1) Purpose and scope of application of the principles

2) FO users and their information needs

3) Underlying assumptions

4) Qualitative characteristics of information

5) FO elements

6) Evaluation of FO elements

The Principles provide guidelines for the preparation and provision of financial statements for external users. They are designed to help:

1) The IASB in developing future and revising existing IFRSs, in promoting the harmonization of rules, accounting standards and procedures associated with the presentation of financial statements, by providing a basis for reducing the number of alternative approaches to accounting interpretation

2) National standardization bodies in the development of national standards

3) Compilers of financial statements in the application of IFRS

4) Auditors in forming an opinion on the compliance or non-compliance of financial statements with IFRS

5) Users of financial statements compiled in accordance with IFRS, in the interpretation of the information contained therein

General purpose FO is intended for a wide range of users. The principles define groups of FO users, as well as their information needs.

Group of users:

1) Capital investors and their advisors; shareholders interested in information that allows them to assess the company's ability to pay them dividends

2) Employees and their representative groups are interested in information about the stability and profitability of their employers, as well as information that allows them to assess the ability of their company to provide salary, pension, employment

3) Lenders - are interested in information that allows them to determine whether the loan and the interest due on it will be repaid on time

4) Suppliers and other trade creditors - are interested in information that gives them the opportunity to determine whether the debt to them will be repaid on time

5) Buyers - are interested in information about the stability of the company, especially when they have a long-term relationship with it or depend on it

6) The government and their bodies are interested in the distribution of resources, and therefore in the activities of companies

7) The public - is interested in information about trends and recent changes in the well-being of the company and the range of its activities. At the local level, companies and communities work together to address employment, environmental, health and safety issues. This category of users is interested in information that may not be financial.

Assumptions:

1) Accounting using the accrual method. Under this method, the results of transactions and other events are recognized when they occur (rather than when cash or cash equivalents are received or paid). They are reflected in the accounts and included in the financial statements of the periods to which they relate. Accrual-basis financial statements inform users not only of past transactions involving the payment and receipt of cash, but also of obligations to pay money in the future and of resources representing cash to be received in the future.

2) Continuity of business. Financial statements are generally prepared on the basis that the company is a going concern and will continue to operate for the foreseeable future. Thus, it is assumed that the company does not intend to liquidate or significantly reduce the scale of its activities; if such an intention or necessity exists, the financial statements must be prepared on a different basis and the basis applied must be disclosed

1) Understandability, i.e. accessibility of information for user understanding. To do this, users are expected to have sufficient knowledge of business, economics, accounting and a willingness to study the information with due diligence. But information about complex matters that must be included in financial statements because of their importance to users' economic decisions should not be excluded simply because they may be too complex for certain users to understand.

2) Relevance - information is relevant when it influences the economic decisions of users by helping them evaluate past, present and future events, confirming or correcting their past assessments. The relevance of information is greatly influenced by its nature and materiality. A modern definition of materiality is given in IAS 1 Provision of Financial Accounting.

3) Reliability. Information is reliable when it is free from material errors or misstatements.

4) Comparability. Users should be able to compare financial statements of a company for different periods and financial statements of different companies for 1 period

FI reflects the financial results of transactions and other events, combining them with economic characteristics. These broad categories are called FO elements.

The elements directly related to the measurement of financial position on the balance sheet are assets, liabilities and equity.

I Assets are resources controlled by a company as a result of past events from which the company expects future economic benefits.

II Liabilities - the current debt of a company arising from events of past periods, the settlement of which will lead to an outflow from the company of resources containing economic benefits.

III Capital - the share in the assets of the company remaining after deducting all liabilities.

The elements directly related to the performance measures in the report and P&L are income and expenses.

Income is an increase in economic benefits during the reporting period, occurring in the form of a receipt or increase in assets or a decrease in liabilities, which is expressed in an increase in capital not related to the contributions of share capital participants.

Expenses are a decrease in economic benefits during the reporting period, occurring in the form of disposal or reduction of assets or an increase in liabilities, leading to a decrease in capital, not related to its distribution among share capital participants.

