Frameworks Flashcards
What is the purpose/objective of financial reporting according to the Conceptual Framework?
to provide information to current and potential investors, lenders and other creditors that will enable them to make decisions about providing economic resources to an entity
What are the Fundamental Qualitative Characteristics of useful financial information?
-relevant
-faithful representation
What are the Enhancing Qualitative Characteristics of useful financial information?
-comparability
-verifiability
-timeliness
-understandability
What is the definition of an asset? (economic resource)
-a present economic resource
-controlled by an entity
-as a result of a past event
What is the definition of a liability? (economic claim)
-a present obligation
-to transfer an economic resource
-as a result of a past event
What is the definition of equity? (economic claim)
residual interest in the net assets of an entity
What is the definition of income?
-increase in assets
-or decrease to liabilities
-that result in an increase to equity (excluding contributions from shareholders)
What is the definition of expenses?
-decrease in assets
-or increase to liabilities
-that result in an decrease to equity (excluding contributions from shareholders)
What are 3 reasons why an element might not be recognised?
-uncertainty over its existence
-low probability of an inflow or outflow of economic benefits
-high degree of measurement uncertainty
When are elements recognised?
-if they meet the definition criteria for that element
-provide useful financial information (i.e. relevant and faithful)
What 2 scenarios cause derecognition (remove asset/liability from SFP) to occur?
-loss of control over an asset
-no present obligation for the liability
How do you account for derecognition?
-derecognise transferred, expired or consumed component
-recognise gain/loss
-recognise any retained component
What 2 measurement bases are outlined by the Conceptual Framework?
-historical cost
-current value (fair value, value in use and current cost)
Why are certain item presented in OCI rather than p&l when remeasuring an item?
-so p&l remains relevant
-more faithful representation of company’s performance
What is the definition of materiality?
if;
-omitting
-misstating
-obscuring
the item would influence economic decisions of FS uses
What are the 4 steps for materiality?
-identify information that could be material
-asses whether material
-organise information in draft statements
-review draft financial statements
What is fair value according to IFRS13 Fair Value Measurement?
price received when selling an asset, or the price paid to transfer a liability, in an orderly transaction between market participants at the measurement date
What are level 1 inputs?
quoted prices for identical assets in active markets
What are level 2 inputs?
observable inputs;
-quoted prices for similar assets in active markets
-quoted prices for identical assets in less active markets
-observable inputs that are not prices (such as interest rates)
What are level 3 inputs?
unobservable such as company’s own data
What 4 areas does IFRS13 Fair Value Measurement not apply to?
-leases
-inventories
-impairments
-share based payments
What is the principal market?
market with the greatest volume and level of activity for the asset or liability
What is the most advantageous market?(If no principal market exists)
market that maximises the net amount received when selling an asset (or minimising the net amount paid when transferring a liability)
What is the fair value of a NCA based on?
highest and best use (use that a market participant would adopt in order to maximise it’s value)
