Chapter 7 Flashcards
Normer och normgivare i Sverige
- Bokföringsnämnden (BFN): allmänna råd och informationsmaterial för att utveckla god redovisningssed
- Finansinspektionen - bindande föreskrifter, främst mot finansiella företag
- Rådet för finansiell rapportering
Lagar och regler i Sverige
- Bokföringslagen BFL
- Årsredovisningslagen ÅRL
FASB
The Financial Accounting Standards Board - responsible for establishing accounting and financial reporting standards in the US. Issues GAAP, Generally Accepted Accounting Principles
Normative theories - definition and example
Suggests how accounting practices should be, rather than describing how they are. It is prescriptive in nature and aims to improve accounting practices.
- Relates to or establishes standards/norms
- Conceptual frameworks is normative theory
Building blocks of the IASB Conceptual Framework
- Definition of the reporting entity
- Perceived users of financial statements
- Objectives of general purpose financial reporting
- Qualitative characteristics that general purpose financial statements should posses
- Elements of financial statements
Building blocks of the IASB Conceptual Framework - “Definition of the reporting entity”
Reporting entity - when the entity have users who do not have access to information relevant to decision making and who are judged to be dependent on general purpose financial statements
Building blocks of the IASB Conceptual Framework - “Perceived users of financial reports”
IASB definition - the primary users to whom general purpose financial reports are directed
Building blocks of the IASB Conceptual Framework - “The objective of general purpose financial reporting”
Objectives:
- Stewardship - whether the resources entrusted to management have been used for their intended or appropriate purpose
- Decision usefulness - provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions (a decision usefulness approach)
Building blocks of the IASB Conceptual Framework - “Qualitative characteristics of financial reports”
- Fundamental qualitative characteristics - Relevance & Faithful representation. Attributes that information must possess.
- Enhancing qualitative characteristics - Comparability, Verifiability, Timeliness, Understandability
Fundamental qualitative characteristics - Relevance
–> financial statements should only include relevant information to decision makers. Two aspects:
- Predictive value
- Confirmatory value
- (Materiality)
Fundamental qualitative characteristics - Faithful representation
–> information is complete, neutral and free from error. 3 attributes:
- Completeness
- Neutrality (prudence)
- Freedom from error
Enhancing qualitative characteristics - Comparability
Be able to compare accounting information between entities
Enhancing qualitative characteristics - Verifiability
Refers to the ability to ensure that information represents what it purports to represent, without error or bias
Enhancing qualitative characteristics - Timeliness
Having information available to decision-makers in time to be capable of influencing their decisions
Enhancing qualitative characteristics - Understandability
Classifying, characterising and presenting information clearly and concisely makes it understandable
Building blocks of the IASB Conceptual Framework - “The elements of financial accounting”
The elements –> assets, liabilities, income, expenses and equity. The IASB conceptual framework has an asset/liability approach - links profit to changes that have occurred in the assets and liabilities.
Definition of assets
= is a present economic resource CONTROLLED by the entity as a result of past events.
“Economic resource” - is a right that has the potential to produce economic benefit
Definition of liability
= is a present obligation of the entity to transfer an economic resource as a results of past events
Definition of equity
= the residual interest in the assets of the entity after deducting allt its liabilities. Assets - liabilities = equity
Definition of income
= increases in assets, or decreases in liabilities, that result in increases in equity
Definition of expenses
= decreases in assets, or increases in liabilities, that result in decreases in equity
2 Measurement principles (IASB)
- Historical cost measurement bases
- Current value measurement bases
Measurement principles - Historical cost measurement bases
Information derived from the price of the transaction that gave rise to the item being measured
Measurement principles - Current value measurement bases - fair value
- Fair value - the price that would be received to sell an asset, or paid to transfer a liability (market value)
Measurement principles - Current value measurement bases - Value in use / fulfillment value
Reflects entity-specific current expectations about the amount, timing and uncertainty of future cash flows
Measurement principles - Current value measurement bases - Current cost
Reflects the current amount that would be:
- paid to acquire an equivalent asset
- received to take on an equivalent liability
Advantages of conceptual framework for financial accounting
- The thinking behind a certain standard is more transparent, this facilitates the communication between standard-setters and their constituents
- Relieves standard setters from potential “political pressure”, find support for their arguments in the framework
Drawbacks of conceptual framework
- Restricted view of accounting and accountability steeming from a narrow view of the primary audience
- No competition between alternative financial reporting system stifle innovation
- Some assets/liabilities are not recongnized in the financial statements
