefore made little practical sense to introduce CPI-based adjustments. Indeed, when the CPI-based approach was included in supplementary accounts, business generally objected on the grounds that the adjusted numbers did not reflect the impact of specific inflation.
- Eventually, with inflation abating in the UK and US, and accountants engaging in increasingly technical dead-end debates, the use of CPI-adjusted numbers was abandoned.
However, it states that monetary items are already held at that price level, so the items in the closing balance sheet that require adjustment are the non-monetary items; property plant and equipment, investments, inventories and intangible assets. Swinnow16 (talk) 23:47, 24 March 2009 (UTC)
- Non-monetary items are sub-divided in
- (a) Variable real value non-monetary items, e.g. property, plant, equipment, shares, inventory, etc.
- (b) Constant real value non-monetary items, e.g. retained income, issued share capital, all other items in shareholders´ equity, trade debtors, trade creditors, other non-monetary creditors, other non-monetary debtors, deferred tax assets and liabilities, taxes payable and receivable, all other non-monetary payables and receivables, salaries, wages, rentals, all items in the Profit and Loss account, etc.
- There are not just two basic economic items as you think there are, namely: monetary items and non-monetary items.
- There are three fundamentally different basic economic items in the economy:
- (1) Monetary items
- (2) Variable real value non-monetary items
- (3) Constant real value non-monetary items
- IAS29.15 refers to variable real value non-monetary items. "Property, plant and equipment,
investments, inventories of raw materials and merchandise, goodwill, patents, trademarks and similar assets are all variable items. They are valued in terms of IFRS. PennySeven (talk) 20:52, 12 September 2009 (UTC)
As I've described above, it is not possible for a business to restate any of those items at a closing price level (unless it is in a hyperinflationary economy, indicatively with prices doubling every three years). Swinnow16 (talk) 23:47, 24 March 2009 (UTC)
- As you well know, the IASB uses the term "units of constant purchasing power" in most of the paragraps 102 to 110 of the Framework - which I am sure you by now agree is applicable in the absence of applicable IFRS. The fact that certain economic items have constant instead of variable real values is thus well estasblished in IASB IFRS. Almost every country in the world value salaries, wages, rentals, etc in units of constant purchasing power; i.e. they are inflation-adjusted every year. It is generally accepted that salaries, wages, rentals, etc are constant real value non-monetary items that are inflation-adjusted or value in units of constant purchasing power every year.
However, there are IFRS standards covering trade debtors, trade creditors, receivables and payables (all of which are Financial Instruments and covered by IAS39) and deferred tax assets, liabilites, taxes payable and receivable (all covered by IAS12). It is not possible under IFRS to state any of these items differently than under historical cost accounting. Swinnow16 (talk) 23:47, 24 March 2009 (UTC)
- Under the IASB Framework statement in Par. 104 (a) it is possible to state constant items at the measuring unit current at the balance sheet date. Since there are specific IFRS that deal with these constant items the IFRS take precedence over the Framework, Par. 104 (a). This will lead to the incorrect calculation of the net monetary gain or net monetary loss when constant items are incorrectly treated as either monetary or variable items. Here we thus have a conflict between the IFRS and the correct measurement of financial capital maintenance in units of constant purchasing power terms of the Framework, Par. 104 (a).
There is no IFRS standard directly applicable to share capital and shareholders equity, but in many cases these items would be governed by national company law and could not be restated at a closing price level. Swinnow16 (talk) 23:47, 24 March 2009 (UTC)
- The Framework Par. 102 to 110 specifically deal with the constant purchasing power capital concept, the measurement of financaial capital maintenance in units of constant purchasing power and the profit/loss determination concept in units of constant purchasing power. As you so rightly state there is no IFRS standard directly applicable to share capital and shareholders equity; the Framework is thus applicable.
- Constant Purchasing Power inflation accounting as formulated in IAS 29 is ONLY required during hyperinflation. It requires the inflation-adjustment of ALL non-monetary items - both variable and constant items - during hyperinflation.
- Constant ITEM Purchasing Power Accounting as authorized by the IASB in the Framework, Par. 104 (a) requires that ONLY constant items are measured in units of constant purchasing power during LOW inflation.
- I did it in 1996 in Angola in a company called Auto-Sueco (Angola).