Valuation is the process of determining the monetary values ​​in which the elements of a financial statement should be recognized and reflected in the balance sheet and in the income statement. The following methods are used in financial statements to varying degrees and in different combinations:

1) Actual acquisition cost (historical or original)

2) Current (replacement) cost

3) Possible selling price

4) Present value - assets are reflected at the discounted value of the future net inflow of cash flows that are expected to be created by the asset in the normal course of business. Liabilities are stated at the present value of future net disposals of assets expected to be required to satisfy the obligations in the normal course of business.

More often than others, companies use actual cost. It is usually used in combination with other assessment methods. Currently, the main trend in IFRS is the transition to measuring items at fair value. The concept of fair value is not discussed in the principles. The essence of this assessment is revealed directly in individual standards IFRS16, 38, 40...

Fair value represents the amount of the asset for which knowledgeable, willing parties, independent of each other, would agree to exchange an asset.

Basics of financial reporting preparation and preparation

Users and their information needs

Users of financial statements include existing and potential investors, employees, creditors, suppliers and other trade creditors, customers, governments and their agencies, and the public. They use financial statements to meet their various information needs.

The management of the enterprise has primary responsibility for the preparation and presentation of the financial statements of the enterprise. Management also has an interest in the information contained in the financial statements, even though it has access to additional management and financial information that assists it in fulfilling its planning, decision-making and control responsibilities. Management has the ability to determine the form and content of such additional information. so that it meets his needs.

Purpose of financial statements

The purpose of financial statements is to provide information about the financial position, results of operations, and changes in the financial position of an enterprise. This information is needed by a wide range of users when making economic decisions

Financial statements prepared for this purpose satisfy the general needs of most users. However, financial statements do not provide all the information that users may need to make economic decisions because they primarily reflect the financial results of past events and do not necessarily contain non-financial information.

Financial statements also show the results of the activities of the management of the enterprise or the responsibility of management for the entrusted resources. Those users who want to evaluate the activities or responsibility of management do so in order to make - economic decisions. These decisions may include, for example, such as the decision to retain or sale of an investment in an enterprise, or a decision to reassign or remove management

Financial position. Results of operations and changes in financial position

Economic decisions made by users of financial statements require an assessment of the enterprise's ability to create (generate) cash and cash equivalents, as well as the timeliness and stability of their creation. This capacity ultimately determines, for example, a business's ability to pay its employees, pay its suppliers, make interest payments, repay loans and make distributions to its owners. Users are better able to assess an entity's ability to generate cash and cash equivalents if they have information that focuses on the financial position, results of operations and changes in the financial position of the entity

Information about the financial position, mainly in the balance sheet (balance sheet). Information about the results of an enterprise's activities is provided mainly in the income statement. Changes in financial position are reported in the financial statements using a separate reporting form (changes in equity).

The components of financial statements are interrelated because they reflect different aspects of the same transactions or other events. Although each reporting form presents information that is different from the others, none is focused on one subject or provides all the information needed for a user's specific needs. For example, an income statement does not provide a complete picture of a business's performance unless it is used in conjunction with a balance sheet and statement of changes in financial position.

Notes and additional materials

Financial statements also contain notes, supplementary material and other information. For example, they may contain additional information about balance sheet and income statement items that are important to meet users' needs. It can disclose the risks and uncertainties affecting the entity and any resources and liabilities not reflected on the balance sheet (such as mineral reserves). Information on geographic and industrial segments and the impact of price fluctuations on the enterprise may also be provided as additional information.

Fundamental assumptions. Accrual accounting

In order to achieve these objectives, financial statements are prepared on an accrual basis. Under this method, the results of transactions and other events are recognized when they occur (rather than when cash or cash equivalents are received or paid) They are recorded and included in the financial statements of the periods to which they relate. Accrual-based financial statements inform users not only about past transactions involving the payment and receipt of cash, but also about obligations to pay cash and cash equivalents in the future, and about the resources representing cash that will be received in the future. . Thus, they provide information about past transactions and other events that is extremely important to users when making economic decisions.

Financial statements are usually prepared on the basis of the assumption that the entity is operating and will continue to operate for the foreseeable future. Conversely, it is assumed that the entity does not intend to And does not need to liquidate or significantly reduce the scale of its activities; If such an intention or necessity exists, the financial statements must be prepared on a different basis and, if so, the basis applied must be disclosed.

