Chapter 5: The Conceptual Framework, Accounting Conceptsd and Conventions

Question 1

What are the two fundamental qualitative characteristics which the Conceptual Framework Identifies?

Answer 1

Relevance and Faithful Representation

Question 2

Fundamental Characteristics - Relevance

Answer 2

Relevant Information may have:
- Predictive Value: helps users assessing the future of the business
- Confirmatory Value: helps users in confirming past predictions

Information may be relevant in nature and materiality

Question 3

Fundamental Characteristics - Faithful Representation

Answer 3

In order to have Faithful Representation transactions and other events and information must be:
- Complete
- Neutral
- Free from error
- Showing substance over form

Neutrality is supported through the exercise of prudence. Prudence involves exercising caution under situations of uncertainty.

Question 4

List the 4 enhancing qualitative characteristics:

Answer 4

• Comparability
• Verifiability
• Timeliness
• Understandability

Question 5

What is the Accruals Concept

Answer 5

The accruals or matching concept requires that transactions are recognised when they occur, not when they are paid.

This means that the costs incurred in generating income are matched against the revenues they’ve created.