week 1

• What is the title of the study material?

  Advance Financial Accounting: Conceptual and Regulatory Framework
• Who is the author of the study material?

  Albert Owusu FCCA
• What are the learning objectives of the study material?

  • Understand the need for a conceptual framework
  • Define the conceptual framework
  • Identify components of the framework
  • Explain the regulatory framework
  • Describe the IASB
  • Outline the objectives of the IFRS foundation
• Why do we need a conceptual framework in financial reporting?

  To provide guidance on what to include in financial statements
• What is an asset according to the conceptual framework?

  An asset is a present economic resource controlled by an entity as a result of a past event
• Who uses financial statements and why?

  Investors and creditors use financial statements to make informed decisions about providing economic resources
• Should expenses go into profit or loss or other comprehensive income (OCI)?

  It depends on the nature of the expenses and the accounting policies applied
• What is the purpose of the conceptual framework for financial reporting?

  • To answer questions about financial statement preparation
  • To provide a basis for accounting standards
  • To ensure financial statements are user-focused
• Who issued the conceptual framework and when was it last updated?

  Issued by the IASB and last updated in 2018
• What is the role of the conceptual framework in financial reporting?

  It underpins financial reporting by setting out underlying concepts and definitions
• How does the framework help accountants?

  It helps accountants decide how to account for difficult or judgmental issues
• How does the framework assist standard setters?

  It helps standard setters develop accounting standards that are consistent with each other
• What is the end user focus of financial statements?

  Financial statements should be produced with the end user in mind
• What are the main components of the framework?

  • Purpose of financial reporting
  • Qualitative characteristics
  • Elements (assets, liabilities, equity, income, expenses)
  • Recognition, measurement, derecognition
  • Presentation and disclosure
• What is the purpose of financial reporting?

  To provide information to investors, lenders, and creditors for decision-making
• Who are the primary users of financial statements?

  Investors and creditors
• What do users need information to assess?

  Users need information to assess an entity's future cash flows and management's stewardship
• What is an example of how financial statements can show future cash flows?

  By showing discounted operations separately on the face of the statement of profit or loss
• What are the qualitative characteristics of financial information?

  • Fundamental characteristics: Relevance, Faithful Representation
  • Enhancing characteristics: Verifiability, Timeliness, Understandability, Comparability
• What does relevance mean in the context of financial information?

  Relevance affects users' decisions
• What does faithful representation mean?

  It means the information is complete, free from error, and neutral
• What is materiality in financial reporting?

  Materiality refers to the significance of an item in influencing users' decisions
• When should a prior year adjustment be made?

  Only for a material prior year error, not for an immaterial one
• What does "substance over form" mean in financial reporting?

  It means that the economic reality of transactions should be reflected rather than just their legal form
• How should redeemable preference shares be classified?

  Most redeemable preference shares should be shown as a liability
• When should variable consideration be included in revenue?

  Only if it is highly likely
• What are the definitions of the elements in financial reporting?

  • Asset: A present economic resource controlled by an entity
  • Liability: A present obligation to transfer an economic resource
  • Equity: The residual interest in the net assets of an entity
  • Income: Increases in assets or decreases in liabilities that increase equity
  • Expense: Decreases in assets or increases in liabilities that decrease equity
• What is an economic resource?

  An economic resource is a right that has the potential to produce economic benefits
• Why should staff training not be capitalized as an asset?

  Because it is not under the company’s control
• What can an obligation be classified as?

  An obligation can be constructive or legal
• What are the key components of recognition in financial reporting?

  • When to recognize elements in financial statements
  • When to derecognize elements from financial statements
• What are the key components of measurement in financial reporting?

  • How to measure an item in financial statements
  • How to decide between profit and loss and other comprehensive income
• What should not be capitalized according to the study material?

  Staff training
• What are the elements defined in the study material?

  • Asset: A present economic resource controlled by an entity as a result of a past event.
  • Liability: A present obligation of the entity to transfer an economic resource as a result of a past event.
  • Equity: The residual interest in the net assets of an entity.
  • Income: Increases in assets or decreases in liabilities that result in an increase to equity.
  • Expense: Decreases in assets or increases in liabilities that result in decreases to equity.
• What is an economic resource as defined in the study material?

  A right that has the potential to produce economic benefits
• What is an example of an obligation mentioned in the study material?

  Staff redundancy
• What is the purpose of financial reporting according to the framework?

  • To provide relevant information to users.
  • To faithfully represent the entity’s financial performance and position.
  • To define the elements of financial statements.
• What are the recognition criteria for items in financial statements?

  They must meet the definition of an element, provide relevant information, and faithfully represent the entity’s financial performance and position.
• When should items not be recognized in financial statements?

  If there is uncertainty over existence, low probability, or if they can't be reliably measured.
• What should be disclosed if an asset or liability is not recognized?

  It may need to be disclosed in the notes to the financial statements.