Conceptual Framework & IFRS Flashcards
How are the objectives of financial reporting achieved?
Relevance and Faithful Representation
What are the objectives of financial statements?
- Give info to investors, lenders, creditors to make decisions
- Entity’s resources and claims against entity
- Changes in assets and liabilities
- Accrual accounting
- Cash flows
- Changes in equity
What are elements of relevance?
Predictive value and confirmatory value
What are elements of faithful representation?
- Free from error
- Neutrality
- Completeness
What are the enhancements of the financial reporting qualities?
- Comparability
- Understandability
- Timeliness
- Verifiability
What are the 10 elements of financial reporting?
- Assets
- Liabilities
- Equity
- Investments by owners
- Distributions to owners
- Comprehensive Income
- Revenue
- Expenses
- Gains
- Losses
What are the ingredients to equity?
- Investments by owner
- Distributions to owner
- Comprehensive income
What are the ingredients to comprehensive income?
- Revenue
- Expenses
- Gains and losses
What concept is used for comprehensive income?
Capital maintenance
What are the two the two concepts that makeup capital maintenance?
Physical and capital maintenance
What is physical capital maintenance?
Used for fixed assets
Recognizing an event when an asset is sold or liability is settled
What is financial maintenance capital maintenance?
Used for investment securities
Recognizing an event as change in value of asset or liability such as gains and losses for holding
How do you recognize a key element of a financial statement?
- Needs to be an element
- Capable of being measured money wise
- Needs to be relevant and useful or faithful representation
How do you measure a key element in the financial statement?
- Historical cost
- Replacement cost
- FMV
- NRV
- PV
Which items are not reported at FMV?
- Pension plan, post retirement benefits
- Leases
- Financial instruments that are components of equity
- Share based payments and stock options
Which items may or must be reported at FMV?
- Trading securities
- AVS securities
- HTM securities
- Impairment losses
- All derivatives
- Firm commitments for forward exchanges or FOREX
What are the steps in applying FV measurement?
- ID asset or liability to be measured
- Determine principal or most advantageous market
- Determine valuation premise (In use or in exchange)
- Determine appropriate valuation technique ( market, income, cost approach)
- Input Level
- Calculate FV of asset or liability
What are the 3 approaches to fair value?
- Market approach
- Income approach
- Cost approach
What are the two bases used for fair value?
- In Use
2. In Exchange
Do the financials have to disclose fair value and how it’s measured?
Yes
What disclosures are needed when reporting fair value measurements for financials?
- Identify which ones are reported at FV and where in the financials
- Level of inputs used
- Which valuation approach used?
- Disposition of changes in FV
What other supplementary notes to the financials does GAAP require?
- Summary of significant accounting policies
- Summary of significant assumptions
- Other notes to financial statements
Who issues the international financial reporting standards?
International Accounting Standards Board
What are the constraints to the enhancing characteristics for IFRS?
Cost benefit and Going Concern
What is comprehensive income?
All changes in equity other than owner sources
