Conceptual Framework Flashcards
Opposite (US) of conceptual framework
Rules based
2 needs for conceptual framework
1) development of new reporting practices
2) evaluate existing practices
3 benefits of conceptual framework
1) standardised/consistent
2) less political pressure
3) avoids patchwork/reactive approach
Drawback of conceptual framework
User needs not all considered
4 needs for GAAP
1) national accounting standards
2) national company law
3) stock exchange requirements
4) regional bodies (EU)
3 needs for IFRS’s
1) provide financial info
2) help existing/potential investors/creditors/lenders
3) make decisions (buy/sell/hold debt instruments)
What is accrual accounting
Recognise in the period occurred, not the physical payment
fundamental qualities of accounting
ReFaMat!
Relevance
Faithful representation
Materiality
enhancing qualities of accounting
VerTiComUn!
Verifiability
Timeliness (within 14 days)
Comparability
Understandability
Timeliness in providing financial reports is what parameter
Within 14 days
What 4 aspects comprise faithful representation
ComFreeNeuSub!
Complete
Free from error
Neutral
Substance > form
What is substance over form
Recognising the commercial aspect over the legal form
What is going concern
Business expected to continue operating for the foreseeable future (1+ years)
What is the opposite of going concern
Break-up
What is an ASSET
Resource controlled by entity
Result of past events
Future economic benefits expected
What is a LIABILITY
Present obligation
From past events
Outflow of economic resources
What is EQUITY
Residual interest
After assets - liabilities
(Net assets = share capital + reserves)
What is INCOME
Inflows/enhanced assets/decreased liabilities Increase equity (except capital introduced)
What are EXPENSES
Outflows/depletion of assets/increased liabilities Decrease equity (except dividends)
3 factors of A.L.I.C.E. recognition
1) meets definition
2) probable economic inflow/outflow
3) reliably measured
What are reliable measures of A.L.I.C.E.?
1) historic cost
2) realisable value (selling price)
3) current cost (similar price in stores)
4) present value (discounted cash flows it would generate)
What is the present value calculation
1 / (1+d.f.)*n
How is a true and fair view achieved
1) comply with IFRS/IAS/IFRS.IC/GAAP
2) appropriate accounting policies
3) VerTiComUn
4) provide additional disclosures
