F1: Conceptual Framework & IFRS Flashcards
What are the primary qualitative characteristics?
- Faithfully represent
- Relevant
What are the 3 ingredients of representational faithfulness?
- Accuracy
- Completeness
- Neutrality: Without Bias
What’s the risk of accounting loss?
The amount of loss that would be recognized if an asset were to become worthless
What’s the primary objective of financial reporting?
To provide information that is useful for economic decision making
What is recognition?
The process of reporting an item on the F/S
What is matching?
Recognize a cost as an expense in the same period as benefit is recognized
What is realization?
The conversion of an item or service into cash or a claim to cash
What is the concept of verifiability?
Different authorities will draw the same conclusions based on the information
Describe level 1 of reporting at fair value
- Top Level
- Unadjusted quoted prices for identical assets or liabilities in active markets.
Describe level 2 of reporting at fair value
- Quoted prices for similar assets or liabilities in active markets
- Inputs that are derived from or corroborated by observable market data
Describe level 3 of reporting at fair value
- Based on management’s judgment
- Unobservable inputs for the asset
What are the 2 ingredients of relevance?
- Predictive value (Consistency)
- Confirmatory value (Feedback value)
What are enhancing qualitative characteristics?
CUT like V
- Comparability (Consistency)
- Understandability
- Timeliness
- Verifiability
What is comprehensive income?
All changes to equity other than owner-related items.
What are the 4 elements of comprehensive income?
- Revenues: Inflows from primary operations
- Expenses: Outflows from primary operations
- Gains: ↑ in equity from incidental transactions
- Losses: ↓ in equity from incidental transactions
What are 3 approaches to measure fair value?
MIC
- Market approach
- Income approach
- Cost approach
The formula for comprehensive income
Net Income + Other comprehensive income
What are deferred revenues?
- Liability
- Revenues that have been received before they have been earned.
What are the examples of comprehensive income?
DENT
- Derivative cash flow hedges
- Excess adjustment of pension
- Net unrealized G/L on “available-for-sale” securities
- Translation adjustments for foreign currency
What is included in the capital maintenance concept?
- Physical
- Financial
Describe physical capital maintenance concept
Only recognize an event when an asset is sold or liability is settled
Describe financial capital maintenance concept
Recognize an event as a change in the value of an asset or liability occurs
What is right of return?
- Reasonable estimable: Revenue is recognized
- Cannot reasonably estimable: Revenue is not recognized till the right of return has expired
Based on risks & uncertainties, what are the areas of disclosures?
- Nature of operations
- Use of estimates
- Concentrations of risk
What is included in monetary terms?
- Historical cost
- Replacement cost
- Fair market value (FMV)
- Net realizable value (NRV)
- Present value (PV)
What are the differences between GAAP & IFRS?
IFRS
- Principle-based
- General guidelines
GAAP
- Rules-based
- More specific guidelines
