FRAMEWORK

• The Conceptual Framework for Financial Reporting (Conceptual Framework) describes

  the objective of, and the concepts for, general purpose financial reporting.
• The purpose of the Conceptual Framework is to:

  (a) assist the IASB to develop IFRS 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 a

  Standard allows a choice of accounting policy;

  (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.
• To meet the objective of general purpose financial reporting, the Board may sometimes specify requirements that depart from aspects of the Conceptual Framework. If the Board does so, it will explain the departure in the Basis for

  Conclusions on that Standard.
• The Conceptual Framework contributes to the stated mission of the IFRS foundation and of the Board, which is part of the IFRS Foundation. That

  mission 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.
• Economic decisions of primary users of general purpose financial statements involves:

  (a) buying, selling or holding equity and debt instruments;

  (b) providing or settling loans and other forms of credit; or

  (c) exercising rights to vote on, or otherwise influence, management’s

  actions that affect the use of the entity’s economic resources.
• Investors’, lenders’ and other creditors’ expectations about returns depend on their assessment of the amount, timing and uncertainty of (the prospects for) future net cash inflows to the entity and on their assessment of

  management’s stewardship of the entity’s economic resources.
• To make the assessments described in paragraph 1.3, existing and potential

  investors, lenders and other creditors need information about:

  (a) the economic resources of the entity, claims against the entity and changes in those resources and claims

  (b) how efficiently and effectively the entity’s management and governing board have discharged their responsibilities to use the entity’s economic resources.
• 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 are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity.
• The management of a reporting entity is also interested in financial information about the entity. However, management need not rely on general purpose financial reports because it is able to obtain the financial information

  it needs internally.
• To a large extent, 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. That information can help users to assess the

  reporting entity’s liquidity and solvency.
• Changes in a reporting entity’s economic resources and claims result from that entity’s financial performance and from other events or transactions such as issuing debt or equity instruments. To properly assess both the prospects for future net cash inflows to the reporting entity and management’s stewardship of the entity’s economic resources, users need to be able to identify those two types of changes.
• Information about a reporting entity’s financial performance helps users to understand the return that the entity has produced on its economic resources.
• Information about the return the entity has produced can help users to assess management’s stewardship of the entity’s economic resources. Information about the variability and components of that return is also important, especially in assessing the uncertainty of future cash flows.
• 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, even if the resulting cash receipts and payments occur in a different period.
• Information about a reporting entity’s financial performance during a period may also indicate the extent to which events such as changes in market prices or interest rates have increased or decreased the entity’s economic resources and claims, thereby affecting the entity’s ability to generate net cash inflows.
• A reporting entity’s economic resources and claims may also change for reasons other than financial performance, such as issuing debt or equity instruments.
• Examples of management’s responsibilities to use the entity’s economic resources include protecting those resources from unfavorable effects of economic factors, such as price and technological changes, and ensuring that the entity complies with applicable laws, regulations and contractual provisions.
• If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable.
• The fundamental qualitative characteristics are relevance and faithful representation.
• Relevant financial information is capable of making a difference in the decisions made by users. Information may be capable of making a difference in a decision even if some users choose not to take advantage of it or are

  already aware of it from other sources.
• Financial information is capable of making a difference in decisions 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 with predictive value is employed by users in making their own predictions.
• Financial information has confirmatory value if it provides feedback about (confirms or changes) previous evaluations.
• 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.
• Materiality 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. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.
• Financial reports represent economic phenomena in words and numbers. To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to represent.
• To be a perfectly faithful representation, a depiction would have three characteristics. It would be complete, neutral and free from error. Of course, perfection is seldom, if ever, achievable. The Board’s objective is to maximize

  those qualities to the extent possible.
• 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. A neutral depiction is not slanted, weighted, emphasized, de-emphasized or otherwise manipulated to increase the probability that financial information will be received favorably or unfavorably by users.
• Neutrality is supported by the exercise of prudence.
• Prudence is the exercise of caution when making judgements under conditions of uncertainty.
• The exercise of prudence does not imply a need for asymmetry.
• The exercise of prudence means that assets and income are not overstated and liabilities and expenses are not understated and vice versa.
• 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 selected and applied with no errors in the process.
• When monetary amounts in financial reports cannot be observed directly and must instead be estimated, measurement uncertainty arises.
• Information must both be relevant and provide a faithful representation of what it purports to represent if it is to be useful. Neither a faithful representation of an irrelevant phenomenon nor an unfaithful representation of a relevant phenomenon helps users make good decisions.