Chapter 4

• International Accounting Standards Board- IASB
• International Financial Reporting Standards - IFRS
• IFRS - Develop a single set of understandable enforceable global accounting standards that require high-quality, transparent, and comparable information in financial statements and other users to make economic decisions
• Financial Position / Balance Sheet - shows the assets, liabilities, and equity of a business at a specified date.
• Operation Performance / Income Statement - shows the net income or net loss for a period of time
• Cash flows - shows the source of cash and the uses of cash for a period of time.
• Assets - it is a source controlled by the enterprise as a result of past event and from which future economic benefits are expected to flow to the enterprise
• Liability - It is a present obligation of the enterprise arising from the past events. The settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits
• Equity - is the the residual interest or remainder of the asset of enterprise after deducting all its liabilities
• Income - it is an increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increase in equity, other than those relating to contributions from equity participants.
• Expenses - These are decrease in economic benefits during the accounting period in the form of outflows or depletions of assets or incidences of liabilities that results in decrease in equity, other than those relating to distribution to equity participants.
• Understandability - users are assumed to have a reasonable knowledge of the business and economic activities as well as accounting an a willingness to study the information with the reasonable diligence.
• Relevance - when it influences the economic decisions of users by helping them evaluate past, present or future events, or confirming, or correcting, their past evaluations
• Materiality - if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
• Reliability - when it is free from material error and bias and can be depended upon by users to faithfully represent that which it either purports to represent or could reasonably be expected to represent
• Faithful Representation - information must represent faithfully the transactions and other events it either purports to represent could reasonably be expected to represent
• Substance - if information faithfully represent transactions and other events that it purports to represent, it is necessary that they are accounted for and are presented in accordance with their substance and economic reality not merely their legal form
• Neutrality - must be neutral and free from bias
• Prudence - is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimated required under conditions of uncertainty, such that assets or income are not understated. does not permit bias.
• Completeness - omission can cause information to be false or misleading, and thus unreliable and deficient in terms of its relevance
• Comparability - the measurement and display of the financial effect of like transactions and other events must be carried out in a consistent way throughout and overtime for that enterprise and in a consistent way for different enterprises
• Timeliness - Undue delay in reporting of information may lose its relevance
• Balance between benefit and cost - the benefits derived from information should exceed the cost of providing it.
• Balance between qualitative characteristics - the aim in to achieve an appropriate balance amount the characteristics in order to meet the objective of financial statements
• Fair Representation - The application of the principal qualitative characteristics and of appropriate accounting standards normally results in financial statements that convey what is generally understood to be presenting such information fairly
• Going Concern Assumption - an entity is a going concern unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.
• Accrual Basis Accounting - an entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting. On the accrual basis of accounting, items are recognized as assets, liabilities, equity, income, or expenses when they satisfy the definitions and recognition criteria for those items