Conceptual Famework Flashcards
1
Q
Conceptual framework
A
- Produced by IASB
- Sets out principals that apply to preparation and presentation of financial statements
- Not an accounting standard
- Gives framework to work within and guidance on how to deal with transactions or issues.
2
Q
Setting Standards
A
- Topic is identified
- Topic is discussed
- Discussion paper issued to public
- Draft issued for public comments
- IASB consults with SAC (Standard Advisory Council) and working groups before IFRS is voted on and issued.
3
Q
International Accounting Standards (IASs and IFRSs)
A
- The IASB are the body responsible for the development and issuance of the IASs
- They are one part of the regulatory structure for international standards
4
Q
Principle Based Approach Advantages
A
- Individual can use judgment rather than following a tick box exercise
- No individual scenarios, less likely to go out of date
- Harder to avoid requirements
- Spirit of regulation can be followed where there is no specific accounting treatment
5
Q
Framework (Seven Sections)
A
- The objective of financial statements
- The users and their information needs
- The underlying assumptions
- The qualitive characteristics of financial information
- The elements of financial statements
- Recognition of the elements
- Measurement of elements
6
Q
Objective of Financial Statement (Definition MUST learn)
A
- The objective of general purpose financial reporting
- Provide information about reporting entity
- Useful to existing and potential investors
- Lenders and other payables
- In making decisions about providing resources to the entity
7
Q
Underlying Assumptions
A
- Two which govern the preparation of financial statements
- Accruals
- Going Concern
8
Q
Accruals Concept
A
- Costs and revenue should match
- Included in period to which they relate
- Do not account for cash paid or received
9
Q
Going Concern
A
- The business will continue to trade for the foreseeable future
- Statements are said to be prepared on a going concern basis
10
Q
Qualitative Characteristics
A
- Relevance
- Faithful Representation
11
Q
Enhancing Qualitative Characteristics (MUST be able to identify)
A
- Comparability
- Verifiability
- Timeliness
- Understandability
12
Q
Comparability (MUST explain)
A
- More useful if it can be compared
- With similar information about other entity’s
- With Similar information about the same entity for another date or period
- Enables users to identify and understand similarities in, and differences among, items.
13
Q
Verifiability (MUST explain)
A
- Helps to assure that the information represents faithfully the economic reality of the transactions
- Different knowledgeable and independent observers could reach agreement that a treatment of an item is a faithful representation
14
Q
Timeliness (MUST explain)
A
- Information is available to decision-makers in time to be capable of influencing their decisions
15
Q
Understandability (MUST explain)
A
- Classifying, characterising and presenting information clearly and concisely
- While some transactions are complex, excluding them would make statements incomplete and misleading