- Excuse the pun, but you are coming late to the party! :-) Financial capital maintenance in units of constant purchasing power was discussed extensively more than 20 years ago by the IASC Board. (I don´t think Wikipedia existed then). This resulted in, amongst other items, the statement in the Framework, Par. 104 (a): Financial capital maintenance can be measured in either nominal monetary units or in units of constant purchasing power. It has thus been discussed extensively outside Wikipedia. In fact, it was discussed at the highest level accounting authority in the world at that time.PennySeven (talk) 19:13, 27 March 2009 (UTC)
- I am sure there must be hundreds if not thousands of documents with discussions about financial capital maintenance in units of constant purchasing power immediately before 1989 in the IASC´s archieves.
- I note you avoid discussing the financial capital concept, the financial capital maintenance concept and the determination of profit in units of constant purchasing power during low inflation. That is what this is all about. IAS 29 is only about CPPA in hyperinflation. The Framework, Par. 104 (a) is about CIPPA during low inflation. PennySeven (talk) 19:19, 27 March 2009 (UTC)
Incidentally you have edited the first line to state that the definition of IFRS includes the Framework. IFRS is explicitly defined in paragraph 5 of IAS8. It does not include the Framework.Swinnow16 (talk) 23:47, 24 March 2009 (UTC)
- I have quoted IAS 8.11 in the article as well as Deloitte´s statement about the Framework being applicable in the absence of specific IFRS as you correctly mentioned above in the case of issued share capital, shareholders equity, etc. I am sure you have no doubt by now that the Framework is applicable in the absence of specific IFRS as mandated in IAS 8.11. PennySeven (talk) 18:53, 27 March 2009 (UTC)
- Here it is for your benefit again:
“In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8."
IAS Plus, Deloitte, Purpose and Status of the Framework. 
- International Accounting Standard IAS 8, Paragraph 11:
“In making the judgement, management shall refer to, and consider the applicability of, the following sources in descending order:
- (a) the requirements and guidance in Standards and Interpretations dealing with similar and related issues; and
- (b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.”
- International Accounting Standard IAS 8, Paragraph 11:
- IFRS do include the Framework as correctly presented in this article.
Confusion in Inventory section
I think there may be a mistake in the section on inventory. It currently reads Where individual items are not identifiable, the "first in first out" (FIFO) method is used, such that cost represents the most recent items acquired. "Last in first out" (LIFO) is not acceptable (IAS2.25). The way I understand "first in first out", that would mean the cost represents the oldest items acquired, whereas the "not acceptabled" LIFO approach would be the one where the cost represents the "most recent items acquired". Did someone get that wrong, or did I? PeterHansen (talk) 12:51, 27 January 2009 (UTC)
I've amended the section to make it clear that this refers to the cost of inventory. Under FIFO the cost of inventory on the balance sheet represents the most recent items acquired; the cost of sales on the income statement represents the oldest items acquired.
Added weighted average info to bring it into line with latest IFRS. Removed FIFO explanation and linked to FIFO/LIFO article. The links look like off-site links though...not sure how to fix that since the IFRS terminology and the wiki page linked to have different names. The "Where individual items are not identifiable" is not an accurate reflection of what IFRS says...but I can't think of a compact way to paraphrase IFRS.
In the grand scheme of things
Will the move to IFRS make financial statements easier to understand? Probably not. Probably make them harder at first. Will a reader be able to rely on the accuracy of the numbers? Probably not. If a company decides to value its assets at fair value, will the reader be able to rely on these numbers? Probably shouldn't. What it boils down to folks, is even with all the regulatory bodies out there acting as watch dogs for the public, the public still should perform its own tests for reasonableness. Is there such a thing as full disclosure in the notes? No. The very best of statements have errors in them, they are prepared by humans. A move to new guidelines, standards, rules, will probably have the impact of creating confusion and therefore reluctance to participate in the near future of a company, not what is needed right now. For every new rule that is brought into place, there is someone trying to find a loophole in that rule. The longer we stay with the standards that are currently in place the harder it will be to find loopholes in the current standards. Be afraid, be very afraid.B59henry (talk) 13:23, 23 April 2009 (UTC)
US GAAP and IFRS
The way I read reference 14 is that the SEC is only proposing at this point to require US companies to use IFRS in 2012-2014. I think the language ought to be revised to say that this is the SEC's proposal and not current policy. —Preceding unsigned comment added by 220.127.116.11 (talk) 18:51, 27 April 2009 (UTC)
Prof Rachel Baskerville´s Capital Maintenance contribution
You are not allowed on Wikipedia to qoute yourself. It is called Conflict of Interest. This is a Wikipedia policy.