Qualitative characteristics of financial statements

Qualitative characteristics make the information presented in financial statements useful to users. The four main quality characteristics are understandability, relevance, reliability and comparability.

The main quality of the information presented in financial statements is its accessibility to users. It is assumed that for this, users must have sufficient knowledge in the field of business and economic activity, accounting and the desire to study the information with due diligence. However, information about complex matters that should be included in the financial statements because of its relevance to users' economic decisions should not be excluded simply because it may be too difficult for certain users to understand.

To be useful, information must be relevant to decision-makers. Information is relevant when it influences users' economic decisions by helping them evaluate past, present, and future events, and to confirm or correct their past assessments.

The relevance of information is greatly influenced by its nature and materiality. In some cases, the nature of the information alone is sufficient to determine its relevance. For example, the announcement of a new segment may affect the assessment of the risks and opportunities facing the enterprise, regardless of the materiality of the results achieved by the new segment during the reporting period. In other cases, both the nature and materiality are important, for example, the size of the major inventories available that are relevant to the activity.

Information is considered material if its omission or misstatement could influence the economic decisions of users made on the basis of the financial statements. Materiality depends on the size of the item or error measured under the specific conditions of the omission or misstatement. Thus, essential rather indicates a threshold or reference point, and is not the primary qualitative characteristic that information must have in order to be useful.

To be useful, information must also be reliable. Information is reliable, free from material error or bias, and can be relied upon by users to represent truthfully what it either purports to represent or is reasonably expected to represent.

Information may be relevant but so unreliable in nature or presentation that its admission may be potentially misleading.

To be reliable, information must truthfully represent the transactions and other events that it either purports to represent or is reasonably expected to represent. Thus, for example, the balance sheet must present fairly the transactions and other events that resulted in the entity's assets, liabilities and equity that meet the recognition criteria at the reporting date.

If information is to represent transactions and other events truthfully, it is necessary that they be recorded and presented in accordance with their substance and economic reality, and not just their legal form. The substance of transactions and other events does not always correspond to what appears from their legal or statutory form.

To be reliable, the information contained in financial statements must be neutral, that is, it must be contingent. Financial reporting will not be neutral if, by its very selection or presentation of information, it influences decision-making or judgment in order to achieve a planned result or outcome.

Prudence is the introduction of a degree of caution into the judgment necessary to make the calculations required under conditions of uncertainty so that assets or income are not overstated and liabilities or expenses are understated.

In the context of the globalization of the economy, the creation of regional economic spaces, the expansion of investment opportunities, the development of international financial markets, and rapid processes in the field of information technology, the need for harmonization of financial reporting standards is becoming increasingly important.

International investors interested in preserving capital and reducing investment risks should be able to evaluate the performance of economic entities on the basis of full comparability, which is only possible under conditions of clear standardization of financial reporting. Ideally, we are talking about a single set of standards that would ensure maximum comparability of accounting data and, on this basis, achieve complete mutual understanding on the part of users of financial statements.

Generally accepted financial reporting standards are necessary for developing and emerging countries, which, being interested in attracting foreign capital, have the opportunity to obtain the funds sought on more favorable terms and in a shorter time frame. Countries with developed economies are also interested in improving the system of international financial standards, which, operating in a diversified international market, subject in modern conditions to various fluctuations and risks, strive not only to achieve a certain level of stability, but also to ensure further economic growth.

Currently, there are two financial reporting systems in the world that are focused on investors and provide the same level of protection for their interests: US GAAP and IFRS. However, in practice, reporting in accordance with these standards is regulated differently.

The US GAAP system is focused on the American economy, is too voluminous, and is based on hundreds of very detailed rules. Effective implementation of these standards in the United States relies primarily on the strong regulatory and enforcement powers of the US Securities and Exchange Commission. In order to use American standards, extensive training and serious professional training are required.

IFRS, based on the same conceptual principles, are less detailed and cheaper to implement, so they are increasingly gaining new positions in the world. It should be noted that international financial reporting standards represent a set of compromise and fairly general options for accounting and are not dogma, normative documents regulating specific methods of accounting and reporting standards.

The main purpose of financial statements under IFRS is to provide the user with reliable information about the financial and economic activities of the organization. International Financial Reporting Standards impose two significant requirements for financial reporting. This is transparency and responsibility.

