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Conceptual framework (Chapter 1) - Coggle Diagram
Conceptual framework (Chapter 1)
Abbreviations
IFRIC
International Financial Reporting Interpretations Committee
AC 500 series
South African Interpretations (VAT, BEE)
SIC
Standards interpretations committee
ED's
Exposure drafts
IAS
International Accounting Standards
Since 2005 compulsory for all SA listed companies to comply with IFRS
IFRS
International Financial Reporting Standards
Since 2012 no SA standards anymore, only IFRS
Status and purpose of the conceptual framework
The conceptual framework describes the objective of and the concepts for general purpose financial reporting
Conceptual framework is not a standard. It does not override standards or any requirement in a standard
Mission of conceptual framework is to develop standards to financial markets around the world
Information needed to make these assessments:
Claims against the entity (liabilities)
How efficiently and effectively the entity's management have discharged their responsibilities to use entity's economic resources
Economic resources available (assets)
General purpose financial reports are not directed at regulations and members of the public
Primary users of financial reports
Existing and potential investors
Lenders and other creditors
General purpose financial reports are not designed to show the value of a reporting entity, they provide information to hep estimate the value of the reporting entity
Previous cash flows indicate financial performance
Indicate:
-How entity obtains and spends cash
-Information about its borrowing and repayment of debt
-Cash dividends or distributions to investors
-Other factors that may affect the entity's liquidity / solvency
Help users:
-Understand entity's operations
-Evaluate its financial and investing activities
Assess the entity's ability ti generate future net cash flows
Information about financial performance helps users to understand the return on economic resources, provides an indication of how well management used resources in predicting the entity's future returns
Format of the standards
Disclosure
Transitional provision
Contents of the standards
Effective date
Definitions
Statements suspended
Scope
Amendments to current statements
Objective
Appendices
Preface to statements
Explains the authority held by IFRS and IASB
Approval of IFRS
Expected returns depend on assessment of the amount, timing and uncertainty of future net cash inflows
These decisions depend on expected returns:
Principle and interest payments
Market price
Dividends
Providing or settling loans / interest receivable / payable
Objective of general purpose financial reporting
To provide financial information about the reporting entity that is useful to:
-Existing and potential investors
-Existing and potential lenders
-Existing and potential creditors
So that they can make decisions about:
-Buying / selling / holding equity and other forms of credit
-Providing / settling loans and other forms of credit
-Exercising rights to vote on, or otherwise influence, management's actions that affect the use of the entity's economic resources
Objective of IASB
Develop a single set of high quality, understandable standards
Management need not rely on General purpose financial reports because it is able to obtain the financial information it needs internally
General purpose financial reports provide information about the financial position
Economic resources and the claims against the reporting entity
Effects of transactions and events that change a reporting entity's economic resources and claims
Accruel accounting
Depicts the effects of transactions and other events and circumstances on economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period
General purpose financial reports do not and cannot provide all of the information that users need. Consider:
Industry outlooks
Political events and political climate
General economic conditions and expectations
Company outlooks