Professional Documents
Culture Documents
Agenda
1. Purpose and Scope of the Framework 2. Objective of Financial Statements and Underlying Assumptions 3. Qualitative Characteristics of Financial Statements 4. The Elements of Financial Statements and their Definitions 5. Recognition of the Elements of Financial Statements 6. Measurement of the Elements of Financial Statements 7. Concept of Capital and Capital Maintenance 8. Development of a Single Converged Framework
Companys activities
Financial Reporting
User perception
The Framework states that: The objective of general purpose financial statements is to provide information about the financial position, financial performance and change in financial position of an entity that is useful to a wide range of users in making economic decisions. Similar to the objective stated in the IAS 1
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when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or
when it reclassifies items in its financial statements.
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In order to meet the objectives of financial statements, financial statements are prepared on
On the accrual basis of accounting (implies that the effects of transactions and other events are recognised when they occur, rather than they have been received or paid, and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate) and On the assumption that an entity is a going concern (assumes that an entity will continue in operation for the foreseeable future)
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3. Qualitative Characteristics
3. Qualitative Characteristics
Qualitative characteristics of financial statements Relating to content - Relevance (Predictive value, Confirmatory value, Interrelated) - Reliability (Faithful representation, Substance over form, Neutrality,
Prudence and Completeness)
3. Qualitative Characteristics
Qualitative characteristics of financial statements Relating to content - Relevance - Reliability Relating to presentation - Comparability - Understandability
Management Decision
Financial reporting
3. Qualitative Characteristics
Constraints on Relevant and Reliable Information To provide relevant and reliable information to meet the users needs, the financial statements should also be subject to certain constraints as follows:
1. Timeliness: Even a reliable set of information is given, there is undue delay in providing such information. 2. Balance between benefit and cost 3. Balance between qualitative characteristics
3. Qualitative Characteristics
True and Fair View or Fair Presentation The Framework does not directly deal with the concept of a true and fair view of, or as presenting fairly, the financial position, performance and cash flows of an entity;
even the financial statements are usually described as presenting fairly or showing a true and fair view of the financial position, performance and cash flows of an entity.
The application of the qualitative characteristics and appropriate accounting standards normally results in financial statements that give a true and fair view of, or as presenting fairly, such information.
Asset
Liability Equity
a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits the residual interest in the assets of the enterprise after deducting all its liabilities increases in economic benefits during a period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in equity other than those relating to contributions from equity participants
Expenses
Recognition is the process of incorporating in the balance sheet or income statement an item that
1. meets the Definition of an element and 2. satisfies the Criteria for Recognition
Criteria for recognition an item that meets the definition of an element should be recognized if:
1. it is probable that any future economic benefit associated with the item will flow to or from the enterprise; and 2. the item has a cost or value that can be measured with reliability.
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Historical cost Current cost Realisable (settlement) value Fair value less cost to sell Present value Value in use
Not applied to initial measurement but applied to subsequent measurement (incl. selective):
Property, plant and equipment (IAS 16) Intangible assets (IAS 38) Investment property (IAS 40)
Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power
Chapter 2