I may quote or add comments from your excellent work to Wikipedia, but, you cannot do it yourself.
Your contribution which is a direct quote from your SSRN publication is also not encyclopedic - as they say over here on Wikipedia.
I also disagree with what you are stating. We can discuss this matter here on this discussion page as it is normally done on Wikipedia. I appreciate that you are new on Wikipedia and that you are a well known and top of the class academic.
Herewith then the contribution from Prof Baskerville that I removed from the article:
- "This the IASB Framework describes (as above) how capital maintenance is undertaken in two ways:
Firstly, “A financial concept of capital is adopted by most entities in preparing their financial statements. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity”. So most entities undertake to report that they have maintained their financial capital and do not report physical capital maintenance.
- Secondly, you may find some public sector entities consider that their stewardship responsibilities are best served by also reporting physical capital maintenance e.g. is the capacity of the waterworks, waste water system etc in the local town the same as, or better, than it was last year? Some Key Performance Indicators (KPIs) will be chosen to report this. The Framework states:
“Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on, for example, units of output per day”. These are two ‘concepts of capital’.
- Thirdly, and this is confusing, a legal meaning in the UK arose as follows: English law developed the ‘doctrine of capital maintenance’ with the aim of ensuring that a company cannot return its share capital back to its shareholders as dividends. The ‘doctrine of capital maintenance’ underpins the legal rules addressing
- - payment of dividends to shareholders;
- - reduction of a company’s share capital or reserves;
- - a company’s purchase of its own shares
- and other aspects. From October 2008 private companies in the UK will be allowed to reduce their share capital without the need to go to court".
So when a commercial lawyer is discussing capital maintenance they may be referring to this third concept."
I will still add my points of disagreement with Prof Baskerville´s contribution. I am first reading Prof Baskerville´s 100 Q´s + A´s in her SSRN publication.
Prof Baskerville, you can obviously take part in this discussion and we can agree on what can be added to the article as long as you are not the one adding it personally.
Here is the explanation of the legal side of Capital Maintenance as quoted directly
from Bowman Gilfillan lawyers
"The Capital Maintenance Concept and Share Repurchases in South African Law - By F.H.I Cassim and Rehana Cassim
The Capital maintenance concept
The South African Companies Act 61 of 1973 adopts a strange and a curios ambivalence towards the nineteenth-century common law concept of the maintenance of the share capital of a company. In some respects, the Companies Act still clings to this archaic and outdated concept, while in other respects, it boldly sweeps away the concept and replaces it with the more modern twins tests of “liquidity” and “solvency” as a form of creditor protection.
According to the capital maintenance concept, the issued share capital of a company is seen as a guarantee fund or a permanent fund intended for the payment of the claims of the creditors of a company, with the result that the issued share capital of a company may not be reduced, nor may it be returned to shareholders except where the Companies Act or the common law authorizes it. Thus, Lord Halsbury, L.C., in The Ooregum Gold Mining Company of India Ltd v Roper, declared that “[t]he capital is fixed and certain, and every creditor of the company is entitled to look to that capital as his security”. This was echoed some eight decades later in Cohen NO v Segal, where the court, in prohibiting the payment of a dividend out of share capital, proclaimed that
“[w]hatever has been paid by a member cannot be returned to him and no part of the corpus of the company can be returned to a member so as to take away from the fund to which the creditors have a right to look as that out of which they are to be paid. The capital may be spent or lost in carrying on the business of the company, but it cannot be reduced except in the manner and with the safeguards provided by the statute.”
In accordance with this concept, ss.81 and 82 of the Companies Act prohibit a company from issuing its shares at a discount unless certain stringent precautions have been complied with. Section 79 prohibits a company from paying interest on shares out of share capital unless this is authorised by the articles of association of the company or by a special resolution, the interest paid is restricted to a maximum of six per cent per annum, and the approval of the Minister of Industries, Commerce and Tourism has been obtained.
- F.H.I Cassim LL.B. (cum laude), LL.M (um laude) (University of the Witwatersrand, Johannesburg, South Africa; Advocate of the High Court of South Africa; Associate Professor of Law, University of the Witwatersrand, Johannesburg, South Africa, Consultant with Bowman Gilfillan Inc.
- Rehana Cassim BA (cum laude), LL.B. (cum laude) (University of the Witwatersrand, Johannesburg, South Africa); Bowman Gilfillan Inc.
