Conceptual Framework for Financial Reporting (2022)

• Conceptual framework


  A framework that describes the objective and concepts of general purpose financial reporting
• International accounting standards created and approved the framework for the preparation of financial statements


  1989
• IASB adopted the framework

  April 2001
• IASB approved the new version of the conceptual framework for financial reporting


  September 2010
• Current version of the published conceptual framework for financial reporting


  March 2018
• Conceptual framework


  It is not a standard, it assists the IASB to develop IFRS standards and helps preparers develop consistent accounting policies
• Conceptual framework


  • Contributes transparency, strengthens accountability, and helps identify economic opportunities
• Primary users of financial information

  • Existing and potential investors
  • Lenders
  • Other creditors
• Information needs of primary users

  Economic resources of the entity, claims against the entity, and changes in resources and claims
• General purpose financial reports do not provide information about general economic conditions, political events, industry outlook, or the actual value of the reporting entity
• Other users of financial information

  • Management
  • Government and regulators
  • Public
• Information needs of users

  Economic resources and claims, changes in economic resources and claims, financial performance, and cash flows
• Fundamental qualitative characteristics


  Relevance and faithful representation
• Relevance


  Financial information that is capable of making a difference in the decisions made by users
• Predictive value


  Financial information that can be used to predict future outcomes
• Confirmatory value


  Financial information that can be used to confirm or correct prior expectations
• Materiality


  The inclusion or exclusion of financial information that could affect the decisions of users
• Faithful representation


  Financial information that is complete, neutral, and free from error
• h fifty thousand cases uh my employees know on the higher level bank okay so still that's considered as expense because it's below the threshold
• Materiality sense based on judgment may differ from one entity to another entity
• Materiality serves as a trigger point number for relevance of financial information
• Relevant expenses that have an initial effect in the future years on peripheral assets would be relevant in the future decision making
• Financial information should be faithfully represented
• Faithfully represented financial information

  Containing the following three items: 1) Complete, 2) Neutral, 3) Free from error
• Adjusting entries should be incorporated in the financial report
• Neutral financial information


  Does not contain any bias or unfavourable estimates
• Financial information should be free from any error
• Fundamental qualitative characteristics of financial information

  • Completeness
  • Neutrality
  • Freedom from error
• Verifiability


  Financial information can be verified through direct or indirect methods
• Comparability


  Allows comparison of financial information over time or between entities
• Understandability


  Financial information is easily understood and comprehended by users
• Timeliness


  Financial information is available when needed for decision making
• Enhancing qualitative characteristics


  • Verifiability
  • Comparability
  • Understandability
  • Timeliness
• Costs are a pervasive constraint in financial reporting
• Costs of reporting financial information should be justified by the benefits
• Financial statements are reports that provide information for decision making
• The objective of financial statements is to provide information about the entity's economic resources, claims, and changes that is useful for decision making and assessing management's stewardship
• Financial statements adopt the perspective of the reporting entity as a whole, not a group of entities or specific users
• Going concern assumption


  The entity will continue to operate for the foreseeable future and has no intention to liquidate or cease trading
• If the going concern assumption is compromised, the financial statements should be prepared on that basis and disclosed