Conceptual Framework

Question 1

What are the 2 fundamental qualitative characteristics of financial reporting?

Answer 1

Relevance (predictive or confirmatory value) and faithful representation (complete, neutral and free from error)

Question 2

What are the 4 enhancing qualitative characteristics of financial reporting?

Answer 2

Compatibility, Verifiability, Timeliness and Understandability

Question 3

What is the definition of an asset under the CF

Answer 3

A present economic resource controlled by the entity as a result of past events.
An economic resource is a right that has the potential to produce economic benefits.

Question 4

What is the definition of a liability under the CF

Answer 4

A present obligation of the entity to transfer an economic resource as a result of past events.

Question 5

What is the definition of income under the CF

Answer 5

Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

Question 6

What is the definition of an expense under the CF

Answer 6

Decreases in assets, or increases in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.

Question 7

What are the 4 criticisms of the CF

Answer 7

too ambiguous and open to interpretation
too descriptive
meaning of faithful representation can be problematic
inconsistencies with accounting standards cast doubt on efficacy of the framework