Chapter 6 - A conceptual and regulatory framework Flashcards
Who is the International Financial Reporting Standards Foundation (the foundation)?
responsible for governance of the IFRS standard Setting process
Who are the international financial reporting standards board (the board)?
responsible for setting IFRS Standards
Who is the IFRS Interpretations committee (IFRIC)?
Issue guidance where divergent interpretations have arisen
Who is the IFRS Advisory Council?
forum for experts to offer advice to the board
who are the International sustainability standards board (ISSB)?
established with the objective of delivering global guidance on sustainability-related disclosure
what are “the boards” objectives?
- develop a single set of high quality, global accounting standards that require transparent and comparable info
- promote use and rigorous application of those standards
- work actively with national standard setters to bring about convergence of national accounting standards and IFRS standards
All companies listed on a stock exchange within the EU must prepare their consolidated annual financial statements in accordance with what?
the international financial reporting standards
What is the procedure for the development of an IFRS Standard?
- Set the agenda
- Establish an advisory committee
- Publish a discussion paper
- Publish an exposure draft
- Publish the standard
How many board members are required to vote to publish the standard?
8/15 board members
why is framework needed?
to ensure the achievement of relevant and reliable financial reporting in order to meet the needs of users
What is principles-based accounting?
- follows a conceptual framework, such as the boards framework
What is rules based accounting?
accounting standards are a set of rules to be followed
What is the principles-based accounting standards based on?
created based on the conceptual framework
What are the 4 steps in setting a standard process?
- board identifies a subject requiring a new standard
- board establishes advisory committee
- exposure draft issued for public commment
- comments received, board publishes the standard
what is the conceptual framework?
outlines the principles and concepts that should be used when developing or applying IFRS accounting standards and IAS accounting standards
What are some benefits of conceptual framework?
- common basis
- avoid fire fighting
- address critical issues
- deal with complex issues
- hard to circumvent
- increase credibility of financial statements
What are the fundamental characteristics of conceptual framework?
- relevance
- faithful representation
What is relevance?
- predictive value
- confirmatory value
What is faithful representation?
- complete
- neutral
- free from error
What are the enhancing characteristics of conceptual framework?
- comparability
- verifiability
- timeliness
- understandability
What is the going concern basis?
assumes that the entity will continue in operational existence for the foreseeable future
What is the foreseeable future?
usually 12 months from the date the directors sign the financial statements
what other method would directors use if not a going concern?
Break up basis
How are financial statements prepared on a break up basis?
- no non-current assets or liabilities
- assets measure at realisable value
What is the accruals basis?
means that the effect of transactions and other events are recognised when they occur, and not as cash is received or paid (cash basis).
What is a prepayment?
an expense that has been paid in a financial year but some or all of it belongs to the next year.
what is an accrual?
- an expense that hasn’t been paid for the current financial year but relates to this year
What are the 5 elements that the framework identifies that financial statements are composed of?
- assets
- liabilities
- equity
- income
-expenses
What are assets?
an asset is a present economic resource controlled by the entity as a result of past events
What are liabilities?
A liability is a present obligation of the entity to transfer an economic resource as a result of past events
What is equity?
Equity is the residual interest in the assets of the entity after deducting all its liabilities
What is income?
income increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
What are expenses?
Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims
