Chapter 5: The conceptual framework

Question 1

What is the International Accounting Standards Board?

Answer 1

the independent accounting standard-setting body of the IFRS foundation. It is responsible for issuing International Accounting Standards. These come in the form of the IAS standards and IFRS standards.

Question 2

Who is the Conceptual Framework for Financial Reporting issued by?

Answer 2

The IFRS foundation.

Question 3

What does the conceptual framework do?

Answer 3

Sets out the concepts that underlie preparation and presentation of financial statements.

Question 4

What are the 2 fundamental qualitative characteristics in the Conceptual Framework?

Answer 4

Relevance
Faithful Representation

These are required for information to be useful to others.

Question 5

What do they mean by ‘relevance’

Answer 5

Financial info is useful if it can assist users’ decision making by helping them to evaluate past, present and future events by confirming, or correcting their existing evaluations.

Question 6

What two values may relevant information have?

Answer 6

-Predictive value
-Confirmatory value

Information may be relevant in nature or maturity

Question 7

In order to faithfully represent transactions and other events, what must information be?

Answer 7

-Complete
-Neutral
-Free from error
-Showing substance over form

Question 8

What are the 4 enhancing characteristics?

Answer 8

-Comparability
-understandability
-timeliness
-verifiability

Question 9

What is the underlying assumption of the conceptual framework?

Answer 9

Going concern

Question 10

What does the IAS1 presentation of financial statements state:

Answer 10

-They must be fairly presented.
-If there is a departure from International accounting standards then this must be stated.
-They must include comparative information

Question 11

What is the accruals concept of accounting?

Answer 11

Transactions are recognised when they occur not when cash is received.

Question 12

What is the going concern concept?

Answer 12

-the entity is viewed as continuing its operations for the forseeable future.
-There is no intention to liquidate or curtail operations.

So assets do not need to be valued on the break-up basis.

Question 13

What is materiality?

Answer 13

Information is material if its omission, mistatement or obscuring could influence the economic decisions of users taken on the basis of the financial statements.

Question 14

What is the historic cost convention?

Answer 14

Assets and liabilities are recorded in the SOFP at their historic cost.

This removes subjectivity of estimating the value of an asset or liability eg there is usually objective evidence of what an asset cost.

Question 15

What 5 things is accounting and the preparation of financial statements regulated by?

Answer 15

1. Legislation
2. Accounting Concepts
3. Financial Reporting Standards
4. GAAP
5. The concept of fair presentation.

Question 16

What did the Financial Stability Board create in relation to sustainability?

Answer 16

The task force on climate-related financial disclosures (TCFD) to develop recommendations on the disclosures companies should make to help users properly assess risks related to climate change.

Question 17

Who has the responsibility for developing a set of sustainability disclosure standards?

Answer 17

ISSB .

The core content of these standards is consistent with the recommendations of the TCFD.

Question 18

What is not an objective of the financial statements?

Answer 18

To provide information to managers in making business decisions