Chapter 1-Conceptual Framework & IFRS Flashcards
Recognition criteria
- one of the financial reporting criteria
- determines what will appear on financial statements and when it will appear
Measurement criteria
- one of the financial reporting criteria
- determines amount at which it will be reported
Presentation criteria
- one of the financial reporting criteria
- determines where it will appear on financial statements
Disclosure criteria
- one of the financial reporting criteria
- determines what information and how much info must be provided
Qualitative characteristics that make information useful
Relevance (Rogers PC but Materialistic)
Faithful Representation (FENCe)
Enhancing Qualitative Characteristics (CUT like a V)
Constraint: Cost/Benefit
Full set of Financial statement
Statement of financial position (Balance Sheet)
Statement of Earnings/Comprehensive Income
Statement of Cashflows
Statement of changes in Equity
Elements of financial accounting
- Assets
- Liability
- Equity
- Investment by owner
- Distribution to owners
- Comprehensive Income
- Revenues
- Expenses
- Gains
- Loss
Financial reporting framework criterias
Recognition criteria
Measurement criteria
Presentation criteria
Disclosure criteria
Recognize
To book an element
Realize
When you meet the definition of the element
Ie: asset=
Historical cost
Cost of item; what you paid for
Replacement cost
What you could buy an item for today
What you could but it for today to replace the old
Fair Market Value (FMV)
Price that would be received on a sale
Relevance
-A qualitative characteristic that makes information useful
Includes:
Predictive Value
Confirmatory Value
Materialistic
(Roger’s PC but Materialistic)
Faithful Representation
-A qualitative characteristic that makes information useful
Includes:
Free from error
Neutral w/out Bias
Completeness
(FENCe)
Enhancing qualitative characteristics
Comparability
Understandability
Timeliness
Verifiability
Subject to cost/benefit constraint
Fair Value Measurement steps
- Identify asset/liability
- Determine principal/most advantageous market
- Determine valuation premise
- Determine appropriate valuation technique
- Obtain inputs for valuation
- Calculate the fair value is asset/liability
Impairment losses
Results in reduction in carrying value of an asset to its fair value in the period of the impairment
Derivatives
Always reported at fair value
Ie: unrealized gains/losses
Valuation techniques
Technique used to measure an items fair value (MIC):
Market approach
Income approach
Cost approach
Market Approach
If using information generated by market transactions that involve identical/comparable asset/liability
Income Approach
-a valuation technique
Analyze future amounts (revenues, cost savings, earnings)
Cost approach
Measuring cost incurred to replace the benefit derived from an asset
Levels of input
I. most reliable, involves use of observable data from actual market transactions in an active market with identical items
II. involves use of observable data from actual market transactions that did not occur in an active market it items are similar but not identical
III. Use of u observable data & largely based in managements judgement
SFAC7 using Cashflows info & PV in accounting measurements
When assets/services are exchanged for future cash - use PV of future cash flows
Factors of SFAC7
Risk
Timing
Interest amount of cash flow (traditional approach or expected approach)
Revenue recognition (accrual accounting)
Revenue and gains are recognized when they are EARNED and REALIZED
Earned (revenues recognition)
When earnings process is completed (goods delivered)
Realized (revenue recognition)
Collection of cash or a claim to cash
Revenue recognized when…
- a binding arrangement exist (signed contract)
- services rendered /delivery has occurred
- Fixed or determinable price exists
- collection is reasonable assured
Expense recognition (accrual accounting)
Expense and losses are incurred when economic benefit is consumed
