Conceptual Franework And Ethical Principles Flashcards
Define conceptual framework for financial reporting
Outline the principles and concepts that should be used when developing or applying IFRS and IAS standards
Objectives of FS
Provide info on the financial position and performance of a company.
Allows primary users to see the resources and prospects the entity has
Users include - investors, lenders and other creditors
2 fundamental characteristic of useful information
Relevance - info capable of decision making
Faithful representation - complete, neutral and free from error
4 enhancing characteristic of information
Comparability - companies and time periods
Verifiability - assurance and reliable
Timeliness - available time scale for decision making
Understandability - to those who use it
Two underlying assumptions
Going concern - continue trading in the foreseeable future (12 months)
Accrual/ matching hypothesis - transactions should be reflected in the FS as the expense accrued in the year.
5 elements in the FS
Asset - create future income benefits
Liability - obligation from past transaction with a cash outflow
Equity - value of net assets (asset - liabilities)
Income - increase in economic benefit
Expense - decrease
Recognition of the elements
Recognised in the accounts if:
Meets a definition of the elements
Probably will happen
Reliably measured
Measuring the elements
Historical cost - original cost
Current cost - current purchase price
Realisable value - amount obtained from the sale
Present value - discounted value of the future cashflow the item will generate
Fundamental principles
Integrity - honestly
Objectivity - not allow bias
Confidentiality - do not use info for own advantage
Professional behaviour - bring disrepute to the profession
Professional competence and due care - ability and time
Threats and safeguards
Self interest Self review Advocacy Intimidation Familiarity
Rotation, regulations, training, CPD