These statutory provisions find their roots in the capital maintenance concept, but it no longer makes any sense to preserve them in their present form, because instead of complying with the burdensome requirements of s.79, a company may now simply make a “payment” including dividend payments in terms of s.90 (as amended in 1999), whether out of capital or profits, to its shareholders provided that this is authorised by its articles of association and that it satisfies the tests of “liquidity” and “solvency” (as explained below). A company may, if it so desires, prohibit in its articles of association such “payments”. Section 90 abandons the common law concept of capital maintenance and together with it the fundamental common law principle that dividends may only be paid out of distributable profits. Unlike English law, ss.83 and 84 which regulated reductions of share capital have been repealed by s.8 of the Companies Amendment Act 37 of 1999, with the result that there is no longer any statutory procedure for the reduction of a company’s share capital, expect in accordance with s90 of the Companies Act. Perhaps this conflict in the underlying philosophy and policy of the South African Companies Act is a direct result of the patchwork and piecemeal reform that has taken place in South African corporate law during the 30-year existence of the Companies Act of 1973. By way of contrast, ss.135-141 of the UK Companies Act 1985 have preserved the statutory procedures and regulations relating to reductions of share capital.
Another vital aspect of the reform of the capital maintenance concept is the right conferred by s.85 of the Companies Act (as amended by s.9 of the Companies Amendment Act 37 of 1999) to enable companies to purchase their own shares. Until 1999, South African corporate law was one of the few remaining common law jurisdictions which continued to prohibit companies from purchasing their own shares, as laid down by the House of Lords in Trevor v Whitworth. This prohibition has finally been thrown overboard.
While the capital maintenance concept has been abandoned to this extent, it still remains essential to protect not only creditors from the potential abuse of the share repurchase power but also shareholders, since they are at risk if the share repurchase power is used by a company to discriminate against shareholders holding the same class of shares. A share repurchases also affects voting rights and therefore control of the company.
In Capitex Bank Ltd v Qorus Holdings Ltd, the first case dealing with the statutory provisions relating to share repurchases, the court, correctly with respect, ruled that while the statutory provisions have dramatically changed the capital maintenance rule and the perceived protection it afforded to shareholders, the rule continued to have some residual function in South African law in that it remains an important guideline to protect creditors and shareholders against abuse of the power of a company to repurchase its own shares.
The statutory provisions on share repurchases
Section 85(1) of the Companies Act 1973, as amended by the Companies Amendment Act 37 of 1999, enables a company to acquire its own shares provided that it is authorised to do so by its articles of association and the share repurchases has been approved by a special resolution passed by the members of the company. Such approval may either be a general approval which is valid until the next annual general meeting unless varied or revoked earlier (s.85(2) and (3) ), or it could be a specific approval for a particular acquisition (s.85(2) ). The latter provision facilitates a share repurchase for the purposes of an employee share scheme, or a share repurchase in order to settle a debt owed to the company, or a share repurchase from the estate of a deceased shareholder or to effect a repurchase of an odd lot parcel of shares.
The “liquidity” and “solvency” tests
The core of the statutory provisions permitting share repurchases is to be found in s.85(4)(a) and (b) of the Companies Act, which prohibits a company from making any payment in whatever form for the acquisition of its shares if there are reasonable grounds for believing:
(a) that the company is or would after the payment be unable to pay its debts as they become due in the ordinary course of business (this is known as the “liquidity” test); or
(b) the consolidated assets of the company fairly valued would after the payment be less than the consolidated liabilities of the company (this is known as the “solvency” test).
Section 85(4)(a) and (b) thus ensures that a company that is insolvent or illiquid, or which will become insolvent or illiquid as a result of the share repurchase, cannot proceed with the transaction. It is also clear from the wording of the section that the liquidity and the solvency tests are both objective, and that both tests must be satisfied for a valid share repurchase. In Capitex Bank Ltd v Qorus Holdings Ltd, the court held that in view of s.85(1) of the Companies Act, an agreement relating to the acquisition by a company of its own shares is no longer, in itself, illegal or unlawful, but that a payment made in contravention of the liquidity and solvency tests as embodied in s.85(4)(a) and (b) would result in the illegality of the share repurchase agreement.