Transparency refers to the disclosure of uniformly understood information necessary for information users to make appropriate decisions. If necessary, digital data should be disclosed and provided with the necessary comments. There should be no unreasonable inclusion of some data into others, as well as offset without their separate reflection.

Responsibility refers to the objectivity and reliability of financial reporting.

The advantage of IFRS is that this system is designed for use on an international scale. The development of uniform accounting standards is carried out by the International Accounting Standards Committee (IASC). The IASB was formed in 1973 and included representatives of professional accountancy organizations from 10 countries: Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, Great Britain, Ireland and the USA.

Until 2001, the Committee was registered as a private organization; now it operates as an independent organization and brings together representatives of 143 accounting organizations from 104 countries, representing the interests of 2 million accountants. He owns the copyright to the texts of the standards.

The IASB Charter provides the following objectives:

formulate and publish, based on the public interest, financial reporting standards that must be observed in the preparation and presentation of financial statements, and encourage their widespread adoption and compliance;

carry out work to improve and harmonize norms, accounting standards and procedures related to the presentation of financial reports.

The structure of the International Financial Reporting Standards Committee is presented in Figure 1.1.

Diagram 1.1 Structure of the International Financial Reporting Standards Committee

The procedure for developing and adopting financial reporting standards is a rather complex and lengthy process, involving the preparation of various working documents that are discussed with the participation of a wide range of specialists.

The final version of the international financial reporting standard is approved by a 3/4 vote of the members of the IASB Council. International standards adopted during the existence of the Committee are given in Appendix No. 1.

International standards define the following tasks for preparing financial statements:

reflect the financial position and results of operations;

reflect the results of management’s activities in managing shareholders’ funds;

provide information to potential investors.

Many of the accounting rules and regulations in force in the Russian Federation are a legacy of the planned economy of the former Soviet Union. In a planned economy, all aspects of normal market relations, including production, pricing, and monetary policy, were regulated by the state. Since the users of financial information in the former Soviet Union were government agencies, accounting policies were standardized for all business entities. As a result, accounting in the former Soviet Union was highly regulated and required little or no professional judgment.1 1 KPMG, IFRS Implementation, Audit/Advisory Services, 2004.

The application of international financial reporting standards is now a task not only for Russia, but also for other countries. The European Union decided to switch to international financial reporting standards until 2005 only for those companies whose shares are listed on the stock exchange. In May 2000, the international organization of the Securities Commission adopted IFRS as a system of accepted international standards, compliance with which is a condition for the listing of economic entities simultaneously on several world stock markets.

From January 1, 2004, the entire banking sector and part of the real sector of the economy of our country switched to reporting in accordance with international standards. In order to ensure systematic work on organizing the transition of the banking sector to IFRS, the Official Statement of the Bank of Russia was published in the “Bulletin of the Bank of Russia” dated 06/04/2003, providing the conceptual basis for the transition, the procedure and timing for the preparation of international reporting.

In accordance with the established procedure, Russian banks must ensure the presentation of financial statements in accordance with international standards from January 1, 2004:

Annual consolidated and unconsolidated financial statements for the reporting year beginning on January 1, 2004 and ending on December 31, 2004 must be certified by an audit organization and submitted before October 1, 2005. In 2004-2005 financial statements according to IFRS will be used only for analyzing the activities of banks and only from January 1, 2006 - for applying supervisory response measures in the supervision process. This is done so that credit institutions, having prepared reports in accordance with IFRS, have time to possibly correct the situation if problems are identified.

According to M. Zadornov, “there was a struggle between the European Union and American government and professional representatives over what system Russia and a number of union republics would accept.” However, due to a certain orientation of Russian financial reporting legislation towards European economic law (primarily German and French), Russia chose IFRS.

The objectives of the transition to IFRS are formulated in the Development Strategy of the Banking Sector of the Russian Federation adopted by the Government of the Russian Federation and the Bank of Russia: “The key instrument of reform in the near future is the introduction of international approaches into the practice of enterprises and credit institutions, including international accounting and financial reporting standards.”

