D describe the International Accounting Standards Board’s conceptual framework, including the objective and qualitative characteristics of financial statements, required reporting elements, and constraints and assumptions in preparing financial statements;

Question 1

IASB Conceptual Framework objective

Answer 1

To provide financial information that is useful in making decisions about providing resources to an entity.

Question 2

Qualitative Characteristics (2 fundamental, 4 enhancing)

Answer 2

Fundamentals = Relevance (predictive value, confirmatory value = can effect decision making) + faithful representation (complete, neutral, error-free)

Enhancing = Comparability (stmts among firms, time periods) + verifiability (same methods, similiar results) + Timeliness (info doesn’t go ‘stale’) + Understandability (understandable by your basic business person)

Question 3

IASB required reporting elements

Answer 3

Recognize…Assets, Liabilities, Equity ( owners residual interest after deducting liabilities), liabilities, income, expenses…if benefit is probable and value can be measured reliably.

Measurement of fin pos: A, L, SE

Measurement of perf: Rev - Exp

Question 4

“the amounts at which items are reported in the financial statement elements depend on their…”

Answer 4

Measurement base:

Historical Cost = historical….cost
*hist cost and FV same @ ‘t’ asset = acquired

Amortized Cost: = Historical less depreciation, amortization, depletion, impairment

Realizable Value: …realized if sold (how much we’d get if we sold the asset today)

Present Value: DISCOUNTED value of assets CF’s

Fair Value Value: $$ parties in ‘arms length’ transaction would exchange at less cost of sale

Current Value:…current

Question 5

Constraints

Answer 5

Reputation, loyalty, creativity can’t be captured in FS

Benefit of Information>Cost of attaining information

Question 6

Assumptions

Answer 6

Accrual acct: trans. recog. @ time they occur, not when cash is paid out. ‘Accrue’ - growth or interest. Product or service sold, cash not yet recieved. Deferred: ‘defer - to postpone’ cash recieved, product or service not yet delivered.

Going Concern - The company will exist for the foreseeable future