Conceptual Framework Flashcards
(34 cards)
Why do we need the Conceptual Framework?
To assist all parties to understand and interpret standards and FR
Purpose of the Conceptual Framework
Assist develop IFRS Standards based on consistent concepts, assist preparers to develop consistent accounting policies when no standard applies to a particular transaction, assistance in understanding and interpreting the standards
Is the conceptual framework a standard?
No
Can there be conflicts between the framework and standards?
It evolves depending on different economic situations, if there is a conflict, follow the standard
Levels of the Conceptual Framework
- Goals and purposes
- Qualitative characteristics of accounting information, and elements of financial statements
- Principles used in establishing and applying accounting standards
Objective of FR
Provide useful information in making resource allocation decisions, including the assessment of management stewardship
What is Management Stewardship
How well management is using their entity resources to create and sustain value
Are financial reports designed to provide the value of reporting entity?
No, they only give information on how to evaluate a company
Do Financial reports provide all information that stakeholders need?
No, different stakeholders have different needs (we cant satisfy all of them)
What are the two Qualitative Characteristics
Fundamental and Enhancing
What are the Fundamental Qualitative Characteristics?
Relevance and Representational Faithfulness
Define relevance, what are the ingredients for relevant information?
Information capable of making a difference in a decision context. Predictive and confirmatory
Define Representational Faithfulness.
They are transparent (representing economic reality), with completeness, neutrality, prudence, and free from error
What are the enhancing qualitative characteristics?
Comparability, Verifiability, Timeliness, Understandability
What is materiality? (fundamental qualitative characteristics)
Is the information important enough to influence/change the judgement of a reasonable person? (materiality cannot be determined)
Can we have all the qualitative characteristics?
No, trade-offs happen when one qualitative characteristic is sacrificed for another. The benefit should also outweigh the costs of providing the information
What are the Principal Qualitative Characteristics of ASPE?
Understandability, Relevance (predictive and feedback value and timeliness), Reliability representational faithfulness, verifiability, neutrality, and conservatism), and Comparability
Elements of Financial Statements
Assets, Liabilities, Equity
Define Assets
A present economic resource controlled and have the right by the entity as a result of past events
Define Liability
Present obligation of the entity to transfer an economic resource as a result of past events
Define Equity
The residual interest in assets after all liabilities are deducted
Performance measures in Financial Reports
Income (revenues and gains), Expenses (expenses and losses)
What is the implementation of Foundational principles
Which when and how financial elements and events should be recognized or derecognized, measured, and presented or disclosed
Explain the concept of recognition
Meets the definition of an element, relevant and faithfully represented
