Conceptual Framework Definitions Flashcards
What is an asset?
A present economic resource controlled by an entity as a result of a past event
What is a liability?
A present obligation of the entity to transfer an economic resource as a result of a past event
What is an economic resource?
A right that has the potential to produce economic benefits
What is control?
The ability to direct the use of the asset and derive the economic benefits for it. Bus vs taxi
What is an Obligation?
It means you HAVE to do something
A duty of responsibility that an entity has no practical ability to avoid
When is derecognition appropriate?
If we lose or transfer control of all or part of the asset or for an obligation when the entity no longer has a present obligation
As per the Conceptual Framework what must we account for?
The commercial substance of the transaction
What is the objective of Financial Reporting?
To provide financial information that is useful to users in order to allow them to make decisions about providing finance to the entity
What type of information is important?
- Stewardship of management
- Economic resources - claims and changes
- Cashflows
What is prudence?
Prudence is the ability to exercise caution when making judgements under conditions of uncertainty
Supports neutrality
What is the objective of the Conceptual Framework?
To enable IASB to create coherent and consistent IFRS
Help solve problems in the absence of regulation
Reduce creative accounting (principle based regulation)
Enables users to understand the role and limitations of financial statements
What are the two fundamental characteristics?
Relevance - make a difference to decision makers’ decisions
Faithful representation - does it show the substance of the transaction
What are the four enhancing characteristics?
Timely
Understandable
Verifiable
Comparable
What is income?
Increases in assets or decreases in liabilities that result in increases in equity, other than contributions from owners.
What are expenses?
Decreases in assets or increases in liabilities that result in decreases in equity other than distributions to owners
