Chapter 4 Flashcards
What is the main mission of IFRS?
Is to develop IFRS Standards ‘that bring transparency, accountability and efficiency to financial markets around the world
What are the three main purposes of the 2018 IASB Conceptual Framework?
1.To assist the Board in the development of individual IFRS Standards while making sure that IFRS as a body of financial reporting standards is coherent and based on a consistent logic and set of principles.
2. To assist preparers of financial statements in applying IFRS Standards when no individual standard applies to a transaction or recordable event, or when IFRS Standards allow a choice of accounting policy.
3.To assist all parties in understanding and interpreting IFRS Standards.
What does the 2018 IASB conceptual Framework asserts?
Asserts that the decisions by existing and potential investors, lenders and other creditors depend on their expected return.
Where does the expected return depend on?
Expected returns depend on ‘their assessment of the amount, timing and uncertainty of (the prospects for) future net cash inflows to the entity and on their assessment of management’s stewardship of the entity’s economic resources.
What information do investors require?
- financial position
- financial performance on an accruals basis
- financial reporting as past cash flows
- the changes in economic resources and claims not resulting from financial performance.
What information does the balance sheet provide?
Provides information about economic resources and claims.
What information does the cash flow statement provide?
Helps users assess the entity’s ability to generate further cash flows in the future and assess the entity’s operating, financing and investing activities.
How is financial performance measured?
Is to be measured as the difference in the entity’s resources (i.e. assets) and claims (i.e. liabilities) during a period on an accruals basis because this provides a better basis for assessing past and future performance than information about cash receipts and payments alone.
Where is the 2018 IASB Conceptual Framework based on?
Framework is based on the idea that qualitative characteristics help identify the types of financial information that are likely to be most useful to existing and potential investors, lenders and other creditors for making economic decisions about the reporting entity.
What is of importance of financial information?
Financial information should always be of relevance and have a faithful representation. A reporting entity can be a single entity or a portion of an entity or can comprise more than one entity.
What are liabilities?
In both frameworks, a liability is (a) a present obligation of the entity, (b) arising out of past events and (c) the obligation is to transfer an economic resource. Recognition as a liability thus requires that all three components of the definition be satisfied.
What is equity?
‘Equity is defined as the residual interest in the assets of the entity after deducting all its liabilities. The fact that equity is defined as a residual interest (assets minus liabilities) does not mean that it cannot be meaningfully divided into sub-classifications that are shown separately in the balance sheet.
What is Income?
The Framework’s definition of income encompasses both revenue and gains. Revenue is described as arising in the course of the ordinary activities of an entity and includes sales, fees, interest, royalties and rent.
In what way are gains income?
Gains may or may not arise in the course of ordinary activities. Gains may arise on the disposal of non-current assets and include unrealized gains, such as those arising on the revaluation of marketable securities and from increases in long-term assets.
What are expenses?
The Framework’s definition of expenses encompasses losses as well as expenses that arise in the course of the ordinary activities of the entity. Losses represent items that may or may not arise in the course of ordinary activities.