There are no restrictions on the source of the funds utilized to acquire the company’s shares. Such restrictions were, until the simplification of the financial provisions relating to the validity of distributions, quite common in the United States. In English law, s.160(1) and (2) of the Companies Act 1985 requires shares to be repurchased either out of distributable profits or out of the proceeds of a fresh issue of shares made specifically for that purpose. In the case of a private company, the company may under certain circumstances make a payment out of capital (i.e. the permissible capital payment) (s.171) provided that the directors in terms of s.173(3) make a statutory declaration.
It is also clear from the wording of s.85(4) that all that is required is that the company has “reasonable grounds” for believing that it is liquid and solvent.
Unlike s.173(3)-(6) of the UK Companies Act 1985, an auditor’s report or certificate is not required, even in the case of shares listed on the Johannesburg Securities Exchange (“JSE”). There is also no prescribed minimum period after the share repurchase for which the company must remain liquid and solvent, although in the case of listed shares, r.5.69 (c) (i) and (ii) of the JSE Listings Requirements requires a statement from the directors that the company will remain liquid and solvent for a period of 12 months of the date of approval of the offering circular, and that its share capital reserves and working capital will be adequate for ordinary business purposes for a period of 12 months after the date of approval of the offering circular.
The liability of the directors, and the rights of creditors and shareholders
It is the responsibility of the directors of the company to ensure that a share repurchase does not cause the company to become insolvent or illiquid. If it does, the directors become jointly and severally liable to restore to the company the amount paid by the company for the share repurchase and not otherwise recovered by the company, subject to any relief granted by the court in the exercise of its discretion under s.248 to excuse a director who has acted honestly and reasonably and who ought fairly to be excused (s.86(1) ). The company, however, commits no criminal offence as it does in Singapore; nor is it directly liable to its creditors or shareholders. In South African law, the directors do not owe any fiduciary duty to the creditors of the company.
A director held liable under s.86(1) is entitled to apply to the court for an order compelling the selling shareholder to pay to the company any money paid to him by the company in breach of s.85(4). This right of recovery against the selling shareholder is extended also to creditors before or at time of the repurchase and to shareholders, even shareholders subsequent to the share repurchase. But the statutory provisions do not expressly permit a creditor or a shareholder to directly sue the directors of the company if the company has failed to comply with the liquidity and solvency tests.
The procedure for share repurchase
The procedure for a share repurchase is of crucial importance in preventing abuse of the share repurchase power and discrimination against shareholders holding the same class of shares. Two types of procedure are provided for: (i) a tender offer in terms of s.87(1) of the Companies Act, which entails an offer to acquire unlisted shares from all registered shareholders; and (ii) a repurchase on the open market. It is clearly desirable that a company repurchases its shares from all the shareholders on a pro rata basis so that all shareholders are given the right where reasonably practicable to participation on an equal basis. In accordance with this underlying theme, s.87(1) requires in the case of unlisted shares that the company delivers or posts to each registered shareholder a copy of a prescribed offering circular stating the relevant details of the share repurchase. Shareholders could in response to this circular offer to sell shares to the company, and should they offer to dispose of a greater number of shares than that which the company offered to acquire, the company is required to acquire the additional shares on a pro rata basis. Failure to comply with the requirements of s.87(1) constitutes a criminal offence, and penalties are also prescribed for untrue statements in the offering circular.
This procedure does not apply in two cases: first, a repurchase of shares listed on a stock exchange, the reason for this exclusion being that the JSE has prescribed its own (and more effective) safeguards and procedures for a share repurchase; and secondly, where a company is acquiring its shares in terms of a specific approval for a particular acquisition as provided for in s.85(2). In such cases, an offering circular is not appropriate and is dispensed with.
No Treasury shares
The Companies Act stipulates (in s.85(8)) that repurchased shares must be cancelled as issued shares and be restored forthwith to the status of authorized shares. Following the trend in New Zealand (s.66(1) of the New Zealand Companies Act 1993), Australia (s.257 H (3) Division Two, Corporations Act 2001) and Canada (s.39(6) of the Canada Business Corporations Act 1985, RSC 1985, C-44), there are to be no Treasury shares in South African law. Treasury shares are fully paid issued shares of a company that have subsequently been repurchased by the company and which the company, instead of having to cancel on their repurchase, is permitted to reissue for what they will fetch on the open market.
