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Conceptual framework - Coggle Diagram

- - - - creditors
      - regulatory bodies
      - investors
      - other stakeholders
  - - - Information must be free from material errors and bias, and be:
        
        :star:Faithful
        
        Neutral
        
        :black_flag:Verifiable
    - - information must be capable of comparison with other financial information, either within the same entity or across different entities or periods.
    - - Information must be capable of making a difference in users' decisions by helping them assess :black_flag:the future impacts of past and present events.
    - - Information must be clear, concise, and expressed in a manner that is understandable to users who have a reasonable knowledge of business and economic activities.
- - - - means that different knowledgeable and independent observers can reach a consensus that the information faithfully represents the economic phenomena it purports to represent.
    - - means that information is available to users in a timely manner, allowing them to make decisions before the opportunity to act on the information passes.
    - - means that information is comparable across different entities, periods, or industries, allowing users to make meaningful comparisons.
    - - means that information is presented in a clear, concise, and comprehensible manner, so that users can understand its significance.
- - - - Represents the residual interest in the assets of an entity after deducting liabilities. It represents the claims of the owners of the entity.
    - - Refers to increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities, that result in increases in equity
    - - A present obligation of the entity to transfer an economic resource as a result of past events.
    - - Represent decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity
    - - Are economic resources that are controlled by an entity as a result of past events, and from which future economic benefits are expected to flow to the entity
- - - - Future economic benefits:
        
        The asset should be expected to provide future economic benefits to the owner.
        
        This means that the asset can generate cash flows or other economic benefits, either by producing goods or services or by increasing in value over time
      - Past transaction or event:
        
        The asset should have arisen from a past transaction or event that has already occurred
        
        This means that the asset is the result of a previous transaction or event, such as:
        
        exchange
        
        investment
        
        purchase
      - Control:
        
        This means that the owner can decide how the asset is used, when it is used, and who can use it.
        
        The owner of the asset should have the ability to control the access, use, and disposition of the asset.
  - - - To Transfer an Economic Resource
        
        This means that the company will have to use some of its assets, such as cash or other resources, to settle the obligation.
      - Result of past events
        
        This means that something has happened in the past that has created a binding obligation for the company to pay or perform a certain action in the future.
      - Entity has an Present OBLIGATION
        
        This means that the company has a legal or constructive duty to settle the obligation at the present time, or in the future.
- - - - reliability
      - materiality
      - relevance
    - - it becomes part of an organization's financial statements and is used to evaluate its financial performance and position.
  - - - the absence of continuing involvement
      - the realization of all or substantially all of the asset's or liability's carrying amount.
      - transfer of control
- - - - Fair value
        
        Fair value is a market-based measurement, involves recording assets at their current market value, which may be higher or lower than their historical cost
      - Value-in-use
        
        This method is entity-specific, involves estimating the future cash flows an asset will generate, discounting them to their present value, and recording the asset at that value.
      - Historical cost:
        
        Transaction-based measurement, involves recording assets at their original cost; which includes:
        
        shipping fees
        
        taxes
        
        purchase price
        
        other associated costs
      - Current cost:
        
        Method is useful for companies that have assets with a short useful life, This basis involves recording assets at the cost that would be incurred to replace them at current market prices
    - - Fair value:
        
        Involves recording liabilities at their current market value, reflects the amount that would be paid to settle the liability in an orderly transaction between market participants.
      - Fulfilment value:
        
        method is entity-specific, involves estimating the amount that would be required to settle the liability based on the current expectations of the company regarding future cash flows
      - Historical cost:
        
        Involves recording liabilities at their original cost, which could include:
        
        Deferred costs
        
        Discounts
        
        Interest
        
        Premiums
      - Current cost:
        
        Method is useful for companies that have liabilities with a short remaining life, Similar to current cost for assets, this basis involves recording liabilities at the cost that would be incurred to replace them at current market prices
    - - Relevance
        
        Consideration of relevance:
        
        1.) Characteristics of the asset or liability
        
        Variability of cash flows
        
        Sensitivity of the value to market factors or other risks
        
        2.) Contribution to future cash flows:
        
        Whether cash flows are produced directly or indirectly in combination with other economic resources
        
        The nature of the entity's business activities
      - Faithful representation
        
        Consideration of faithful representation
        
        1.) Measurement inconsistency
        
        Measurement inconsistency can lead to financial statements that do not accurately represent the entity's financial position and performance
        
        2.) Measurement Uncertainty
        
        If uncertainty is too high, consider choosing a different measurement basis