Chapter 1 - Conceptual framework Flashcards
(37 cards)
Financial accounting consists of what two elements?
- Record transactions as they take place
2. Summarize transactions for one period
What is the objective of general purpose financial reporting?
- provide info to users who make decisions about resources
- fulfill management stewardship role (safe keep resources for efficient/profitable use)
List user groups.
Investors
Management
Customers
Suppliers
Lendors
Government (tax)
Employees
What are the two FUNDAMENTAL qualitative characteristics?
- Relevance
2. Faithful representation
Relevance
Affected by:
1.
2.
- Nature
2. Materiality
Relevant (nature) info can have what type of information?
Predictive - help assess future
Confirmatory - helps confirm past predictions
For information to be faithfully represented, it must be
1.
2.
3.
- Completeness
- Neutral
- Free from error
What are the 4 ENHANCING qualitative characteristics?
- Comparability
- Understandability
- Timeliness
- Verifiability
How to recognise assets?
Probable economic benefit INFLOW
cost measured reliably
How to recognise liabilities?
Probable economic benefit OUTFLOW
cost measured reliably
How to recognise income?
INCREASE in future economic benefits = INCREASE in asset, DECREASE in liability
cost measured reliably
How to recognise expenses?
DECREASE in future economic benefits = DECREASE in asset, INCREASE in liability
cost measured reliably
What are the 4 bases of measurement?
Historic cost
Current cost
Realisable value
Present value
What is historic cost?
originally bought for cost
What is current cost?
cost to replace with similar asset
What is realisable value?
how much can be sold for
What is present value?
discounted value of cash flows from asset
What does IFRS Foundation do?
- funding
- appoint members for IASB, IFRS advisory council/interpretations committee
What does IASB do?
- general technical matters
- prepare standards
What does IFRS advisory council/interpretations committee do?
- advice on setting standard
- interpret standards
Why is there a drive to harmonise global accounting standards?
- management want consistency
- investors are diverse globally, better comparison
- technology developments, more practical possible
What are the limitation of F/S?
- uses set formats for presentation (unusual businesses need more flexibility)
- aggregation of info (all admin expenses into one)
- excludes non financial info (customer satisfcation/employee turnover, environmental impact)
- backward looking (using historic info to make decisions about the future?)
ICAEW code of ethics
Integrity
Straightforward/honest
ICAEW code of ethics
Objectivity
No bias
Conflict of interest
Undue influence
