Conceptual Framework

Question 1

What is a Conceptual Framework?

Answer 1

What: Set of fundmental principles which underpin financial accounting and provide a sound theoretical basis for developing accounting standards.

Question 2

What is the purpose of the conceptual framework?

Answer 2

1) Assist IASB in development of international standards based on consistent concepts.
2) Assist prepares of financial reports develop consistent accounting policies.
3) Assist all parties to understand the international standards & interpret them.

Question 3

What are the objectives of general purpose financial reporting?

Answer 3

Provide financial info about a reporting entity that is useful to existing & potential investors, lenders and other creditors in making decisions about the entity

Question 4

What are the main classes of information that should be presented in general purpose financial reports?

Answer 4

1) Info about the financial position
2) Info about the financial performance
3) Info about the entity’s cash flow
4) Info about equity through financial position and effect from performance

Question 5

Who are the primary users and their needs?

Answer 5

1) Investors
2) Creditors
3) Suppliers

Question 6

What are measurement bases and Capital Maintenance?

Answer 6

Measurement bases: Historical cost and Current Value (Fair Value, Value in use, Current Cost)

Question 7

Explain Qualitative Characteristics of useful information?

Answer 7

Fundamental: Relevance & Faithful Representation
Enhancing: Comparability, Verifiability, Timeliness and Understandability.

Question 8

Define the 5 elements of financial statments

Answer 8

1) Asset: Present resource, control, past events
2) Liability: Present obligation, transfer of resource, past events
3) Equity: Residual Interest in assets of the entity after deducting all its liabilities.
4) Income: Increase in assets/decrease in liabilities. Increase equity
5) Expense: Decrease assets/ increase in liabilities. Decrease in equity.