Ch 3 Flashcards
What is the title of Chapter 3?
Financial Statements & The Reporting Entity
what chapter discuss information provided in general purpose financial
reports
Chapters 1 and 2
what chapter discuss information provided in general purpose financial statements, which are a particular form of general purpose financial reports.
Chapters 3–8
provide information about economic resources of the reporting entity, claims against the entity, and changes in those
resources and claims, that meet the definitions of the elements of financial
statements (see Table 4.1).
Financial statements
Objective and scope of financial statements
That information is provided:
a. in the statement of financial position, by recognising assets, liabilities and equity;
b. in the statement(s) of financial performance, by recognising income
and expenses; and
c. in other statements and notes, by presenting and disclosing information about:
- recognised assets, liabilities, equity, income and expenses (see paragraph 5.1), including information about their nature and about the risks arising from those recognised assets and
liabilities;
- assets and liabilities that have not been recognised (see paragraph 5.6), including information about their nature and about the risks arising from them;
- cash flows;
- contributions from holders of equity claims and distributions to them; and
- the methods, assumptions and judgements used in estimating the amounts presented or disclosed, and changes in those methods, assumptions and judgements.
The Conceptual Framework _______ specify whether the statement(s) of financial performance comprise(s) a single statement or two statements.
does or does not
does not
Reporting period
Financial statements are prepared for a specified period of time (reporting
period) and provide information about:
(a) assets and liabilities—including unrecognised assets and liabilities—
and equity that existed at the end of the reporting period, or during
the reporting period; and
(b) income and expenses for the reporting period.
To help users of financial statements to identify and assess changes and
trends, financial statements also provide ______________ for at least _______ reporting period.
comparative information
one preceding
Information about possible future transactions and other possible future
events (forward-looking information) is included in financial statements if it:
(a) relates to the entity’s assets or liabilities—including unrecognised
assets or liabilities—or equity that existed at the end of the reporting
period, or during the reporting period, or to income or expenses for
the reporting period; and
(b) is useful to users of financial statements.
For example, if an asset or liability is measured by estimating future cash
flows, information about those estimated future cash flows may help users of financial statements to understand the reported measures.
**Financial statements typically provide ** other types of forward-looking
information, for example, explanatory material about management’s
expectations and strategies for the reporting entity.
true or false
false. Financial statements DO NOT typically provide
Financial statements include information about transactions and other events that have occurred after the end of the reporting period if providing that information is ______________ (see paragraph 3.2).
necessary to meet the objective of financial statements
Financial statements provide information about transactions and other events viewed from the ________——, not from the perspective of any particular group of the entity’s existing or potential investors, lenders or other creditors.
perspective of the reporting entity as a whole
Financial statements are normally prepared on the assumption that the
reporting entity is a __________ and will continue in operation for the foreseeable future.
Hence, it is assumed that the entity has neither the intention nor the need to enter liquidation or to cease trading. If such an intention or need exists, the financial statements may have to be prepared on a __________. If so, the financial statements describe the basis used.
going concern
different basis
-is an entity that is required, or chooses, to prepare financial statements.
-can be a single entity or a portion of an entity or can comprise more than one entity.
-is not necessarily a legal entity. Sometimes one entity (parent) has control over another entity (subsidiary).
reporting entity
If a reporting entity comprises both the parent and its subsidiaries, the reporting entity’s financial statements are referred to as ? (see paragraphs 3.15–3.16).
‘consolidated financial
statements’
If a reporting entity is the parent alone, the reporting entity’s financial statements are referred to as
? (see paragraphs 3.17–3.18).
‘unconsolidated financial statements’
If a reporting entity comprises two or more entities that are not all linked by a
parent-subsidiary relationship, the reporting entity’s financial statements are referred to as ?
‘combined financial statements’.
Determining the appropriate boundary of a reporting entity can be difficult if
the reporting entity:
(a) is not a legal entity; and
(b) does not comprise only legal entities linked by a parent-subsidiary relationship.
In such cases, determining the boundary of the reporting entity is driven by the _____________ of the reporting entity’s financial statements.
information needs of the primary users
Those primary users need relevant information that faithfully represents
what it purports to represent. Faithful representation requires that:
(a) the boundary of the reporting entity does not contain an arbitrary or incomplete set of economic activities;
(b) including that set of economic activities within the boundary of the
reporting entity results in neutral information; and
(c) a description is provided of how the boundary of the reporting entity
was determined and of what constitutes the reporting entity.
provide information about the assets,
liabilities, equity, income and expenses of both the parent and its subsidiaries as a single reporting entity.
Consolidated financial statements
That information provided by Consolidated financial statements is useful for existing and potential investors, lenders and other creditors of the ______ in their assessment of the prospects for future net cash inflows to the ______.
This is because net cash inflows to the ______ include distributions to the _____ from its subsidiaries, and those distributions depend on net cash inflows to the subsidiaries.
parent
Consolidated financial statements are designed to provide separate
information about the assets, liabilities, equity, income and expenses of any
particular subsidiary. A subsidiary doesn’t own financial statements that are designed to provide that information.
True or False
False
they are NOT DESIGNED for that
because as Subsidiary have their own financial statement
are designed to provide information
about the parent’s assets, liabilities, equity, income and expenses, and not about those of its subsidiaries.
Unconsolidated financial statements
