3. The Conceptual Framework Flashcards
What is the objective of the conceptual framework?
To enable standard setters to achieve a consistent and coherent set of fundamental principles for preparation of financial statements
Who created the conceptual framework?
The IASB
What is the objective of financial reporting?
To provide financial information about the reporting entity that is useful to its primary users so that they can make decisions about providing resources to the entity
Who are the main users of financial reports?
Existing and potential investors, lenders, other creditors
What are the two categories of qualitative characteristics of useful information?
- Fundamental qualitative characteristics
2. Enhancing qualitative characteristics
What are the 2 fundamental qualitative characteristics of useful information?
- Relevance
2. Faithful representation
What are the 3 elements of relevant information?
It has both predictive and confirmatory value, and it is material
What are the 3 elements of faithful representation?
- It is complete
- It is neutral
- It is free from error
What characteristic is substance over form linked to?
Faithful representation
What are the 4 enhancing qualitative characteristics of useful information?
- Comparability
- Verifiability
- Timeliness
- Understandability
What is the going concern assumption?
The financial statements are being prepared on the assumption that an entity will continue in operation for the foreseeable future
What are the 4 ways in which we can measure elements of the financial statements?
- Historical cost
- Current value - fair value
- Current value - value in use
- Current value - current cost
What is the fair value?
The price that would be received to sell an asset at that date in an arms length transaction
What is the value in use?
The present value of future cash flows or economic benefits that an entity expects to derive from the use of an asset and its ultimate disposal
What is current cost?
The cost of an equivalent asset at the measurement date
