Chapter 2 Flashcards by Kathrina Faye Nobleza

What are the purpose of conceptual framework

To assist the IASB to develop IFRS that are based on consistent concepts.
To assist preparers to develop consistent accounting policies.
To assist all parties to understand and interpret the standards.

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Is the conceptual framework an accounting standard?

No, conceptual framework is not a standard and nothing in the framework overrides any standard.

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What are the hierarchy of reporting standard

I. PASs, PFRSs and interpretation
III. Judgement
II. Conceptual Framework
IV.Pronouncement of the standard-setting bodies

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Conceptual Framework provides the foundation for standard that;

promotes transparency, strengthens accountability and efficiency

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The foundation of conceptual framework

Objective of general purpose financial reporting

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Existing and potential investors, lenders, and other creditors

Primary users

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Is to provide financial information about the reporting entity that is useful to the primary users.

Objective of general purpose financial reporting

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The implicit qualitative characteristic related to neutrality

Prudence

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The qualitative characteristic is divided into?

Fundamental qualitative, and enhancing QUALITATIVE

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Fundamental qualitative are

Relevance and faithful presentation

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Enhancing Qualitative

V.C.U.T ( VERIFIABILITY, COMPARABILITY, UNDERSTANDABILITY, TIMELINESS

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Is making a difference in the decision made by users, it has predictive value, confirmatory value or both

Relevance

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Is an implicit qualitative characteristic related to relevance. Material information is omitted, misstated or obscured could reasonably be expected to influence the decisions of the primary users of general purpose financial report.

Materiality

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Materiality

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Is an Entity specific aspect of relevance based on nature or magnitude, or both, has no quantitative threshold and is a matter of judgement.

Materiality

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Means that the financial reports which represents, economic phenomena in words or numbers must faithfully represen the substance of the phenomena that it purports to represents

Faithful representation

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What are the three characteristics of faithful representation

Completeness
Neutrality
Free from error

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A complete depiction include all information necessary for a user to understand the phenomena

Completeness

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A neutral depiction is an information without bias in the selection or presentation of financial information

Neutrality

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Information has no errors or omission in the description of the phenomena

Ree from error

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

Comparability

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Is the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities

Consistency

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Is the goal; helps to achieve the goal

Comparability, consistency

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Means the different knowledgeable and independent observers could reach consensus

VERIFIABILITY

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Means verifying amount or other representation through direct observation

Direct verification

Is checking the inputs to a model formula or other technique and recalculating the outputs using the same methodology

Indirect verification

Is having information available to decision makers in time to be capable of influencing their decisions

Timeliness

If it is classified, characterized , and presented in clear and concise manner

Understandability

Is to provide information about the reporting ENTITY'S asset, liabilities, equity, income, and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to the reporting entity's economic resources.

Objective of financial statements

It is an assumption that a reporting entity will continue in operation for the foreseeable future and it has no intention northe need to enter liquidation or to cease trading

Going concern assumption

Is an Entity that is required or Choose, to prepare financial statement

Reporting entity

It is composed of both the parent, and its subsidiaries which is viewed as a single reporting entity

Consolidated financial statements

These are the financial statements if the reporting entity is the parent alone

Unconsolidated financial Statement

If the reporting entity comprises two or more entities that are not at all linked by a parent or subsidiary relationship

Combined financial statements

Is an present economic resource controlled by the entity as a result of past events

Assets

An economic resource is a right that has the potential to produce economic benefits

Assets

Three criteria for assets

Right, potential to produce economic benefits, control

Means an Entity has the present ability to direct the use of the economic resources and obtain the economic benefits that may flow from it

Control

Is a present obligation of the entity to transfer economic resources as a result of past events

Liability

Three criteria for liability

1. The entity has an obligation, 2. The obligation is to transfer economic resources, 3. Obligation is a present obligation that exists as a result of past events.

Is a duty or responsibilities that an Entity has no practical ability to avoid

Obligation

Two types of obligation

Legal obligation and constructive obligation

An obligation that arises from contract, legislation, or similar means

Legal obligation

An obligation arises from an ENTITY'S customary practices, published policies or specific statement if the entity has no practical ability to act in a manner inconsistent with those practices policies or statements.

Constructive obligation

Is it necessary that the identify of the party owed be known?

No, it's not necessary

Is the residual interest in the assets of the entity after deducting all it's liabilities

Equity

Are claims on residual interest in the asset of the entity after deducting all its liabilities like DIVIDENDS.

Entity claims

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

Income

Are decreases in assets, or increases in liabilities, the results in decreases in equity

Expense

Is the process of capturing for inclusion in the statement of financial position or the statements of financial performance

Recognition

Is the amount at which an asset, a liability. A equity is recognized in the statement of financial position

Carrying amount

It is the simultaneous recognition of income and related expenses which is sometimes referred as matching cost and income.

Matching principle

Are assets or liabilities of a company that has questionable ownership

Existence uncertainties

Is the uncertainty in the determination of the amount at which an item is recognized or disclosed in the financial statments

Measurement uncertainty

Is the removal of all or parts of an recognized asset or liability from an ENTITY'S statement of financial position

DERECOGNITION

When does DERECOGNITION occur??

1. Occurs when the entity LOSSES control of all or part of the recognized asset 2. Occurs when the entity has no longer a present obligation for all or part of the recognized liability

Is an identified feature of an item being measured

Measurement basis

It is only for assets or liability

Measurement basis

Two different measurement basis

Historical cost and current value

Provides monetary information bout assets, liabilities and related income and expense, using information derived, at least in part from the price of the transaction or other event that give rise to them

Historical cost

Historical cost of an _____when it is acquired or created is the value of the cost incurred in acquiring or creating an asset.

Assets

Historical cost in ______ when it is incurred or taken on is the value of the consideration received to incur or take on the liability minus transaction cost.

Liability

Provide monetary information about the element (assets,liability,and related income and expense) using information updated to reflect conditions at the measuring date

Current Value

Is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between maker participants at the measurement date.

Fair value

Is the present value of the cash flow, or other economic benefits that an Entity expectsto derived from the use of an asset or from its ultimate disposal

Value in use

Is the present value of the cash, or other economic resources that an Entity expects to be obliged to transfer as it fulfills a liability

Fulfillment value

Is the cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date.

Current cost of an asset

Are entry value (they reflect prices on acquisition.

Current cost and historical cost

Are exit value ( they reflect price in selling or using an asset or transferring or fulfilling a liability

Fair value. Value in use. Fulfillment value

Is not measured directly , it equals the total of the carrying amounts of all recognized assets less the total of the carrying amounts of all recognized liability

Total carrying amount of entity (total entity)

Is not measured directly , it equals the total of the carrying amounts of all recognized assets less the total of the carrying amounts of all recognized liability

Total carrying amount of entity (total entity)

Is sorting assets,lia,equity, income or expenses on the basis of shared characteristic for presentation and disclosure purpose.

Classification

Entity recognizes and measures both an asset and liability as a separate unit of accounts

Offsetting

Is adding together an asset, liabilities, equity, income or expenses that have shared characteristic and are included in the same classification

Aggregation

Two concepts of capital

Financial concept of capital and physical concept of capital

Two concepts of capital maintenance

Financial capital maintenance and physical capital maintenance

Concept a profit is earned only if the financial amount of the net assets at the end of the period exceeds the financial amount of net assets at the beginning of the period

Financial capital maintenance

Chapter 2 Flashcards

(78 cards)