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    Cfas Notes Salisid: Chapter 02: Conceptual Framework

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    Berdel Pasco
    The conceptual framework provides guidance for developing accounting standards and financial reporting. It aims to help the IASB develop consistent IFRS standards and help all parties understand and interpret the standards. The conceptual framework is not a standard itself and does not override any accounting standards. General purpose financial reporting provides useful information to existing and potential investors and creditors about a company's economic resources, claims against the company, and changes in resources and claims. Financial statements present information about a reporting entity's assets, liabilities, equity, income and expenses for a specified reporting period. The conceptual framework defines key elements like assets, liabilities, equity, income and expenses.

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    Cfas Notes Salisid: Chapter 02: Conceptual Framework

    Uploaded by

    Berdel Pasco
    74 views5 pages
    The conceptual framework provides guidance for developing accounting standards and financial reporting. It aims to help the IASB develop consistent IFRS standards and help all parties understand and interpret the standards. The conceptual framework is not a standard itself and does not override any accounting standards. General purpose financial reporting provides useful information to existing and potential investors and creditors about a company's economic resources, claims against the company, and changes in resources and claims. Financial statements present information about a reporting entity's assets, liabilities, equity, income and expenses for a specified reporting period. The conceptual framework defines key elements like assets, liabilities, equity, income and expenses.

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    Notes Cfas 2

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    The conceptual framework provides guidance for developing accounting standards and financial reporting. It aims to help the IASB develop consistent IFRS standards and help all parties understand and interpret the standards. The conceptual framework is not a standard itself and does not override any accounting standards. General purpose financial reporting provides useful information to existing and potential investors and creditors about a company's economic resources, claims against the company, and changes in resources and claims. Financial statements present information about a reporting entity's assets, liabilities, equity, income and expenses for a specified reporting period. The conceptual framework defines key elements like assets, liabilities, equity, income and expenses.

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    © All Rights Reserved
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    Download as pdf or txt
    74 views5 pages

    Cfas Notes Salisid: Chapter 02: Conceptual Framework

    Uploaded by

    Berdel Pasco
    The conceptual framework provides guidance for developing accounting standards and financial reporting. It aims to help the IASB develop consistent IFRS standards and help all parties understand and interpret the standards. The conceptual framework is not a standard itself and does not override any accounting standards. General purpose financial reporting provides useful information to existing and potential investors and creditors about a company's economic resources, claims against the company, and changes in resources and claims. Financial statements present information about a reporting entity's assets, liabilities, equity, income and expenses for a specified reporting period. The conceptual framework defines key elements like assets, liabilities, equity, income and expenses.

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    of 5

    ☀

    CFAS NOTES SALISID


    Chapter 02 : Conceptual Framework
    A coherent system of interrelated objectives and fundamentals that is
    expected to lead to consistent standards.

    PURPOSE

    Assist the IASB to develop IFRS Standards that are based on


    consistent concepts.

    Assist all parties to understand and interpret the Standards.

    Assist preparers to develop consistent accounting policies when no


    standard applies to a particular transaction or other event, or when
    a standard allows a choice of accounting policy

    💡 Conceptual Framework is not a Standard and nothing in the


    Framework overrides any Standard.

    GENERAL PURPOSE FINANCIAL REPORTING


    Provide financial information about the reporting entity that is useful
    to existing and potential investors, lenders, and other creditors.

    💡 Why do we need Financial Reporting?


    Liquidity, Solvency, Management Stewardship, Needs for
    Additional Financing

    💡 Useful in making economic decisions, useful in assessing cash


    flow prospects, about enterprise resources claims to those
    resources and changes.

    CFAS NOTES SALISID 1


    General purpose financial reporting deals with providing information
    that caters the common needs of the primary users, however, it cannot
    provide all the information to these users.

    The financial information that will help the primary


    users are:

    The economic resources of the entity, claims against the entity and
    changes in those resources and claims.
    How efficiently and effectively the entity's management and governing
    bodies have discharged their responsibilities to use the entity's
    economic resources.

    QUALITATIVE CHARACTERISTICS OF USEFUL INFORMATION

    1. Fundamental Characteristics

    Relevance - Relevant financial information is making a difference in the


    decision made by users. It is relevant if it has predictive value,
    confirmatory value or both.

    💡 Predictive Value - Predict future outcomes

    💡 Confirmatory Value - Feedback on previous evaluations

    Materiality - Material information if omitted,


    misstated or obscured could reasonably be expected to
    influence the decisions of the primary users of general
    purpose financial reports.

    Faithful Representation - the financial reports which represents


    economic phenomena in words or numbers must faithfully represent the
    substance of the phenomena that it purports to represent.