In the field of banking regulation, supervision and compliance with market discipline, some of the most important areas are:

• · introduction of a system for assessing the activities of credit institutions based on the application of international accounting and financial reporting standards;
• · increasing the efficiency and quality of auditing activities based on the implementation of international standards of auditing, accounting and financial reporting;
• · ensuring openness of the activities of credit institutions.

In the field of corporate governance of credit organizations, special attention should be paid to:

• · achieving an appropriate level of transparency of the corporate governance system, which should provide all categories of interested users, including shareholders (participants),
• · timely and accurate disclosure of information required by law on the activities of a credit institution, including data on its financial position, ownership and management structure;

In the field of taxation, it is necessary to improve the system of taxation of banking activities, taking into account the need to introduce international accounting and financial reporting standards.

To strengthen the role of banks in the system of financial intermediation and financial markets, it is necessary to take measures to disclose information based on reporting prepared in accordance with international accounting and financial reporting standards by all market participants.

For the Central Bank of the Russian Federation, the transition to IFRS is primarily associated with reforming the banking sector and ensuring that credit institutions provide transparent reporting.

It should be noted that at present, the need for transparency has already been recognized by many credit institutions. The presentation of transparent reporting by Western standards has become a necessary condition for recognizing a bank as civilized and capable of working with foreign partners.

The following is expected from the transition to IFRS:

• - increasing the information content of reporting (not only for banking analysts, but also for ordinary users);
• - improving the organization of management accounting (the criterion is the ability to make correct management decisions based on reporting).

Many believe that the reform will help improve the quality of credit risk management and attract additional external investment. According to Pricewaterhouse Coopers expert D. Foster, the introduction of new rules that are as close as possible to IFRS will require reflecting the financial condition of the bank in accordance with the real state of affairs. Pravdina M. The goal of the project is to increase confidence in Russian banks (interview with Pricewaterhouse Coopers partner D. Foster), Source Kommersant, February 8, 2003. Capital, assets, liabilities and other categories of financial statements are reflected according to IFRS principles so that assets and The bank's income was not overstated, but its liabilities and expenses were understated. Thus, the application of the new rules will allow all users of financial statements, primarily owners and managers of banks, to receive more objective information about the financial condition of banks.

In this regard, a number of banks have long been using IFRS principles for management accounting and preparation of management reporting.

Unfortunately, not all bank managers have yet realized that the introduction of IFRS seriously improves the level of financial management of the bank. Therefore, the fastest training and transition to IFRS is entirely in the interests of the bank’s shareholders and management. And here the Bank of Russia, forcing banks to switch to IFRS, actually works in the interests of the management and shareholders of the banks. This is confirmed by the words of T.V. Paramonova: “Essentially, the introduction of international standards will build management in banks in a new way, planning, forecasting, and the indicators by which they will need to monitor their activities.”

The transition of Russian credit institutions to international standards will allow them to conduct dialogue with Western partners in a single, commonly understood language, which will make the way for external investments in the banking sector of the Russian Federation easier, and will also allow all users of financial statements, and, above all, owners and managers of banks, to receive more high-quality information on the financial condition of banks, including for supervision purposes, which is very important for the Bank of Russia.

International financial reporting standards are based on such fundamental reporting principles as: 1)

information quality requirements; 2)

principles of information accounting (reflection of information in accounting); 3)

elements of financial statements.

Requirements for information quality determine the characteristics that information generated in the financial accounting system and presented in financial statements must have.

These qualities are primarily due to the need to satisfy the needs of external users of financial statements.

The accounting principles determine the rules in accordance with which information should be reflected in the financial accounting system.

Financial statement elements are the major parts of financial statements - classes of items that share the same economic characteristics and are grouped accordingly in the financial accounting system and financial statements.

Requirements for information quality can be classified as follows: 1)

utility; 2)

relevance (timeliness, materiality, value (for making forecasts, for evaluating results)); 3)

credibility, reliability (truthfulness, predominance of content over form, verifiability, neutrality); 4)

understandability; 5)

comparability and stability.

The usefulness of information is the ability to be used for users to make informed economic decisions. For information to be useful, it must be relevant, credible (reliable), understandable and comparable.

