Conceptual Framework Flashcards
C1- objective of financial reporting
To provide financial information that is useful to users in making decisions relating to providing resources to the entity
C1 - Useful information key aspects
I. The entity’s economic resources, claims against the entity and changes in those resources and claims
2. How efficiently and effectively management has discharged its responsibilities to use the entity’s economic resources
C2 - qualitative characteristics of useful financial information
- Fundamental characteristics - A. Relevance
B. Faithful representation
2.enhancing qualitative characteristics - A. Comparability
B. Verifiability
C. Timeliness
D. Understandability
C3 - Objective and scope of financial statements
provide information about the reporting entity’s assets, liabilities, equity, income and expenses to meet objective of financial reporting
C3 - reporting period
FS are prepared for a specified period of time and provide:
• information about POSITION and PERFORMANCE
•comparative information to assess trends (by users)
•forward looking information related to assets, liabilities and equity existing at the end of the reporting period that is useful (i.e. possible future events)
• information abouttransactions and events after the year-end
C4 - Asset
Asset - A present economic resource (3) controlledby the entity as a result of past events
Economic resource - An economic resource is a (1) rightthat has the (2) potential to produce economic benefits
C4 - liability
Liability - A present (1)obligation of the entity to (2) transfer an economic resource as a result of (3) past events Obligation - A duty or responsibility that the entity has no practical ability to avoid
Asset requirements
- Right = * established from contracts, legislation or similar means
* existence of uncertainty must be resolved - Potential = * one circumstance that will produce economic benefits
* might be a low probability - Control = * links economic resource to the entity
* present ability to:
(1) direct the usage: deploy in its activities or allow others
(2) obtain the economic benefits: directly or indirectly
* indication of control: exposure to significant variations in
the amount of economic benefits
Liability requirement one - obligation
Nature:
* Owed to another party
* Other party has a right
* Right and obligation not recognised and measured the same
How established
* Contract, Legislation or similar means and are Legally enforceable (legal)
* Customary practices, published policies or specific statements (constructive)
- If the entity has no practical ability to act in a manner inconsistent with those practices,
policies or statements
* Conditional on the future actions of the entity itself (e.g. operating in a particular
market in the future)
-Obligation if the entity has no practical ability to avoid taking the actions
liability requirement two: transfer of economic benefits
- the obligation, must have the potential to require the entity to transfer an economic
resource to another party (parties) - that potential does not need to be certain nor likely (= low probability) for the
economic resource to be transferred - only necessary that the obligation exists and only in one circumstance that
obligation will result in the transfer - the obligation exists until settled, transferred or replaced
liability requirement 3 : past event
Two separate indicators
* Obtaining the economic benefits
* Taken action that creates the obligation
Consequential test
* An entity will or may have to transfer
an economic resource that it would
not otherwise had to transfer
5 step approach
- Read the question
- Define the problem or issue
- How are you going to solve the issue ou problem
- Application
s. Conclusion
Equity
The residual interest in the asset of the entity after deducting all its liabilities
Income
Increases in assets, or decreases in liabilities, that results in increases in equity, other than those relating to contributions from holders of equity claims
Expenses
Decreases in assets, or increases in liabilities, that result and decreases in equity, other than those relating to distributions to holders of equity claims
Recognition
The process of capturing for inclusion in the statement of financial position all the statements of financial performance and item that means the definition of an asset liability equity and expense
Recognition criteria
-Relevant information about assets, liabilities, equity, income and expenses; and
-A faithful representation of those items, because the aim is to provide information that is useful to investors, lenders and other creditors
Derecognition
The removal of all parts of a recognised asset all ability from an entity statement of financial position
Objective of financial statements
Provide information about the financial position, financial performance and cash flows of an entity that is useful to wide range of users when making economic decisions