    💡 True, Correct, Complete

    1. Completeness - a complete depiction includes all information


    necessary for a user to understand the phenomenon.

    2. Neutrality - a neutral depiction is an information without bias in


    the selection or presentation of financial information.

    3. Free form Error - Information has no errors or omissions in the


    description of the phenomenon, and the process used to produce the
    reported information has been selected and applied with no errors.

    CFAS NOTES SALISID 2


    2. Enhancing Characteristics

    Comparability - Identify and understand similarities in and differences


    among items.

    Intra Comparability - Single entity of different periods

    Inter Comparability - Different entities in a single period

    Verifiability - different knowledgeable and independent observers could


    reach consensus, although not necessarily complete agreement, that a
    particular depiction is a faithful representation.

    Direct Verification - verifying amount or other representation


    through direct observation.

    Indirect Verification - checking the inputs to a model formula or


    other technique and recalculating the outputs using the same
    methodology.

    Timeliness - having information available to decision-makers in time to


    be capable of influencing their decisions.

    Understandability - Information is understandable if it is classified,


    characterized and presented in clear and concise manner.

    FINANCIAL STATEMENTS AND THE REPORTING ENTITY

    💡 Financial statements is to provide financial information about


    the reporting entity's assets, liabilities, equity, income and
    expenses that is useful to users of financial statements in
    assessing the prospects for future net cash inflows to the
    reporting entity's economic resources

    Financial statements are prepared for a reporting


    period and provide information about:

    Assets and liabilities — including unrecognized assets and


    liabilities — and equity that existed at the end of the reported
    period, or during the reporting period.

    Income and expenses for the reporting period.

    Reporting Entity is an entity requires, or choose to prepare financial


    statements

    Single entity

    A period of an entity

    Comprise of more than one entity

    CFAS NOTES SALISID 3


    Reporting Period

    Prepared for a specified period of time

    FS provide comparative information for at least 1 preceding reporting


    period

    FS are designed to provide information about past events.

    Information about possible future transactions and other events is


    included it relates to past information.

    THE ELEMENTS OF FINANCIAL STATEMENTS

    💡 ASSET is a present economic resource controlled by the entity as


    a result of past events. An economic resource is a right that
    has the potential to produce economic benefits. a right he basic
    purpose of accounting is to provide information that is useful
    in making economic decision. It has three aspects right,
    potential to produce economic benefits and control.

    Right that corresponds to an obligation of another party

    Right to receive cash, goods and resources

    Right to exchange on favorable terms

    Right to benefit from an obligation of another party

    Rights that do not

    Right over physical object corresponds to an corresponds to an

    Right to use intellectual property obligation of another party

    POTENTIAL TO PRODUCE ECONOMIC BENEFITS

    Sold, leased, transferred or exchanged for other asset

    Used singly or in combination with other asset to produce goods or


    service

    Use to enhance the value of other assets

    Used to promote efficiency and cost savings

    Used to settle liabilities

    💡 CONTROL means the entity has the exclusive right over the
    benefits of an asset and the ability to prevent others from
    accessing those benefits.

    CFAS NOTES SALISID 4


    💡 LIABILITY “According to Conceptual Framework 4.26 a liability is
    a present obligation of the entity to transfer economic resource
    as a result of pas events"

    💡 OBLIGATION Legal Obligation - An obligation that results from an


    obligation that results from a contract legislation or other
    operation of law. Constructive An obligation that results from
    an entity's action that obligation - Create a valid expectation
    on others that the entity will accept and discharge certain
    responsibilities

    💡 TRANSFER OF ECONOMIC BENEFITS pay cash, deliver goods, or render


    services exchange assets with another party on unfavorable terms
    transfer assets if a specified uncertain future event occurs

    💡 PRESENT OBLIGATION AS A RESULT OF PAST EVENTS already obtained


    economic benefits or taken action the entity will or may have to
    transfer an economic resource that it would not otherwise have
    had transfer.

    💡 EXECUTORY CONTRACTS is a contract that is equally unperformed


    neither party has fulfilled any of its obligations, or both
    parties have partially fulfilled their obligations to an equal
    extent.

    💡 EQUITY is the residual interest in the assets of the entity


    after deducting the liabilities. A - L=E. Reserves may refer to
    amounts set aside by the entity as protection for its creditors
    or stakeholders from losses.

    💡 INCOME increases in economic benefits during the accounting


    period in the form of inflows or enhancements of assets or
    decreases in liabilities

    💡 EXPENSES decreases in economic benefits during the accounting


    period in the form of outflows or depletion of assets or
    incurrence of liabilities, Expenses vs Losses

    CFAS NOTES SALISID 5

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