The relevance of information is its ability to influence the economic decisions of users, helping them evaluate results and predict future events. Information is considered relevant if it is timely, relevant and valuable for making forecasts and evaluating results. Timeliness of information means that all relevant information is included in the financial statements in a timely manner, without delay for clarification of immaterial details, and such financial statements are presented on time. The materiality of the information is fundamental to ensuring relevance. Information is considered essential, the absence or incorrect assessment of which leads to other decisions of users. Materiality can be described by both quantitative and qualitative indicators. The value of information for users of financial statements is determined by the possibility of using it to evaluate performance results and predict trends in the future development of the enterprise.

The reliability of the information is expressed in the absence of significant errors or biased assessments and truthfully reflecting economic activity. To do this, information must have truthfulness, a predominance of economic content over legal form, verifiability and neutrality. Fairness of information means that financial statements fairly reflect economic reality. The predominance of economic content over the legal form provides for the reflection of information from the point of view of the economic essence of the transaction, and not its legal form, which may imply a different interpretation.

Long-term lease of fixed assets under the terms of financial leasing, when the ownership of fixed assets remains with the lessor (legal form), and the fixed assets themselves are reflected in the assets of the lessee (economic content), since all benefits from their use are consumed by the lessor.

Verifiability implies that the assessment of the information contained in the financial statements by different experts should lead to the same results.

Neutrality of information means that it does not contain biased assessments, i.e. is impartial in relation to different groups of users and is not aimed at obtaining a predetermined result.

Information should be understandable to different groups of users, unambiguous, clear and free from unnecessary detail. This does not mean that complex information should not be disclosed in financial statements, but it does assume a certain level of knowledge among users of financial statements.

Comparability of information presupposes the possibility of comparing financial statements in time (for several periods) and in space (with the statements of other enterprises). Comparability of reporting over time is achieved by the stability of the accounting methods used, but this does not mean that the enterprise is obliged to constantly use the same methods. If the operating conditions change, the methods can be changed (otherwise the information will not have a reliability characteristic), however, when the methods change, it is necessary to reflect in the reporting the reasons and results of such changes.

All qualitative characteristics of information determine its usefulness for users of financial statements. Their mutual combination determines the professionalism of an accountant, since situations arise when these characteristics contradict each other. Information is sometimes subject to a cost-benefit constraint, meaning that the benefits of certain information must be greater than the costs of obtaining it.

The principles of reflecting information in the financial accounting system can be grouped as follows: 1)

double entry principle; 2)

unit of account principle; 3)

periodicity principle; 4)

principle of going concern; 5)

principle of monetary valuation; 6)

accrual principle (principle of income registration, principle of correspondence); 7)

principle of prudence.

The double entry principle involves the use of double entry in accounting and financial reporting.

Accounting entries can be either simple (one debit and one credit) or complex (several debits and several credits), but the total debit amount must be equal to the total credit amount. This method represents the specifics of financial accounting.

The unit of account principle means that, for accounting purposes, an enterprise is separated from its owners (proprietors) and from other enterprises. It is also called the business or economic unit principle. Separation of an enterprise from its owners and from other enterprises allows the results of its activities to be taken into account correctly.

For sole proprietorships, using this principle means separating the operations of the owner from the operations of the enterprise.

The owner's withdrawal of funds from the cash register is not an expense of the business, but represents a withdrawal by the owner. For corporations, the separation of owners from the activities of the enterprise is obvious: shareholders, while financing the activities, do not have the opportunity to manage them. This situation leads to the fact that shareholders bear the greatest risks and are more interested in the information reflected in the financial statements than other users.

The periodicity principle calls for regular reporting. The economic activity of an enterprise is a continuous process, and in order to evaluate its results, it is necessary to artificially fix the point in time (reporting date) when the financial condition of the enterprise is recorded. For the period between two reporting dates (reporting period), you can determine the change in financial condition by obtaining the result of the enterprise’s activities for the reporting period. The main reporting period is considered to be a year; The reporting date can be any calendar day of the year.

The going concern principle is that financial statements are prepared on the assumption that the entity will continue to operate for the foreseeable future, i.e. he has neither the intention nor the need to cease his activities. Based on this principle, certain rules for evaluating reporting items and the use of initial cost are developed.

