Conceptual Framework

Question 1

What is the objective of the conceptual framework?

Answer 1

To enable standard setters to achieve a consistent and coherent set of fundamental principles which helps users of the financial statements to form an assessment of company performance

Question 2

The conceptual frame work helps all parties to understand the financial statements by ensuring that?

Answer 2

The information provided is consistent and comparable

Question 3

What fundamental qualitative characteristics makes the financial information useful?

Answer 3

Relevant information and faithful representation

Question 4

What makes information relevant?

Answer 4

Helps make the difference to a decision of the user.

Question 5

Two types of relevant information?

Answer 5

Predictive - used to predict future outcome / confirmatory value - feedback about prior evaluations

Question 6

What else is linked to information being relevant?

Answer 6

Materiality

Question 7

What is materiality?

Answer 7

Information is material if it’s omission or misstatement could influence the decisions of the users seeking to rely in the financial statements

Question 8

What is faith representation ?

Answer 8

Transactions that rare complete, neutral and unbiased and free from material error

Question 9

Conceptual framework also includes another qualitative characteristic?

Answer 9

Prudence

Question 10

What does prudence mean under conceptual framework?

Answer 10

Cation when making judgement under uncertainty, to ensure that assets are not overstated and liabilities not understated

Question 11

What’s another characteristic of faithful representation?

Answer 11

Substance over form

Question 12

What is the enhancing qualitative characteristics to make information relevant and faithful representation?

Answer 12

Comparability, Verifiability, timeliness, understandability

Question 13

What makes information comparable?

Answer 13

to be able to identify similarities and differences between same and different entities

Question 14

What makes information verifiability ?

Answer 14

helps users to support the faithful representation within the financial statements, such as direct and indirect verficiation of figures

Question 15

What makes the information timeliness?

Answer 15

must be provided within a reasonable time

Question 16

What makes the information understandable?

Answer 16

users with reasonable business knowledge should be able to understanad

Question 17

What are the three elements of the financial statements that show the reporting entity under conceptual framework?

Answer 17

Assets - economic resources / Liability’s and equity - the claims against it/ income an expenditure and dividends - changes in economic resources

Question 18

Definition of asset under conceptual framework?

Answer 18

a present economic recourse controlled by the entity as a result of past events. The economic resource has a right to produce potential economic benefits

Question 19

Definition of liability under conceptual framework?

Answer 19

a present obligation of the entity to transfer an economic resource as a result of past events

Question 20

Definition of Equity under conceptual framework?

Answer 20

the residual interest in the entity after deducting all its liability

Question 21

Definition of income under conceptual framework?

Answer 21

the increase in assets or decrease in lability that results in an increase in equity

Question 22

Definition of Expenses under conceptual framework?

Answer 22

the decrease in assets or increase in liability that result in decreases in equity

Question 23

What IFRS standard does not align with the conceptual framework and why?

Answer 23

Deferred tax as its classed as only an accounting estimate and doesn’t meet the conceptual frameworks definition of liabilities

Question 24

When does an item get recognised in the financial statements?

Answer 24

When it has met one of the 5 elements and provides useful information that is relevant and faithful representation

Question 25

What is the aim of the derecognition process under conceptual framework?

Answer 25

to ensure that the information is relevant and faithful represented, such as making sure that t he derecognition is presented separate to the SFP.

Question 26

How to determine whether derecognition is required?

Answer 26

Has the entity lost control?

Question 27

What is the measurement that is used in the SOFP under conceptual framework?

Answer 27

Current value - made up of FV and VIU and historical cost

Question 28

What is the purpose of capital maintenance?

Answer 28

to ensure that dividends are not being paid in excess in times of rising prices

Question 29

What are the concept of financial capital and operating capital?

Answer 29

Financial capital looks at the general inflation where as operating capital looks at specific inflation

Question 30

What causes problems when using the conceptual framework?

Answer 30

There is no definition of profit and loss which results in the information not being consistence

Question 31

What is the issue with OCI under conceptual framework?

Answer 31

It is not understood by users and is often used to recycle gains and losses in periods - but under conceptual framework this is deemed to be faithfully represented