The Framework (Contents)

The Framework (Contents)

1. 1. The objectives of financial statements

   • fin statements are used by a wide range of users to make economic decisions
   • Info is needed in relation to an entity's
     • Financial position (SoFP)
     • Financial performance (SoCI)
     • Changes in financial position (SoCF)

2. 2. Underlying assumptions

   • Users may assume that two key concepts have been adhered to in the preparation of the fin statements
     • Accruals
       • the effect of transactions are recognised when they occur and are reported in the period in which they relate
     • Going Concern
       • the fin statements are prepared on the assumption that the entity is a going concern and will continue in operation for the foreseeable future
         • if it is not appropriate, then additional disclosure about the basis of preparation must be made in the fin statements

3. 3. Qualitative characteristics of fin information

   • 1. Understandability
     • readily understandable by users who are assumed to have reasonable business knowledge
   • Comparability
     • for the same entity over different time periods
       • between different companies
   • Relevance
     • predictive value, i.e. help users to evaluate or assess past, present or future event
       • confirmatory value, i.e. help users to confirm their past evaluations
   • Reliability
     • free from material error
       • a faithful representation, i.e. reflecting the commercial substance of transactions
         • neutral, i.e. not presented in a way to achieve a predetermined result
           • prudent, i.e. not creating hidden reserves or excessive provisions, deliberately understating assets or gains, or deliberately overstating liabilities or losses;
             • complete, i.e. the information is complete subject to a materiality test