[ACYFAR1] 1 Conceptual Framework and Accounting Standards

• The Conceptual Framework for Financial Reporting describes the objective of, and the concepts for, general purpose financial reporting.
• The purpose of the Conceptual Framework is to:(a) assist the International Accounting Standards Board (Board) to develop IFRS Standards (Standards) that are based on consistent concepts;(b) assist preparers to develop consistent accounting policies when no Standard applies to a particular transaction or other event, or when aStandard allows a choice of accounting policy; and(c) assist all parties to understand and interpret the Standards.
• The Conceptual Framework is not a Standard. Nothing in the Conceptual Framework overrides any Standard or any requirement in a Standard
• The Conceptual Framework may be revised from time to time. Revisions of the Conceptual Framework will not automatically lead to changes to the Standards.
• The mission of the IFRS Foundation is to develop Standards that bring transparency, accountability and efficiency to financial markets around the world.
• The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.
• Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial reports for much of the financial information they need.
• General purpose financial reports do not and cannot provide all ofthe information that existing and potential investors, lenders and other creditors need
• General purpose financial reports are not designed to show the value of a reporting entity.
• Financial reports are based on estimates, judgements and models rather than exact depictions.
• Information about the nature and amounts of a reporting entity’s economic resources and claims can help users to identify the reporting entity’s financial strengths and weaknesses.
• Changes in a reporting entity’s economic resources and claims result from (1) that entity’s financial performance and (2) from other Events or transactions such as issuing debt or equity instruments.
• Information about a reporting entity’s financial performance helps users to understand the return that the entity has produced on its economic resources.
• Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur. Otherwise, it is called a cash-basis accounting.
• Information about a reporting entity’s cash flows during a period also helps users to assess the entity’s ability to generate future net cash inflows and to assess management’s stewardship of the entity’s economic resources.
• A reporting entity’s economic resources and claims may also change for reasons other than financial performance, such as issuing debt or equity instruments.
• The fundamental qualitative characteristics are relevance and faithful representation. These are also the criteria for Recognition.
• Relevant financial information is capable of making a difference in the decisions made by users even if some users choose not to take advantage of it.
• Financial information is capable of making a difference in decisions (relevance) if it has predictive value, confirmatory value or both.
• Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes. Financial information need not be a prediction or forecast to have predictive value.
• Financial information has confirmatory value if it provides feedback about (confirms or changes) previous evaluations.
• The predictive value and confirmatory value of financial information are interrelated. Information that has predictive value often also has confirmatory value.
• Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports, which provide financial information about a specific reporting entity.
• To be a perfectly faithful representation, a depiction would have three characteristics. It would be complete, neutral and free from error.
• A complete depiction includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.
• A neutral depiction is without bias in the selection or presentation of financial information.
• Neutrality is supported by the exercise of prudence. Prudence is the exercise of caution when making judgements under conditions of uncertainty.
• Free from error means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selectedand applied with no errors in the process. In this context, free from error does not mean perfectly accurate in all respects.
• When monetary amounts in financial reports cannot be observed directly and must instead be estimated, measurement uncertainty arises.
• Even a high level of measurement uncertainty does not necessarily prevent such an estimate from providing useful information
• Substance over form is when economic substance is equal to legal form.
• Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of information.
• Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.
• Consistency, although related to comparability, is not the same. Consistency refers to the use of the same methods for the same items.
• Comparability is the goal; consistency helps to achieve that goal.
• Comparability is not uniformity. For information to be comparable, like things must look alike and different things must look different.
• Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent.
• Verifiability means that different knowledgeable and independent observers could reach consensus,although not necessarily complete agreement.
• Quantified information need not be a single point estimate to be verifiable. A range of possible amounts and the related probabilities can also be verified.
• Verification can be direct or indirect. Direct verification means verifying an amount or other representation through direct observation. Indirect verification means checking the inputs to a model, formula or other technique and recalculating the outputs using the same methodology.