THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING - Coggle Diagram
THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
CHAPTER 1 : THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING
Purpose of the conceptual framework :smiley:
assist IASB to develop IFRS Acc Stand that are based on consistent concepts.
assist preparers to develop acc policies in cases where there is no applicable IFRS Stand or where a choice of policy exists.
assist all in the understanding and interpretation pf IFRS Acc Stand.
To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decision about providing resources to the entity.
CHAPTER 2 : QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION
(i) Fundamental qualitative characteristics
materiality = information is material if omitting, misstating or obscuring it could effect/influence the decisions... and also materiality is an entity-specific aspect of relevance.
faithful representation = a faithful representation reflects economic substance rather than legal form and is
(a) complete - all information necessary for understanding.
(b) neutral - without bias, supported by the exercise of prudence.
(c) free from error - processes and descriptions are without error (this does not mean perfectly accurate in all aspects).
relevance = relevant information is capable of making a difference in the decisions made by users.
(ii) Enhancing qualitative characteristics
verifiability = different knowledgeable and independent observers could reach consensus (agreement), although not necessarily complete agreement.
timeliness = having information available to decision-makers in time to be capable of influencing their decisions. (the older the information, the less useful it is).
comparability = enables users to identify and understand similarities in and differences among, items. (comparability is not the same as uniformity)
understandability = classifying, characterising and presenting information clearly and concisely makes it understandable.
CHAPTER 3 : FINANCIAL STATEMENTS AND THE REPORTING ENTITY
CHAPTER 4 : THE ELEMENTS OF FINANCIAL STATEMENTS
EQUITY - the residual interest in the assets of the entity after deducting all its liabilities.
(EQUITY = NET ASSETS = SHARE CAPITAL + RESERVES)
INCOME - increases in assets or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
LIABILITY - a present obligation of the entity to transfer an economic resource as a result of past events.
EXPENSES - decreases in assets or increases in liabilities, that result in decrease in equity, other than those relating to distributions to holders of equity claims.
ASSET - a present economic resource controlled by the entity as a result of past events.
CHAPTER 5 : RECOGNITION AND DERECOGNITION
definition = the process to recognise and asset, liability, income, expenses and equity when :smiley:
i - it meets the definition of an element.
ii - it provides relevant information that is a faithful representation at cost that does not outweigh benefits.
iii - recognition is subject to cost constraints.
normally occurs when the element no longer meets the definition of an element :smiley:
i - for an asset = when control is lost.
ii - for a liability = when there is no longer a present obligation.