The principle of monetary valuation is that all information in financial statements is valued in monetary terms. In international practice, various assessments are used. The following options for such assessments can be distinguished: 1)

initial cost - the amount of money spent on acquiring the asset; 2)

replacement cost or current value - the amount of money that must be paid at the moment to acquire (replace) a given asset; 3)

market value or sales value - the amount of money that can be received from the sale of an asset at the moment; 4)

net realizable value - the amount of cash that can actually be received from the sale of an asset at the moment, minus the costs of sale; 5)

present value - the present value of future cash flows; 6)

fair value is the amount at which an asset could be exchanged between two independent parties.

The accrual principle provides that income and expenses should be reflected in the reporting period when they arose, and not when the money was paid or received. The need for this principle is due to the frequency of preparation of financial statements. This principle is sometimes divided into two parts: the income recording principle and the matching principle.

The principle of recording income implies that income is reflected in the reporting period when it is earned, i.e. the enterprise has completed all the actions necessary to obtain it and is implemented, i.e. received or apparently likely to be received, not when the funds are received. The exception is the methods of stage-by-stage execution of the contract and installment sales.

The principle of compliance is to reflect in the reporting period only those expenses that led to income for that period. In some cases the connection between income and expenses is obvious (for example, direct costs of materials), in other cases it is not, so certain rules are provided for them. Some costs are allocated to the reporting period, i.e. are expenses of the period because they are incurred in a given period (periodic costs), although they cannot be directly linked to the income of a given period. Some costs are distributed over time, i.e. are included in expenses of different reporting periods in parts, since they lead to income received in different reporting periods (for example, distribution of the initial cost of fixed assets over time through depreciation).

The rule for reflecting costs in accounting can be formulated as follows: 1)

if costs lead to current benefits, they are reflected as expenses of the reporting period; 2)

if costs lead to future benefits, they are recorded as assets and expensed in future reporting periods; 3)

if the costs do not lead to any benefits, they are reflected as losses in the reporting period.

The essence of the principle of prudence is a greater willingness to take into account potential losses than potential profits, which is expressed in the valuation of assets at the lowest possible cost, and liabilities at the highest.

The rule for valuing inventories is carried out at the lowest possible value - cost or market price. If the market value is less, there is a possible potential loss, so the inventory must be written down to market value and the loss recognized in the income statement.

This principle applies only to situations of uncertainty and does not mean the creation of hidden reserves or distortion of information.

There are five main elements of financial reporting (they were discussed earlier): 1)

assets; 2)

obligations; 3)

equity; 4)

The basic principles on which the preparation of financial statements is based can be divided into three groups - fundamental assumptions, qualitative characteristics that ensure the usefulness of information for users, and restrictions that allow balancing all of the above principles (Fig. 1.3).

Rice. 1.3.

The underlying assumptions on which the reporting is based are

include two assumptions - the accrual principle and the going concern principle.

Accrual method (Accrual Basis). Financial statements are prepared on an accrual basis. Under this method, the results of transactions and other economic events are recognized when they occur (rather than when cash or cash equivalents are received or paid), recorded at the same time in the accounting records, and reflected in the financial statements of the relevant period. Financial statements prepared on an accrual basis inform users not only about paid transactions that have already been completed, but also about obligations to pay cash in the future, but also about estimated future sources of cash flow.

The principle of continuity of activity of an operating enterprise (Going Concern). When preparing financial statements, it is generally assumed that the entity is a going concern and will continue to operate in the near future. Therefore, it is assumed that the entity has no intention or need to reduce funding for its core operations. If such an intention or need exists, this will be disclosed when preparing the financial statements.

Financial reporting quality criteria are those attributes of financial statements that make them useful to users. The four basic quality criteria are understandability, relevance, reliability and comparability.

Understandability . One of the most essential criteria for the information provided in financial statements is understandability to users. For this purpose, it is assumed that users have the necessary knowledge of economics and accounting, as well as the desire to carefully read the information. However, more complex information that is required to be presented in the financial statements because it is useful to users should not be excluded from the statements simply because the information may be difficult to understand.

Relevance (Relevance ). To be useful, information must be relevant to users' decision-making goals. Information can be called relevant (relevant) if it helps decision-makers evaluate past, present and future events and confirm or correct past assessments.

The relevance of information is determined by its content (nature) And materiality (materiality). In some cases, the content of the information may be sufficient to call it relevant. Information is significant if its distortion or omission could influence the user's decision. Materiality is not only a quantitative characteristic, but also a qualitative one, reflecting a threshold level or minimum acceptable level of income or expense.