Since the repurchased shares are cancelled on their acquisition, it follows that any rights or privileges attaching to such shares, such as voting or dividend rights, are also extinguished. There is, however, one exception to the rule that the repurchased shares must be cancelled, and this arises where a subsidiary acquires shares in its holding company, which it is now permitted to do up to a maximum of 10 per cent of the issued shares of the holding company (s.89). In this case, the repurchased shares of the holding company need not be cancelled, but such shares do not carry any voting rights, although nothing is said of dividend rights (s.89 and s.39).
Another disappointing omission in the statutory provisions on share repurchases is that a company repurchasing its shares, or intending to do so, does not acquire the status of an “insider’ for the purposes of the Insider Trading Act 135 of 1998, even if the company is in possession of material non-public information relating to its securities. The Insider Trading Act applies only to natural persons, although an “individual” that encourages a company to deal, or discourages it from dealing, on the basis of material non-public information would, according to s.2(1)(b) of the Insider Trading Act, commit a criminal offence. Thus, a director of a company who causes the company to deal in it securities would commit a criminal offence, but the company itself cannot be convicted of the offence. Section 52 of the Criminal Justice Act 1993 has a similar effect in the United Kingdom.
In sharp contrast, in New Zealand, Australia and Canada, a company is treated as an “insider” of itself when it repurchases its own shares. The New Zealand Law Commission Report went so far as to describe the company repurchasing its own shares as the “ultimate insider”. The policy ought to have been that companies ought not to be permitted to repurchase their own shares until such a time as any material non-public information that they may have relating to their own securities has been made public. It is respectfully submitted that the issue has not been properly considered in South African law, particularly since the Insider Trading Act 1998 was enacted before companies were given the right the purchase their own shares.
The provisions of the Companies Act relating to share repurchases are in some important respects defective and lacking in technical quality. Although we still have much work to do in developing our law relating to share repurchases, we have nevertheless made considerable progress in partially abandoning the outdated concept of capital maintenance. South African law is now more or less in harmony with the law in other common law jurisdictions, but we await judicial interpretation and clarity on some of the more ambiguous and uncertain provisions of the Companies Act."
You are egregiously mistaken when you state in your publication and your contribution above that there are only two concepts of capital maintenance in IFRS. There are three concepts of capital maintenance in IFRS. I suggest you correct your publication. It is otherwise an excellent publication. Respectfully I wish to state that in my humble opinion, you are currently giving your students wrong information.
Capital maintenance is the continuous maintenance of the real value of capital over time; i.e. the constant purchasing power of capital.
Financial capital maintenance in nominal monetary units per se is a fallacy: it is impossible to maintain the real value of capital constant over time in nominal monetary units per se during inflation and deflation.
There are 3 ways of looking at capital maintenance:
1. In terms of fact
2. In terms of IFRS
3. In terms of Wikipedia
1. In terms of fact
The fact that capital maintenance is the continuous maintenance of the constant purchasing power of capital means that there are only two concepts of capital maintenance:
a) Physical capital maintenance as defined in the Framework
b) Continuous financial capital maintenance in units of constant purchasing power as defined in the Framework, Par 104 (a) which states:
“Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.”
2. In terms of IFRS
There are 3 concept of capital maintenance in terms of IFRS:
a) Physical capital maintenance as defined in the Framework.
b) Financial capital maintenance in nominal monetary units as authorized by the IASB in the Framework, Par 104 (a) which is a fallacy, but, is implemented by 99.99% of entities in the world economy and results in their accountants (not inflation as the FASB, IASB, SAICA and most accountants believe) unknowingly, unnecessarily and unintentionally destroying the real value of their companies´ shareholder’s equity (never maintained by sufficient revaluable fixed assets) with the implementation of their very destructive stable measuring units assumption during low inflation at a rate equal to the annual rate of inflation in all countries with low inflation amounting to hundreds of billions of Euros in the world economy each and every year.
c) Continuous financial capital maintenance in units of constant purchasing power which the IASB authorized in the Framework, Par 104 (a) in 1989 for implementation during low inflation and deflation as an alternative to the globally implemented generally accepted traditional Historical Cost Accounting model, but, it is ignored by almost everyone. Financial capital maintenance in units of constant purchasing power during low inflation would stop the unknowing destruction by accountants of the real value of companies´ capital and profits never maintained amounting to hundreds of billions of Euros in the world economy per annum implementing their very destructive stable measuring unit assumption under HCA during low inflation. Accountants would knowingly maintain hundreds of billions of Euros in the real value of companies´ capital and profits per annum without extra money in new capital contributions or extra retained profits when they measure financial capital maintenance in units of constant purchasing power during low inflation as authorized by the IASB in the Framework, Par 104 (a) in 1989. This is not understood by the IASB, FASB, SAICA, other accounting authorities and most accountants and accounting lecturers and professors. If they understood it, they would have stopped the stable measuring unit assumption by now. Financial capital maintenance in units of constant purchasing power units is only required by the IASB in IAS 29 Financial Reporting in Hyperinflationary Economies.
