Chapter 1 - Frameworks Flashcards
What are some of the key purposes of the framework are?
- assist the international accounting standards board when developing new standards
- help national standard setters develop new standards
- guidance in issues not covered by IFRS standards
- assist auditors
What is the objective of the conceptual framework?
To provide useful information to lendors, potential lenders and other creditors when making investment decisions
What are the fundamental qualitative characteristics?
Relevance and faithful representation
What are the enchanting qualitative characteristics?
- comparability
- verifiability
- timeliness
- understandability
What is the definition of an asset?
Resources controlled by an entity from a past event that will lead to a probably inflow of economic benefits
What is the definition of a liability?
Obligations of an entity arising from a past event that will lead to a probably outflow of economic resources
What is the definition of equity?
The residual net assets of an entity after deducting its liabilities
What is the definition of income?
Increases in economic benefits during the period
What is the definition of an expense?
Decreases in economic benefits during the period
When should an item be recognised in the financial statements?
- it meets the definition of an element
- it is probable that future economic benefits will flow to or from the entity
- the item can be measured reliably
What are the four measurement bases?
- historic costs
- realisable value
- current costs
- present value
What is the objective of IFRS 13?
Provide a single source of guidance for fair value measurement where it is required by a reporting standard
What is the definition of fair value?
The price received when selling an asset, or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date
What are market participants?
Knowledgable third parties
What would a market participant take into account when pricing a transaction?
- condition
- location
- restictions on use
What are the various approaches when determining fair value?
- market approaches
- cost approaches
- income approaches
What is an active market?
Where transactions for the asset or liability occur frequently
What is level 1?
Quoted prices for identical assets in active markets
What is level 2?
Inputs are observable inputs that are not level 1 inputs, for example quoted prices for similar assets in active markets
What is level 3?
Inputs are unobservable (entity’s own data)
Common non-financial assets include?
Property, plant and equipment and intangible assets
The fair value of a non-financial asset should be based on?
Highest and best use
What must non-financial assets take into account?
- physically possible
- legal
- financially feasible
IFRS 13 says that fair value should be determined by?
Reference to the principal market