Reliability (Reliability ). To be useful, information must also be reliable. Information can be designated as such if it is free from material errors and biases, and if it can provide reliable support to users and truthfully represent what it purports to represent and what users expect to receive.

On the other hand, information may be relevant but unreliable in its content or presentation, which may lead to misconceptions. For example, in the event of a claim for damages, it would be inappropriate for an entity to present all claims in the claim on the balance sheet, as opposed to disclosing the number and terms of claims that would be appropriate in other types of reporting.

Credibility (Faithful Representation). Reliable information must include a presentation of transactions and other events, both past and future. Therefore, the balance sheet must present true information about transactions and other events that had an impact on the asset, debt and equity of the enterprise as of the reporting date.

Priority of content over form (Substance Over Form). Users must have a true understanding of transactions and other activities, and therefore these facts must be reported based on content and economic reality, not just legal form. The content of transactions and other events is not always indisputably consistent with the legal form. For example, a business may transfer assets to another party under a purchase and sale agreement; However, in addition, an agreement may be entered into that the enterprise retains the right to buy back these assets at a pre-agreed price, which is calculated in such a way as to, in essence, provide the buyer with a consideration for providing the loan, i.e. we are talking about providing a loan. Under such conditions, the reporting of the sale will not contain a true representation of the transaction concluded.

Neutrality. To be considered reliable, the information contained in the financial statements must be impartial, i.e. free from preconceived judgements. Financial statements are not impartial if the information they contain is selected or presented in such a way as to influence a decision or the formation of an opinion in order to achieve a pre-planned result.

Prudence. Preparers of financial statements must deal with the uncertainties that are inherent in any situation, such as the recovery of doubtful income, the usefulness of plant and equipment, and the number of warranty claims that may arise. Prudence can be defined as the presence of a certain degree of caution when assessing, under conditions of uncertainty, factors such as, for example, overestimating the size of assets or income or underestimating the amount of funds spent. However, the application of the principle of prudence does not permit the creation of hidden or excessive reserves, deliberate underestimation of the size of assets and income, or deliberate overestimation of debt or expenses, since in this case the financial statements are deprived of the status of impartiality and cannot be called of high quality and reliability.

Completeness. To be considered reliable, financial statements must be comprehensive within the limits of materiality and value. Omissions in the provision of information can lead to errors and misconceptions, and therefore to unreliability and incompleteness of the report.

Comparability (Comparability ). Users must be able to compare an entity's financial statements over different periods of time in order to identify trends in the entity's financial position and performance. Users must also be able to compare the financial statements of different enterprises in order to assess their relative financial positions, their performance and changes. Therefore, measuring and presenting the consequences of similar transactions and other activities should be carried out throughout the entire existence of the enterprise.

Since users intend to compare financial positions, its performance and changes in the financial position of an enterprise over time, it is very important that financial statements reflect relevant information for prior periods.

Constraints to balance all of the above principles are include a limitation on timeliness, a balance between benefits and costs, a balance between quality characteristics.

Timeliness (Timeliness ). If information is not provided on time, it may become irrelevant later. Managers may need to weigh the merits of timely reporting against ensuring the reliability of the information. In order to provide timely information, it is sometimes necessary to make a report before all aspects of the transaction are known, which to some extent reduces the reliability of the information. Conversely, if reporting is delayed until all aspects of a transaction or other event are known, the information may be highly reliable but not useful to users tasked with making decisions in the interim.

Balance between benefits and costs (Balance between Benefit and Cost) represents a common limitation rather than a qualitative characteristic. The benefits obtained from the information provided must exceed the costs of obtaining the information. The assessment of benefits and costs is essentially a procedure based on expert judgment.

Balance of quality characteristics (Balance between Qualitative Characteristics). In practice, a balance or compromise between qualitative characteristics is often necessary. Typically, the purpose of such a compromise is to achieve the necessary balance between characteristics to achieve the purpose of financial reporting. The meaning of certain characteristics may vary depending on the situation and in this case need to be assessed by an expert

In table 1.1 compares the fundamental principles on which accounting is based in Russia and in international practice.