Conceptual Framework for Financial Reporting

• 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:

  assist the International Accounting Standards Board (Board) to develop IFRS Standards (Standards) 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; and

  c) assist all parties to understand and interpret the Standardsa
• The Conceptual Framework for Financial Reporting (Conceptual Framework) describes

  the objective of, and the concepts for, general purpose financial reporting.
• The Conceptual Framework is not a Standard. true or false

  true
• 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
• 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.

  Economic resources and claims
• That information can help users to assess the reporting entity’s liquidity and solvency,

  Economic resources and claims
• it results from that entity’s financial performance and from other events or transactions such as issuing debt or equity instruments.

  Changes in economic resources and claims
• It 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,

  Accrual accounting
• Fundamental qualitative characteristics

  Relevance and Faithful representation
• If the information can make a difference in the decisions made by users, it has the characteristic of?

  Relevance
• Financial information would be complete, neutral, and free from error

  Faithful representation
• what are the enhancing qualitative characteristics

  Comparability, verifiability, timeliness and understandability
• Users’ decisions involve choosing between alternatives, for example, selling or holding an investment, or investing in one reporting entity or another.

  Comparability
• the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.

  Comparability
• it helps assure users that information faithfully represents the economic phenomena it purports to represent.

  Verifiability
• means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a depiction is a faithful representation.

  Verifiability
• means having information available to decision-makers in time to be capable of influencing their decisions

  Timeliness
• Classifying, characterizing and presenting information clearly and concisely makes it understandable. and it occurs what characteristic?

  Understandability
• Two methods of verifiability

  direct and indirect
• is a pervasive constraint on the information that can be provided by financial reporting.

  cost
• provide information about economic resources of the reporting entity, claims against the entity, and changes in those resources and claims, that meet the definitions of the elements of financial statements.

  Financial statements
• the assumption that the reporting entity is a going concern and will continue in operation for the foreseeable future.

  Going concern assumption
• A present economic resource controlled by the entity as a result of past events

  Economic resource or Asset
• Is a right that has the potential to produce economic benefits

  asset
• a present obligation of the entity to transfer an economic resource as a result of past events

  liability
• the residual interest in the asset of the entity after deducting all its liabilitie

  equity
• increase in asset and equity decrease in liability

  income
• decrease in asset and equity increase in liability

  expense
• three aspects of asset

  1. right
  2. potential to produce economic benefits; and c) control.
• . For a liability to exist, three criteria must all be satisfied:

  a the entity has an obligation;

  b) the obligation is to transfer an economic resource; and c) the obligation is a present obligation that exists as a result of past events.
• the elements of financial statements that relate to an entity’s financial performance.

  Income and expenses
• the process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item

  Recognition
• The amount at which an asset, a liability or equity is recognized in the statement of financial position is referred to?

  carrying amount’.
• An asset or liability is recognized only if recognition of that asset or liability and of any resulting income, expenses or changes in equity provides users of financial statements with information that is not useful. true or false

  false (it should be useful)
• the removal of all or part of a recognized asset or liability from an entity’s statement of financial position.

  Derecognition
• measures provide monetary information about assets, liabilities and related income and expenses, using information derived, at least in part, from the price of the transaction or other event that gave rise to them.

  Historical cost
• using information updated to reflect conditions at the measurement date

  Current value
• what are the 3 current value measurement bases include:

  1. fair value;
  2. value in use and fulfilment value for liabilities;
  3. current cost
• The total carrying amount of equity (total equity) is not measured indirectly. true or false?

  false (it should be directly)