EQL - Conceptual Framework Flashcards
What is the purpose of the framework?
- IASB in developing future IFRSs and promoting harmonisation of regulations, standards etc.
- National standard setting bodies in setting their own standards.
- Auditors when forming an opinion on compliance with IFRSs.
- Users interpret accounts.
- Preparers of financial statements in applying IFRSs.
- Provide interested parties with information about the IASB’s approach to formulating IFRSs
If there is conflict between the Framework and an accounting standard, which one should preparers and auditors apply?
Follow accounting standards (IFRS)
The framework applies to ‘general purpose financial statements’. What is included in a complete set of financial statements?
- Statement of Financial Position
- Statement of Comprehensive Position
- Statement of Cash Flows
- Statements of Changes in Equity
- Notes, other statements & explanatory material
The Framework takes the view that, if the information needs of one particular set of users are met, then the needs of most other users are also likely to be met. Which user group is this?
Investors
What are the objectives of the International Accounting Standards Board?
Develop global accounting standards.
Promote the rigorous application of these standards.
Bring about the convergence of national accounting standards and IFRSs
What does IFRIC stand for?
International Financial Reporting Interpretations Committee
What is the role of the IFRIC?
- Issues rapid guidance/interpretation on accounting matters
- Previously these were known as SICs
- FS have to comply with SIC/IFRIC to be able to state they comply with IAS/IFRS
What are the 2 documents that are normally published before an IFRS is issued which generates comments and feedback from interested parties?
- Discussion document/paper
- Exposure draft
What does GAAP stand for?
-Generally accepted accounting principles
What makes up GAAP?
- National company law.
- National accounting standards.
- Local stock exchange requirements.
What is the role of the IASB Trustees?
The Trustees monitor the IASB’s effectiveness, as well as raising funds and approving the Board’s budget.
What is the role of the International Accounting Standards Board (IASB)?
The Board has sole responsibility for setting accounting standards.
What is the objective of financial statements?
The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions
What are the underlying assumptions of the Framework?
- Accruals Basis
- Going Concern
What is the accruals concept?
The effects of transactions are recognised when they occur (and not when cash received) and recorded and reported in the financial statements of the periods to which they relate
What is the going concern concept?
Continuing in operation in the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations
What are the 4 Qualitative Characteristics contained in the Framework?
- Understandability
- Relevance
- Reliability
- Comparability
How does the Framework define relevance?
Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate the past, present or future events or confirming, or correcting, their past evaluations.
How does the Framework define materiality?
Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
How does the Framework define reliability?
Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent.
The information should reflect substance and economic reality over legal form, and must be neutral, prudent and complete
What are the 5 elements of Financial Statements?
Assets Liabilities Equity (Net Assets) Income Expenses
Which of the 5 elements measure financial position?
Assets
Liabilities
Equity
What is the Frameworks definition of an Asset?
A resource controlled by an entity as a result of a past event from which future economic benfits are expected to flow to the entity
What is the Frameworks definition of an expense?
Decrease in economic benefits during accounting period from the decrease in assets or increase in liabilities, other than those relating to contributions from equity participants
