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Description
Flashcards by Danielle De Fazio, updated more than 1 year ago
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Created by Danielle De Fazio
over 7 years ago
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| Question | Answer |
| The Conceptual framework for financial reporting. | The end. |
| The objective of financial reporting is to provide financial information about the reporting entity (which means business) which is useful for both existing and potential investors, lenders and creditors that are making decisions about providing resources to the entity. (which means investing money into the business, resources could be anything lease, loan etc) Decisions may involve buying, selling or holding equity (which means shares/capital) & debt instruments (which means loans), & providing or setting loans and other forms of credit. | The purpose of IASB Conceptual framework is to provide a logical guide for preparing accounting standards and applying them. The framework is a set of fundamental principles within which accounts work. |
| Users of financial statements: Existing and potential investors, lenders, suppliers, employees, trade unions, customers, competitors, government and government agencies, the public and managers. | What are they interest in the financial statements? *Is/has the company making a profit? *Can the company pay their way? *Sales figure *Value of assets * How efficiently is the company using its resources? |
| Types of decisions that could be made from the financial statements? * To see if the company will continue in the future? * To see how much money can be paid to dividends? * To see if the company is expanding or declining? * To see if the company will be able to pay finance costs/ loan repayments. *To access the value of security available to the lender. * To decide whether or not to supply goods. * | Economic resources - are the inputs we use to produce and distribute goods and services. Things like assets, cash, inventory, trade receivables. |
| Qualitative characteristics of useful financial information. There are two types fundamental qualitative characteristics & enhancing qualitative characteristics. | Fundamental qualitative characteristics. Relevance - The information must be relevant for users making a decision. It must have predicted value for future outcomes and confirmatory value for previous evaluations. Faithful representation - To be complete free from error. |
| Enhancing qualitative characteristics Comparability - Identify and understand similarities and differences. Verifiability - Helps assure users that information is faithfully represented. Timeliness - Having information available for decision makers in time for capable of influencing decisions. Understandability -Presented clearly | The five elements of financial statements are: *ASSETS *EQUITY LIABILITIES * INCOME *EXPENSES |
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