Conceptual Framework Flashcards
Theoretical principles in financial reporting?
Development of accounting standards
Udnerstanding and interpretation of accounting standards
Conceptual framework forms basis on?
Determining how events accounted for
How they should be measured
How they should be communicated
Advantages of conceptual framework?
Developed on same theoretical principles
Less political pressure
Principles, not large volume of rules
Disadvantages of a conceptual framework?
No framework can fit all users
Diversity of user requirements
Accrual accounting?
Transactions and events are reported in periods which effects occur. Also known as matching concept
Purpose of conceptual framework?
Help IASB develop IFRS accounting standards
Assist preparers of accounts develop accounting policies in case there is no IFRS standard
Objective of financial reporting?
Provide financial information about reporting entity that is useful to stakeholders
Primary users?
Decisions about buying, selling or holding shares or debt instruments or providing or settling loans
What is going concern?
An entity will continue in operation for the foreseeable future
Fundamental qualitative characteristics?
Relevance
Faithful representation
Enhancing qualitative characteristics?
Comparability
Verifiability
Timeliness
Understandability
What is relevance?
Information capable of making a difference in decisions made by users
What does consideration relate to?
Materiality
What is materiality?
If a mistake is reasonably expected to influence decisions of primary users
What is prudence?
Exercising caution
What is faithful representation?
Complete
Neutral
Free from error
What is comparability?
Qualitative characteristics that enable users to identify and understand similarities/differences in items
Why is a change in accounting policy changed retrospectively?
Results from one period to the next can be usually compared
Does comparability = uniformity?
No
What is verifiability?
Different knowledgeable and independent observers could reach consensus
What is timeliness?
Having information available to decision-makers in time to be capable of influencing their decisions
What is understandability?
Classifying, characterising and presenting information clearly and concisely
When should an accounting policy be changed?
If change will result in information that is reliable and more relevant
What is an asset?
A present economic resource controlled by the entity as a result of past events
