cfas

• Conceptual Framework for Financial Reporting


  Prescribes the concepts for general purpose financial reporting
• Purpose of the Conceptual Framework

  • Assist the IASB in developing Standards based on consistent concepts
  • Assist preparers in developing consistent accounting policies when no Standard applies or a Standard allows a choice
  • Assist all parties in understanding and interpreting the Standards
• Status of the Conceptual Framework

  • Not a PFRS, when there is a conflict 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
• Scope of the Conceptual Framework

  • Concerned with general purpose financial reporting
  • Provides concepts regarding the objective of financial reporting, qualitative characteristics of useful financial information, financial statements and the reporting entity, the elements of financial statements, recognition and derecognition, measurement, presentation and disclosure, concepts of capital and capital maintenance
• Objective of general purpose financial reporting

  To provide financial information about the reporting entity that is useful to primary users in making decisions about providing resources to the entity
• Primary users

  Existing and potential investors, lenders and other creditors
• Fundamental qualitative characteristics


  • Relevance (predictive value, feedback value, materiality)
  • Faithful representation (completeness, neutrality, free from error)
• Enhancing qualitative characteristics


  • Comparability
  • Verifiability
  • Timeliness
  • Understandability
• Fundamental vs. Enhancing qualitative characteristics

  Fundamental characteristics make information useful, enhancing characteristics enhance the usefulness of information
• Relevance

  Information that can affect the decisions of users, has predictive value and confirmatory value, and is material
• Faithful representation


  Information that provides a true, correct and complete depiction of what it purports to represent, with completeness, neutrality and freedom from error
• Comparability


  Information that helps users identify similarities and differences between different sets of information
• Verifiability


  Different users could reach consensus as to what the information purports to represent
• Timeliness


  Information is available to users in time to be able to influence their decisions
• Understandability


  Users are expected to have reasonable knowledge of business activities and a willingness to analyze the information diligently
• Objective and scope of financial statements

  • Provide financial information about the reporting entity's assets, liabilities, equity, income and expenses that is useful in assessing the entity's ability to generate future net cash inflows and management's stewardship over economic resources
• Reporting period


  Financial statements are prepared for a specific period of time and include comparative information for at least one preceding reporting period
• Going concern


  Financial statements are normally prepared on the assumption that the reporting entity is a going concern, meaning the entity has neither the intention nor the need to end its operations in the foreseeable future
• Reporting entity

  One that is required, or chooses, to prepare financial statements, and is not necessarily a legal entity. It can be a single entity or a group or combination of two or more entities
• Asset


  A present economic resource controlled by the entity as a result of past events, with a right, potential to produce economic benefits, and control
• Liability


  A present obligation of the entity to transfer an economic resource as a result of past events, with an obligation, potential to transfer an economic resource, and present obligation from past events
• Executory contract


  A contract that is equally unperformed, establishing a combined right and obligation to exchange economic resources, which changes to an asset or liability when one party performs
• Equity


  The residual interest in the assets of the entity after deducting all its liabilities
• Income


  Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
• Expenses


  Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims
• Recognition


  The process of including in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the financial statement elements
• Entity performs first


  Entity's combined right and obligation changes to an asset
• Other party performs first

  Entity's combined right and obligation changes to a liability
• Equity


  Residual interest in the assets of the entity after deducting all its liabilities
• Equity


  Equals Assets minus Liabilities
• Recognition criteria


  • Item meets definition of an asset, liability, equity, income or expense
  • Recognizing it would provide useful information (relevant and faithfully represented)
• Relevance


  The recognition of an item may not provide relevant information if it is uncertain whether an asset or liability exists, or if an asset or liability exists but the probability of an inflow or outflow of economic benefits is low
• Faithful representation


  The level of measurement uncertainty and other factors can affect an item's faithful representation, but not necessarily its relevance
• Derecognition


  The removal of a previously recognized asset or liability from the entity's statement of financial position
• Unit of account


  The right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which recognition criteria and measurement concepts are applied
• Measurement bases


  • Historical cost
  • Current value
  • Fair value
  • Value in use and fulfilment value
  • Current cost
• Historical cost


  The consideration paid to acquire an asset plus transaction costs, or the consideration received to incur a liability minus transaction costs
• Fair value


  The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date
• Value in use


  The present value of the cash flows, or other economic benefits, that an entity expects to derive from the use of an asset and from its ultimate disposal
• Fulfilment value


  The present value of the cash, or other economic resources, that an entity expects to be obliged to transfer as it fulfils a liability