CONCEPTUAL FRAMEWORK Flashcards
BASIC CONCEPT
Summary of Terms and CONCEPTS that underlie the preparation and presentation of FInancial Statements.
Conceptual Framework
BASIC CONCEPT
Concerned with GENERAL PURPOSE FINANCIAL STATEMENTS, including consolidated financial statements.
Conceptual Framework
Special purpose reports are still under the scope of the framework.
FALSE
OUTSIDE the scope of framework.
What is the underlying theme of the framework?
Significant basis ng conceptual framework
Decision usefulness in making economic decision
Enumeration
BASIC PURPOSES OF THE FRAMEWORK
Generally speaking
- To Guide in developing future PFRS
- To Guide in resolving accounting issues not in the PFRS
Enumeration
SPECIFIC PURPOSES OF FRAMEWORK
- To assist the IASB in developing IFRS
- Preparers of Financial Statements
- To understand and interpret the standards
Basic Concept
Considered as the “Mother Standard” Equivalent to Philippine Constitution, iikot sa Decision Usefulness
Conceptual Framework
Identification
“Accounting postulates” are the basic notions or fundamental premises on which the accounting process is based.
Underlying Assumptions
Enumeration
What are the underlying assumptions under the OLD Conceptual Framework?
GAMET
Going Concern
Accrual Principle
Monetary Unit Priniciple
Economic Entity Concept
Time period principle
Enumeration
What are the underlying assumptions under the NEW Conceptual Framework?
Going Concern Principle
CHAPTER 1
OBJECTIVE OF FINANCIAL REPORTING (Foundation of CF)
OVERALL
To provide financial information , that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to entity.
CHAPTER 1
CHAPTER 1: OBJECTIVE OF FINANCIAL REPORTING (Foundation of CF)
SPECIFIC
Provide information:
1. Resources
2. Assessing future net cash flows
3. Resources (Assets), Claims (Liability) , Changes in resources and claims.
CHAPTER 1, Enumeration
Limitations
General Purpose financial reports DO NOT:
1. provide ALL infomration
2. not designed to show value of entity, only estimate
3. accomodate every request of information
4. based on estimate and judgement rather than exact depiction.
CHAPTER 2, Qualitative Charactersitics of useful information
Classification of Qualitative Characteristics
- Fundamental
- Enhancing Qualitative Characteristics
CHAPTER 2, Qualitative Charactersitics of useful information
Characteristics ADDRESS the content or substance of information.
Fundamental Characteristics
CHAPTER 2, Qualitative Charactersitics of useful information
What are the fundametal charactersitics
Enumeration
- Relevance
- Faithful representation
CHAPTER 2, Qualitative Charactersitics of useful information
The capacity of information to make a difference in a decision made by users.
Relevance
CHAPTER 2, Qualitative Charactersitics of useful information
Ingredients of Relevance
Enumeration
Predictive Value
Confirmitory Value
CHAPTER 2, Qualitative Charactersitics of useful information
This information can help users increase the likelihood of correctly PREDICTING or FORECASTING outcome of events.
Predictive Value
CHAPTER 2, Qualitative Charactersitics of useful information
This information enables users to CONFIRM or CORRECT earlier expectations.
Confirmatory Value
CHAPTER 2, Qualitative Charactersitics of useful information
Specific aspect of relevance, besides from predictive and confirmatory value.
Materiality
CHAPTER 2, Qualitative Charactersitics of useful information
All material items are RELEVANT but not all relevant items are material.
TRUE
CHAPTER 2, Qualitative Charactersitics of useful information
it reasonably be expected to influence the economic decisions based on judgement.
Factors to be considered:
1. Relative size of the item
2. Nature of the item
Materiality
CHAPTER 2, Qualitative Charactersitics of useful information
Information provides true, correct and complete depiction of the economic phenomena that it puports to represent.
Faithful representatoin
CHAPTER 2, Qualitative Charactersitics of useful information
Faithful representation ingredients
enumeration
Completeness
Neutrality
Free from Error
CHAPTER 2, Qualitative Charactersitics of useful information
Specific aspects of Faithful representation
Substance over form
conservatism
CHAPTER 2, Qualitative Charactersitics of useful information
It suggests that the true nature of a transaction or event should be reflected in the financial statements, rather than merely adhering to its legal or technical aspects.
In accounting, the principle of ____________ requires that financial statements present the economic reality of a transaction or event, even if the legal documentation may suggest a different interpretation.
Substance over form
CHAPTER 2, Qualitative Charactersitics of useful information
Example of Substance over form
For example, let’s consider a company that enters into a** sale and leaseback arrangement for an asset. Under the legal form, the company sells the asset to another party and immediately leases it back. However, if the substance of the transaction indicates that the company effectively retains control and risks associated with the asset, the* financial statements should reflect this economic reality rather than just presenting the transaction as a sale.***
CHAPTER 2, Qualitative Charactersitics of useful information
principle that guides the recognition and reporting of financial information. It suggests that when faced with uncertainty, accountants should err on the side of caution and recognize potential losses or liabilities rather than overstating assets or income. The ________ principle helps ensure that financial statements are more reliable, as it aims to prevent the overstatement of financial position and performance.
Conservatism
CHAPTER 2, Qualitative Charactersitics of useful information
The conservatism principle helps prevent the ________ of financial results, ensuring that financial statements present a more cautious and realistic view of a company’s financial position. This is especially important when dealing with uncertainties, potential losses, or risks associated with future events. By exercising conservatism, accountants aim to avoid potential misleading information and provide a more prudent assessment of a company’s financial performance and risks.
Overstatement
CHAPTER 2, Qualitative Charactersitics of useful information
Qualities of information that enhances the usefulness.
Enhancing characteristics
CHAPTER 2, Qualitative Charactersitics of useful information
Enumerate the enahancing qualitative characteristics
Verifiability
Comparability
Understandability
Timeliness
CHAPTER 2, Qualitative Charactersitics of useful information
means that the different knowledgeable and independent observers could reach CONCENCUS , although necesarilly complete agreement, that a particular depiction is faithful representation.
From VCUT
Verifiability
Under verifiability , information is said to be ——– if it helps users identify similarities and differences between different sets of information thar are provided.
comparable
What are the two different types of Comparability.
Under verifiability
- Intra-comparability
- Inter-comparability
Comparability and Consistency are the same
T or F
False
This two are NOT the same, Comparability is the GOAL, while consistency means achieving the goal.
It requires financial information must be comprehensible or intelligible if it is to be useful by complex matters cannot be eliminated. Because of this , framework requires the users to have REASONABLE KNOWLEDGE of business economic acivities and must review and analyze the information diligently.
Under VCUT
Understandability
It means having information available to decision makers in time to influence their decisions.
Timeliness
