Conceptual & Regulatory framework Flashcards
What are IFRS and IAS?
IFRs - International Financial Reporting Standards
IAS - International accounting standards (The Board)
How do IFRS apply to companies?
Companies listed on an EU stock exchange must prepare reports using IFRS.
NOTE: Laws will take precedent over IFRS e.g. Companies Act.
What are the different areas of IFRS?
IFRS Foundation - Governance of IFRS standard setting process
IFRS Board - Sets IFRS standards
IFRIC - Issues guidance on the interpretation of standards
IFRS advisory Council - Forum for experts to offer advice to the board.
How does an IFRS standard Develop?
- The board Identifies the subject requiring a new standard
- An advisory committee is established.
- A discussion paper is published.
- An exposure draft is published, this invites comments usually over a 120 day period.
- the standard is published.
What are the fundamental qualitative characteristics under the conceptual framework?
Relevance - Either Predictive (evaluating past/present/future) or confirmatory (confirming or correcting past evaluations)
Faithful representation - Statements are complete, neutral and free from error.
What are the enhancing qualitative characteristics under the conceptual framework?
Comparability - over time with similar entities.
Understandability - To those who view the statements, effected by classification and presentation.
Verifiability - information can be verified.
Timeliness - Provided within a timescale suitable for decision making.
On what basis are account prepared for a business that is not a going concern
Accounts should be prepared on a breakup basis where:
Non current assets/liabilities will not exist.
Assets are measured at realisable value.
What are the underlaying assumptions for the conceptual framework?
Business is a going concern - will continue to trade for next 12 months.
Accruals basis - Effects of transactions are recognised when they occur not when the cash flow occurs.
How does the conceptual frame work define a Liability?
Present obligation arising from past activities or event which is expected to result in an outflow of economic benefit.
How does the conceptual fame work define an Asset?
A resource controlled by the entity as a result of past transactions or events from which future economic benefit is expected.
How does the conceptual framework define Equity?
The residual interest of a business when it ceases to trade.
How does the conceptual frame work Define income & Expense?
Income - Increase in economic benefits during an accounting period.
Expense - Decrease in economic benefits during an accounting period.
When can an item be recognised in the statements?
When it meets the definition of an element, and
It is probable that economic benefit will flow to/from the entity (75%), and
The item can be measured reliably.
What are the measurement bases used within the conceptual framework?
Historical Cost - Consideration at the time of acquisition
Current Cost - value to acquire the item currently, less Dep’n on current cost.
Fair Value - amount that could be obtained from an orderly disposal.
Value in use - discounted present value of future cashflows.
What is the purpose of capital maintenance?
It seeks to tackle the disadvantages of historical cost through either Constant Purchasing Power or Current cost accounting.
