Chapter 1 Conceptual Framework Flashcards
Purpose of Framework
Assist IASB to develop and revise standards
Assist entities to develop consistent accounting policies.
Assist stakeholders to understand and interpret the standards.
Fundamental Characteristics of financial information
Relevance
Faithful Presentation
Enhancing Characteristics of financial information
Comparability
Verifiability
Timeless
Understandability
IFRS vs UK GAAP
Principle based system vs rule based system
Relies on judgement vs More comparable
Relevance:
- Predictive value
- Confirmatory value
Help users to predict future outcomes
Help users to confirm or correct previous evaluations
Materiality - relevance
Information that if omitted or misstated could influence decisions of the primary users
Faithful representation
Complete - All impacts of transactions must be recorded.
Neutral - Free from bias. Prudence.
Free from error - Free from material misstatement or omission.
Comparability
Consistent application of accounting policies
Disclosure of accounting policies applied
Timeliness
Having information available for decision makers in time.
Verifiability
Information could be verified. Credible and objective. Not biased.
Understandability
Classifying, characterising, and presenting information clearly.
Asset
A present economic resource CONTROLLED by an entity as a result of past events.
Liability
A present obligation to transfer an economic resource as a result of past events.
Equity
Residual interest in the assets of the entity after deducting all liabilities.
Income
Increase in asset or decrease in liability that results in increase in equity.
