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    Conceptual Framework - Iasb

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    Karinda Briliana
    The conceptual framework provides guidance for developing accounting standards. It establishes the objective of financial reporting as providing useful information to investors and creditors for decision making. Key qualitative characteristics for useful information are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. The framework also defines the elements of financial statements - assets, liabilities, equity, income and expenses - and criteria for their recognition and measurement.

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    Conceptual Framework - Iasb

    Uploaded by

    Karinda Briliana
    49 views11 pages
    The conceptual framework provides guidance for developing accounting standards. It establishes the objective of financial reporting as providing useful information to investors and creditors for decision making. Key qualitative characteristics for useful information are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. The framework also defines the elements of financial statements - assets, liabilities, equity, income and expenses - and criteria for their recognition and measurement.

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    CONCEPTUAL FRAMEWORK_IASB

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    The conceptual framework provides guidance for developing accounting standards. It establishes the objective of financial reporting as providing useful information to investors and creditors for decision making. Key qualitative characteristics for useful information are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. The framework also defines the elements of financial statements - assets, liabilities, equity, income and expenses - and criteria for their recognition and measurement.

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    49 views11 pages

    Conceptual Framework - Iasb

    Uploaded by

    Karinda Briliana
    The conceptual framework provides guidance for developing accounting standards. It establishes the objective of financial reporting as providing useful information to investors and creditors for decision making. Key qualitative characteristics for useful information are relevance, faithful representation, comparability, verifiability, timeliness, and understandability. The framework also defines the elements of financial statements - assets, liabilities, equity, income and expenses - and criteria for their recognition and measurement.

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    of 11

    CONCEPTUAL

    FRAMEWORK
    International Accounting Standards Board (IASB)
    Conceptual framework - defined
    • A group of ideas or principles used to plan or decide something
    • A set of guiding principles or concepts that influence and direct
    decisions being made in a particular area
    • Accounting conceptual framework:
    o Coherent system of concepts which are guidelines to the formulation of
    accounting standards used for financial reporting
    o Conceptual framework is normative; it is outlining the concepts that should
    be used in preparing financial reports.
    o Conceptual framework is not accounting standards; it is the guideline to
    developing accounting standards.
    Reporting Focus & Reporting Entity
    • General purpose financial reporting
    o Satisfy the needs of users who do not have the authority to require entity
    to prepare information tailored to their particular information needs
    o Generally focus on the needs of investors (and creditors)
    o Not intended to fulfill specific purpose, such as taxation (government)
    authorities, management, and some lenders.
    • Reporting entity  Bounded set of economic events and
    transactions, not legal entity
    • Not aimed at financial reports prepared by not-for-profit entities
    Objective of Financial Reporting
    • Decision-usefulness
    • The objective of general purpose financial reporting is to provide information
    about the reporting entity that is useful to existing and potential investors,
    lenders, and other creditors in making decisions about providing resources to
    the entity. Those decisions involve buying, selling or holding equity and debt
    instruments, and providing or settling loans and other forms of credit.
    • Financial reporting is only directed for primary users. Primary users 
    investors, lenders and other creditors
    • Others (management, government, employees, etc.) may find that financial
    reporting useful but the framework’s financial reports is not intended to fulfill
    the needs of other users.
    • Underlying assumption  going concern
    Qualitative characteristics
    of useful financial information
    • Fundamental qualitative characteristics
    o Relevance
    o Faithful representation
    • Enhancing qualitative characteristics
    o Comparability
    o Verifiability
    o Timeliness
    o understandability
    FUNDAMENTAL QUALITATIVE
    CHARACTERISTICS
    • RELEVANCE
    o Ensures that only financial information that could make a difference in
    decisions is included.
    o Information’s ability to predict or provide feedback
    o Similar to Materiality  quality of information if its ommission or
    misstatement could influence the decision of users taken on the basis of
    financial reports
    • FAITHFUL REPRESENTATION
    o What is shown in the financial reports corresponds to the actual events
    and transactions that are being represented
    o Three components: Complete depiction, neutrality, freedom from error
    Enhancing qualitative characteristics
    • Comparability; comparison of financial reports over time and between
    entities. Comparison of items reported accross financial reports.
    o Comparison of accounting policies accross periods and between entities
     consistency
    • Verifiability; information can be supported or confirmed so that users
    are confident in relying on the information
    • Timeliness; how quick entities issue financial reports (from the end of
    accounting period)
    • Understandability; users must have reasonable knowledge of business
    and economic activities
    The elements of financial statements
    • ASSET
    o Resource controlled by the entity as a result of past events and from
    which future economic benefits are expected to flow to the entity.
    • LIABILITY
    o Present obligation of the entity arising from past events, the settlement of
    which is expected to result in an outflow from the entity of resources
    embodying economic benefits.
    • EQUITY
    o Residual interest in the assets of the entity after deducting all its liabilities
    • INCOME
    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, other than those relating to contributions from equity
    participants

    • EXPENSES
    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, other than those relating to distributions to equity
    participants
    RECOGNITION CRITERIA
    • Recognition is the process of incorporating an item in the balance
    sheet or income statement.
    • Depiction of items in words and by a monetary amount.
    • Criteria for recognition:
    o Probability  probable that any future economic benefit
    associated with item will flow to or from the entity
    o Reliable measurement  the item has a cost or value that can
    be measured with reliability.
    Measurement of elements
    • Measurement involves assigning monetary amounts at which
    the elements of the financial statements are to be recognized
    and reported
    • The IFRS Framework acknowledges that a variety of
    measurement bases are used today to different degrees and in
    varying combinations in financial statements, including:
    o Historical cost
    o Current cost
    o Net realizable (settlement) values
    o Present (discounted) values

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