CFAS 2018

• Conceptual Framework for Financial Reporting was issued by the International Accounting Standards Board in September 2010. It was revised in March 2018.
• Conceptual Framework


  Describes the objective of, and the concepts for, general purpose financial reporting
• Purpose of the Conceptual Framework

  • Assist the International Accounting Standards Board to develop IFRS Standards based on consistent concepts
  • Assist preparers to develop consistent accounting policies
  • 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.
• The Conceptual Framework may be revised from time to time on the basis of the Board's experience of working with it. Revisions of the Conceptual Framework will not automatically lead to changes to the Standards.
• Mission of the IFRS Foundation and the Board

  Develop Standards that bring transparency, accountability and efficiency to financial markets around the world
• Objective of general purpose financial reporting

  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
• Decisions of existing and potential investors, lenders and other creditors

  • Buying, selling or holding equity and debt instruments
  • Providing or settling loans and other forms of credit
  • Exercising rights to vote on, or otherwise influence, management's actions that affect the use of the entity's economic resources
• Information needed by existing and potential investors, lenders and other creditors


  • The economic resources of the entity, claims against the entity and changes in those resources and claims
  • How efficiently and effectively the entity's management and governing board have discharged their responsibilities to use the entity's economic resources
• General purpose financial reports do not and cannot provide all of the information that existing and potential investors, lenders and other creditors need. Those users need to consider pertinent information from other sources.
• 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.
• 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.
• Other parties, such as regulators and members of the public other than investors, lenders and other creditors, may also find general purpose financial reports useful. However, those reports are not primarily directed to these other groups.
• Financial reports are based on estimates, judgements and models rather than exact depictions.
• The Conceptual Framework establishes the concepts that underlie those estimates, judgements and models.
• Establishing a goal towards which to strive is essential if financial reporting is to evolve so as to improve its usefulness.
• Information about a reporting entity's economic resources and claims

  • Can help users to identify the reporting entity's financial strengths and weaknesses
  • Can help users to assess the reporting entity's liquidity and solvency, its needs for additional financing and how successful it is likely to be in obtaining that financing
  • Can help users to assess management's stewardship of the entity's economic resources
  • Information about priorities and payment requirements of existing claims helps users to predict how future cash flows will be distributed among those with a claim against the reporting entity
• Different types of economic resources

  • Some future cash flows result directly from existing economic resources, such as accounts receivable
  • Other cash flows result from using several resources in combination to produce and market goods or services to customers
• Changes in a reporting entity's economic resources and claims

  • Result from the entity's financial performance
  • Result from other events or transactions such as issuing debt or equity instruments
• Information about a reporting entity's financial performance


  • Helps users to understand the return that the entity has produced on its economic resources
  • 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, reflected by changes in its economic resources and claims other than by obtaining additional resources directly from investors and creditors, is important in assessing the entity's past and future performance.
• Information about a reporting entity's responsibilities is usually helpful in predicting the entity's future returns on its economic resources
• 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, reflected by changes in its economic resources and claims other than by obtaining additional resources directly from investors and creditors, is useful in assessing the entity's past and future ability to generate net cash inflows
• Information about a reporting entity's financial performance during a period can also help users to assess management's stewardship of the entity's economic resources
• Information about a reporting entity's cash flows during a period helps users to assess the entity's ability to generate future net cash inflows and to assess management's stewardship of the entity's economic resources
• Information about how efficiently and effectively the reporting entity's management has discharged its responsibilities to use the entity's economic resources helps users to assess management's stewardship of those resources
• Examples of management's responsibilities to use the entity's economic resources include protecting those resources from unfavourable effects of economic factors, such as price and technological changes, and ensuring that the entity complies with applicable laws, regulations and contractual provisions
• The qualitative characteristics of useful financial information identify the types of information that are likely to be most useful to the existing and potential investors, lenders and other creditors for making decisions about the reporting entity on the basis of information in its financial report
• Financial reports provide information about the reporting entity's economic resources, claims against the reporting entity and the effects of transactions and other events and conditions that change those resources and claims
• The qualitative characteristics of useful financial information apply to financial information provided in financial statements, as well as to financial information provided in other ways
• If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent
• Relevant financial information


  Capable of making a difference in the decisions made by users
• Financial information has predictive value

  It can be used as an input to processes employed by users to predict future outcomes
• Financial information has confirmatory value

  It provides feedback about (confirms or changes) previous evaluations
• Materiality


  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
• Faithful representation


  Financial information must not only represent relevant phenomena, but it must also faithfully represent the substance of the phenomena that it purports to represent
• Complete depiction


  Includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations
• Neutral depiction


  Without bias in the selection or presentation of financial information