Frameworks

Question 1

What is the purpose/objective of financial reporting according to the Conceptual Framework?

Answer 1

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

Question 2

What are the Fundamental Qualitative Characteristics of useful financial information?

Answer 2

-relevant
-faithful representation

Question 3

What are the Enhancing Qualitative Characteristics of useful financial information?

Answer 3

-comparability
-verifiability
-timeliness
-understandability

Question 4

What is the definition of an asset? (economic resource)

Answer 4

-a present economic resource
-controlled by an entity
-as a result of a past event

Question 5

What is the definition of a liability? (economic claim)

Answer 5

-a present obligation
-to transfer an economic resource
-as a result of a past event

Question 6

What is the definition of equity? (economic claim)

Answer 6

residual interest in the net assets of an entity

Question 7

What is the definition of income?

Answer 7

-increase in assets
-or decrease to liabilities
-that result in an increase to equity (excluding contributions from shareholders)

Question 8

What is the definition of expenses?

Answer 8

-decrease in assets
-or increase to liabilities
-that result in an decrease to equity (excluding contributions from shareholders)

Question 9

What are 3 reasons why an element might not be recognised?

Answer 9

-uncertainty over its existence
-low probability of an inflow or outflow of economic benefits
-high degree of measurement uncertainty

Question 10

When are elements recognised?

Answer 10

-if they meet the definition criteria for that element
-provide useful financial information (i.e. relevant and faithful)

Question 11

What 2 scenarios cause derecognition (remove asset/liability from SFP) to occur?

Answer 11

-loss of control over an asset
-no present obligation for the liability

Question 12

How do you account for derecognition?

Answer 12

-derecognise transferred, expired or consumed component
-recognise gain/loss
-recognise any retained component

Question 13

What 2 measurement bases are outlined by the Conceptual Framework?

Answer 13

-historical cost
-current value (fair value, value in use and current cost)

Question 14

Why are certain item presented in OCI rather than p&l when remeasuring an item?

Answer 14

-so p&l remains relevant
-more faithful representation of company’s performance

Question 15

What is the definition of materiality?

Answer 15

if;
-omitting
-misstating
-obscuring
the item would influence economic decisions of FS uses

Question 16

What are the 4 steps for materiality?

Answer 16

-identify information that could be material
-asses whether material
-organise information in draft statements
-review draft financial statements

Question 17

What is fair value according to IFRS13 Fair Value Measurement?

Answer 17

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

Question 18

What are level 1 inputs?

Answer 18

quoted prices for identical assets in active markets

Question 19

What are level 2 inputs?

Answer 19

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)

Question 20

What are level 3 inputs?

Answer 20

unobservable such as company’s own data

Question 21

What 4 areas does IFRS13 Fair Value Measurement not apply to?

Answer 21

-leases
-inventories
-impairments
-share based payments

Question 22

What is the principal market?

Answer 22

market with the greatest volume and level of activity for the asset or liability

Question 23

What is the most advantageous market?(If no principal market exists)

Answer 23

market that maximises the net amount received when selling an asset (or minimising the net amount paid when transferring a liability)

Question 24

What is the fair value of a NCA based on?

Answer 24

highest and best use (use that a market participant would adopt in order to maximise it’s value)