Conceputal Framework & IFRS Flashcards
What is the primary objective of financial reporting?
1) The users (investors, creditors, and lenders)
2) A entities economic resources and claims against the entity (B/S)
3) Changes in those resources
What are the Primary Qualitative Characteristics? In order to be objective these characteristics make information useful
Relevance Predictive Value & Confirmatory Value Faithful Representation Free from Error Completeness Neutrality
What are the enhancing Qualitative Characteristics? Relate to both Primary Qualitative Characteristics, enhances the usefulness of the information
CUT like a V Comparability Understandability Timeliness Verifiability
What are the full set of financial statements?
Statement of net position (B/S)
Statement of earnings and comprehensive income (I/S)
Statement of Cash Flows
Statement of Changes in Owners Equity
Define Comprehensive Income
Comprehensive income is all changes in equity other than owner sources - DENT
D - derivative cash flow hedges
E - excess of PBO adjustment and FV of plan assets
N- net unrealized gains/losses in AVS securities
T - Translation adjustments for foreign currency
What is included in Equity/Net Assets
assets left over after deducting liabilities.
includes contributions by owners (common stock)
distribution to owners (dividends)
and comprehensive income
What concepts are used in deciding between whether something should be used in comprehensive income or net income?
Physical Maintenance concept - based on historical costs (fixed assets) - not recognized in net income till item is sold
Capital Maintenance - based on the FV - recognize holding gains and loses (trading securities)
What is the difference between recognition and realization?
Recognition occurs when items are booked in the financial statements - earnings process is complete - formally recording an item as a asset, liability, revenue or expense
Realization occurs when there is a claim to cash or collection of cash. (A/R)
Principal Market vs Most advantageous market.
the principal market is the market with the greatest amount of volume
the most advantageous market is the one that will maximize the price received for that asset
In fair value measurement - what is the valuation premise?
in-use or in-exchange
In-use relates
assumes highest and best use of a asset
in-use - if maximizes value by using it with other assets (groups)
in-exhange - if asset provide the maximum value on a standalone basis
In Fair value measurements - What are the appropriate valuation techniques??
MIC - used to measure FV - the inputs for valuation are Level 1,2,3
Market approach - uses prices of relevant information from market transactions or comparable assets/liabilities
Income approach - uses present value techniques to discount cash flows or earnings
Cost approach - uses the replacement cost
What are the fair value inputs for valuation?
Level 1 - quoted prices from ACTIVE markets
Level 2 - when level 1 is not available - use interest rates, prime rates -(a realtor would use comparable house values)
Level 3 - use financial forecasts or expected cash flow estimates
When does the fair value measurement NOT apply??
FV measurements do not apply to consolidations, pensions, share-based payments, stock options, and other post-retirment benefits, leases
When should revenue be recognized??
a binding aggrangement (signed contract), services rendered or delivery has occurred, fixed or determinable price exists, and collection is reasonably assured
Consumption Method - economic benefit used up - the rationale between different expenses
Cause and effect - revenue matched directly with expense (COGS)
systematic and rationale expenses that produce revenue of a extended period of time (depreciation)
immediate recognition - selling and G&A
