CFAS - W2

• The Conceptual Framework for Financial Reporting prescribes the concepts for general purpose financial reporting.
• The purpose of the Conceptual Framework is to assist the International Accounting Standards Board (IASB) in developing Standards that are based on consistent concepts, assist preparers in developing consistent accounting policies when no Standard applies to a particular transaction or when a Standard allows a choice of accounting policy, and assist all parties in understanding and interpreting the Standards.
• The Conceptual Framework provides the foundation for the development of Standards that promote transparency by enhancing the international comparability and quality of financial information, strengthen accountability by reducing the information gap between providers of capital and the entity’s management, and contribute to economic efficiency by helping investors to identify opportunities and risks around the world, thus, improving capital allocation.
• The use of a single, trusted, accounting language lowers the cost of capital and reduces international reporting costs.
• For a liability, derecognition normally occurs when the entity no longer has a present obligation for all or part of the recognized liability.
• Derecognition is the removal of a previously recognized asset or liability from the entity’s statement of financial position.
• Application of Concepts in the Conceptual Framework & Accounting Standards 37.
• For an asset, derecognition normally occurs when the entity loses control of all or part of the recognized asset.
• End of the Conceptual Framework & Accounting Standards 39.
• Derecognition occurs when the item ceases to meet the definition of an asset or liability.
• Conceptual Framework & Accounting Standards 36.
• Open Forum Questions & Reactions in the Conceptual Framework & Accounting Standards 38.
• The Conceptual Framework is not a PFRS and when there is a conflict between the Conceptual Framework and a PFRS, the PFRS will prevail.
• In the absence of a standard, management shall consider the Conceptual Framework in making its judgment in developing and applying an accounting policy that results in useful information.
• The Conceptual Framework is concerned with general purpose financial reporting which involves the preparation of general purpose financial statements.
• The Conceptual Framework provides the concepts regarding the objective of financial reporting, qualitative characteristics of useful financial information, financial statements and the reporting entity, elements of financial statements, recognition and derecognition, measurement, presentation and disclosure, concepts of capital and capital maintenance.
• 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 reporting entity.
• Fundamental qualitative characteristics of useful financial information are relevance and faithful representation.
• Primary users of financial reports are existing and potential investors, lenders and other creditors.
• Only the common needs of primary users are met by the financial statements.
• Financial reports provide information about the effects of transactions and other events that change a reporting entity’s economic resources and claims, which is useful input for decisions about providing resources to an entity.
• The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable.
• The objective of general purpose financial reporting is to provide information to existing and potential investors, lenders and other creditors to help them make assessments about the economic resources of the entity, changes in those resources and claims, and the efficiency and effectiveness of the entity’s management and governing board in using the entity’s economic resources.
• Financial reports are based on judgments and models rather than exact depictions, and provide information about the financial position of a reporting entity.
• Financial information is useful when it is relevant and represents faithfully what it purports to represent.
• Those decisions involve decisions about buying, selling or holding equity and debt instruments, providing or settling loans and other forms of credit, or exercising rights to vote on, or otherwise influence, management’s actions that affect the use of entity’s economic resources.
• Relevant financial information is capable of making a difference in the decisions made by users, and is therefore relevant if it can affect the decisions of users.
• Enhancing qualitative characteristics of useful financial information are comparability, verifiability, timeliness and understandability.
• The decisions above depend on the returns that existing and potential investors, lenders and other creditors expect.
• Confirmatory value in information is its ability to provide feedback (confirms or changes) previous evaluations.
• Neutrality in information is the selection or presentation of information without bias.
• Enhancing qualitative characteristics should be maximized to the extent necessary, but cannot render information useful if it is irrelevant or not represented faithfully.
• Faithful representation in information means the information provides a true, correct and complete depiction of what it purports to represent.
• A reporting entity is one that is required, or chooses, to prepare financial statements.
• A reporting entity can be a single entity or a portion of an entity or can comprise more than one entity.
• Enhancing qualitative characteristics in information are Comparability, Verifiability, Timeliness, Understandability, and Applicability.
• The objective of general purpose financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful in assessing the prospects for future net cash inflows to the reporting entity and management’s stewardship of the entity’s economic resources.
• Predictive value in information is its ability to be used as an input to processes employed by users to predict future outcomes.
• Materiality in information is an ‘entity-specific’ aspect of relevance based on the nature or magnitude or both, of the items to which the information relates in the context of an individual entity’s financial report.
• Cost is a pervasive constraint on the information that can be provided by financial reporting.