The legal requirements for satisfying the liquidity and solvency tests do not constitute a third concept of capital maintenance, but, are simply the legal basis for either financial capital maintenance in nominal monetary units – when you assume the that the stable measuring unit assumption satisfies the requirement for “fairly valued” as 99.99% of entities currently incorrectly assume - as well as financial capital maintenance in units of constant purchasing power where under the very destructive stable measuring unit assumption is rejected in terms of the Framework, Par 104 (a). Unfortunately no-one chooses this option.
3. In terms of Wikipedia
Wikipedia is not exclusively about facts, but, about what is generally accepted – even if it is wrong or a fallacy, as in the case above.
There are thus three concepts of capital maintenance in terms of Wikipedia rules:
a) Physical capital maintenance as defined in the Framework.
b) Financial capital maintenance in nominal monetary units as authorized by the IASB in the Framework, Par 104 (a) in 1989. The fact that it is a fallacy under inflation and deflation and that it results in accountants (not inflation) world wide unknowingly, unnecessarily and unintentionally destroying hundreds of billions of Euros annually in the real value of companies´ capital and profits not maintained by sufficient revaluable fixed assets are not important in the case of Wikipedia or actually to anyone including the IASB, FASB, AASB and all accountants and all accounting authorities. What is important for Wikipedia is that it is generally accepted: 99.99% of entities world wide use it and it has been authorized by the IASB in 1989.
c) Continuous financial capital maintenance in units of constant purchasing power as authorized by the IASB in the Framework, Par 104 (a) as an option to HCA during low inflation and deflation. The fact that no-one uses it during low inflation and deflation does not exclude it from Wikipedia. See Constant Item Purchasing Power Accounting. It is required by the IASB in IAS 29 during hyperinflation. What is important is that it has been authorized as an appropriate accounting policy by the IASB in 1989. It is thus notable in terms of Wikipedian rules.
So, what can we add to the article?
The article already states the three concepts of capital maintenance as defined in the Framework. That section of the article is actually a verbatim quote of those articles in the Framework. There is thus nothing to add in that respect. This article is about IFRS.
The legal requirements of “liquidity” and “solvency” have to be satisfied in the case of
• - payment of dividends to shareholders
• - reduction of a company’s share capital or reserves
• - a company’s purchase of its own shares
in order to maintain capital. It is not another concept of capital. It is simply the legal basis for the three concepts of capital as defined in the Framework.
I wish to add the following to the article (although this is not actually part of IFRS) - if no-one objects:
In most jurisdictions the legal requirements of “liquidity” and “solvency” have to be satisfied in the case of
• payment of dividends to shareholders
• reduction of a company’s share capital or reserves
• a company’s purchase of its own shares
A company is prohibited from making any payment in whatever form from shareholders´ equity if there are reasonable grounds for believing:
(a) that the company is or would after the payment be unable to pay its debts as they become due in the ordinary course of business (this is known as the “liquidity” test); or
(b) the consolidated assets of the company fairly valued would after the payment be less than the consolidated liabilities of the company (this is known as the “solvency” test). 
From October 2008 private companies in the UK will be allowed to reduce their share capital without the need to go to court.
I am not very sure that this belongs in this article because it is about IFRS. This contribution belongs in an article about capital maintenance.
- South African Institute of Chartered Accountants, Education and training > Discussion Forum > Small Practices > R57.984 billion real value destroyed by CAs in 169 JSE listed companies. Line 6 to 14. Statement originally made by Prof. Geoff Everingham, Accounting Department, University of Cape Town, South Africa in a letter to the Financial Mail, 23 May, 2008 now only accessible on prescription. Statement restated by SAICA.
- Baskerville, Rachel F., 100 Questions (and Answers) About IFRS (January 24, 2010). Available from SSRN: http://ssrn.com/abstract=1526846
- The Capital Maintenance Concept and Share Repurchases in South African Law - By F.H.I Cassim and Rehana Cassim.
- Baskerville, Rachel F., 100 Questions (and Answers) About IFRS (January 24, 2010)
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