Conceptual Framework for Financial Reporting

Purpose & Scope of CF
1. 2010 - issued by IASB
  1. revised & retained portions - original framework - Framework for the Preparation & Presentation of F/S - 1989
2. addresses concepts underlying the preparation and presentation of F/S for external users
3. Objective of F/S
  1. to facilitate the consistent & logical formulation of IFRS
  2. to provide a basis - use of judgement - resolving accounting issues
  3. to assist the ones who prepares the F/s - applying accounting standards
  4. to assists the users of F/S - interpreting the F/S prepared in accordance with the relevant accounting standards
4. CF ≠ IFRS
  1. CF = guidelines
  2. IFRS = standards
  3. ROle of IFRS overights CF
Objective of F/S
1. provide financial information about the reporting entity - useful to existing & potential investors, lenders & other creditors - making economic decisions about providing resources to the entity
2. IAS 1
  1. to provide the user-oriented information need - set of F/S comprises
    1. SFP - end of the period
    2. SCI for the period
    3. SOCE for the period
    4. SCF for the period
    5. Notes - summary of significant accounting policies & other explanatory information
    6. SFP - beginning of the earliest comparative period (3 yrs balance sheet)
      1. when an entity applies an accounting policy retrospectively / makes a retrospective restatement of items in its F/S
      2. when it reclassifies items in the F/S
3. In order to meet the objectives of F/S - F/s are prepared on
  1. Accrual basis
  2. Going concern basis
Qualitative Characteristics of Useful Financial Information
1. Fundamental
  1. Relevance
    1. Materiality
      1. Predictive value - future value
      2. Confirmatory value - past value
  2. Faithfully representation
    1. Complete
    2. Neutral
    3. Free from bias
2. Enhancing
  1. Comparability
  2. Verifiability - standard - can be verified
  3. Timeliness - provide current info
  4. Understandability
3. Cost constraints - useful financial information - reporting financial information imposes costs - justify the benefits of reporting that information
4. True & Fair View / Fair Presentation
Elements of F/S
1. Asset
  1. resource controlled - enterprise - past events - future economic benefits - expected to flow to the enterprise
2. Liability
  1. present obligation of the enterprise arising from past events - settlement - expected to result in an outflow from the enterprise - resources embodying economic benefits
3. Equity
  1. residual interest - assets of the enterprise after deducting all its liabilities
4. Income
  1. increases in economic benefits
    1. inflows of assets
    2. decreses of liabilities
5. Expenses
  1. decreses in economic benefits
    1. outflows of assets
    2. incurrences of liabilities
6. Definition
  1. Recognition
    1. Measurement
      1. Presentation & Disclosure
Recognition & measurement of Elements of F/S
1. Recognition
  1. process of incorporating - BS / IS an item that
    1. meets the definition of an element
    2. satisfies the Criteria of Recognition
      1. probable that any future economic benefit associated with the item will flow to or from the enterprise
      2. the item has a cost/value that can be measured with reliability (cannot predict)
2. Measurement
  1. Historical cost
  2. Current cost
  3. Realisable value = (Fair value - Cost to sell)
  4. Present value (Value in use)
  5. Fair value
    1. Initial measurement
      1. Held-to-maturity & LOans and Receivables (IAS 39)
      2. Business combination (IFRS 3)
    2. Subsequent measurement
      1. PPE (IAS 16)
      2. Intangible Assets (IAS 38)
      3. Investment property (IAS 40)
Concept of Capital & Capital Maintenance
1. Capital
  1. Physical concept
    1. operating capability
      1. productive capacity of the enterprise based on
        e.g. units of output per day
  2. Financial concept
    1. invested money / purchasing power
      1. net assets / equity of the enterprise
2. Capital Maintenance
  1. Physical concept
    1. profit is earned only if
      1. physical productive capacity / funds needed to achieve that capacity - end of the period
        exceeds - physical productive capacity - beginning of the period
        after excluding any distributions to / contributions from owners during the period
Development of Single Converged Framework
1. 2004, IASB + FASB - joint project - improved common conceptual framework
  1. aims - update & refine existing concepts - reflect the changes in markets, business practices & economic environment
    1. objective - create a sound foundation - future accounting standards - principles-based, internally consistent & internationally converged
  2. focus on changes in environment - original framework were issued - omissions of the original framework
    1. cross-cutting issues
      1. initially consider concepts - private sector business entities
        later - private sector not-for-profit organisations

Next up

Conceptual Framework for Financial Reporting

Description

Resource summary

0 comments

Similar

	Created by Thiffany Martin over 10 years ago