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1- Conceptual framework - Coggle Diagram

- - - - Development of new accounting standards
      - Evaluation of those already in existence
    - - For determining which events should be accounted for
      - How they should be measured
      - How they should be communicated to users
- - - - Relevant
        
        Capable of making a diff. in decisions made by users. It has predictive and confirmatory value
        
        Also considers materiality: info in material if omitting, misstating or obscuring it could reasonable be expected to influence decisions that the primary users of general purpose of financial statements make on the basis of financial statements
      - Faithful representation
        
        Reflects the economic substance rather than the legal form
        
        Is
        
        Complete
        
        All that is required for understanding
        
        Neutral
        
        Without bias, supported by the exercise of prudence
        
        Prudence is the exercise of caution when making judgments under conditions of uncertainty
        
        Free from error
        
        Does not mean perfect
      - The most useful info needs to be less relevant but subject to lower uncertainty
    - - The usefulness of info is enhanced by these characteristics
        
        Comparability
        
        Enables users to identify and understand similarities in, and diff among items
        
        Disclosure of accounting policies is important
        
        Users must be able to distinguish between diff accounting policies in order to be able to make a valid comparison of similar items in the accounts of diff entities
        
        When entity change accounting policies, the change is applied retrospectively so that the results from one period to the next can still be usefully compared
        
        Comparability is not the same as uniformity
        
        Accounting polices should be changed if
        
        The changes would result in info that is more reliable and more relevant, or
        
        Where the change is required by an IFRS
        
        Verifiability
        
        Helps assure users that info faithfully represents the economic phenomena that it purports to represent. Diff knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation
        
        Info can be verified by a model or formula or by direct observation
        
        Example
        
        Understanding an inventory count
        
        Independent verification such as valuation by specialist
        
        Timeliness
        
        Having info in time to be capable of influencing the decision. The older the decision, the less useful it is.
        
        There is a balance between timeliness and the provision of reliable information
        
        When info is reported on a timely basis when not all aspects are available, it may not be complete and free from error
        
        However, if every details are known, but the info is provided too late, then it will be irrelevant
        
        The overriding consideration is how best to satisfy the economic decision-making needs of users
        
        Understandability
        
        Classifying, characterising and presenting info clearly and concisely makes it understandable
        
        Financial reports are prepared for users who have reasonable knowledge of business and economic activities and who review and analyse the information diligently
      - Enhancing qualitative characteristics cannot make info useful if the information is irrelevant or is not a faithful representation
    - - The benefits of reporting info should justify the costs incurred in reporting it
- - - - Def
        
        A present economic resource controlled by the entity as a result of past events
      - Economic resource
        
        A right that has the potential to produce economic benefits
      - Economic benefits
        
        Cash flows, such as returns on investment sources
        
        Exchange of goods such as by trading, selling goods, provision of services
        
        Reduction or avoidance of liabilities, such as paying loans
    - - Def
        
        A present obligation of the entity to transfer economic resources as a result of past events
    - - Residual interest in the assets after deducting all its liabilities
      - Same as
        
        Net assets
        
        Share capital + reserves
    - - Income
        
        Increases in asset
        
        Decrease in liability
        
        Increase in equity
        
        Other than those contributions from holders of equity claims
      - Expenses
        
        Decrease in asset
        
        Increase in liability
        
        Decrease in equity
        
        Other than those distributions to holders of equity claims
- - - - this leads to inconsistency and contradictions which can results to ambiguity and affect the true and fair concept of financial reporting
    - - rules based approach is more open to manipulation