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IFRS > IFRS - Chapter 2 > Flashcards

IFRS - Chapter 2 Flashcards

1
Q

A conceptual framework establishes…

A

the concepts that underlie financial reporting

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2
Q

What is the objective of financial reporting?

(IFRS)

A

Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in their capacity as capital providers.

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3
Q

What are the five objectives of financial reporting?

(GAAP)

A
  1. Usefulness
  2. Understandability
  3. Target Audience: investors and creditors
  4. Evaluating economic resources
  5. Primary focus on earnings
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4
Q

What are the fundamental qualities of financial information?

A
  1. Relevance
  2. Faithful Representation
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5
Q

What are the “ingredients” of relevance?

“confirm the prediction”

A
  1. Predictive value
  2. Confirmatory value
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6
Q

What are the “ingredients” of faithful representation?

“completely neutral is free from error”

A
  1. Completeness
  2. Neutrality
  3. Free from error
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7
Q

Define relevant

A

Accounting information that is capable of making a difference in a decision

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8
Q

Define predictive value

A

Financial information that can used by investors to form their own expectations about the future

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9
Q

Define confirmatory value

A

Financial information that heps users to confirm or correct prior expectations

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10
Q

Define faithful representation

A

The numbers and descriptions match what really existed or happened

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11
Q

To be relevent…

A

financial information needs to have at least one of:

  • predictive value, or
  • confirmatory value
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12
Q

To be a faithful representation…

A

information must be complete, neutral, and free of material error (need all 3)

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13
Q

Define completeness

A

All the information that is necessary for faithful representation is provided

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14
Q

Define neutrality

A

A company cannot select information to favor one set of interested parties over another; unbiased

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15
Q

Define free from error

A

Financial information is free from material error

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16
Q

What are the enhancing qualities?

“compare and verify in time to understand”

A
  1. Comparability
  2. Verifiability
  3. Timeliness
  4. Understandability
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17
Q

Define comparability

A

Comparability enables users to identify the real similarities and differences in economic events between companies

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18
Q

Define consistency

A

Application of the same accounting treatment to similar events, from period to period within a company

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19
Q

Define verifiability

A

when independent measurers, using the same methods, obtain similar results

20
Q

Define timeliness

A

having information available to decision-makers before it loses its capacity to influence decisions

21
Q

Define understandability

A

the quality of information that lets reasonably informed users see its significance

22
Q

Define asset

A

A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity

23
Q

Define liability

A

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits

24
Q

Define equity

A

The residual interest in the assets of the entity after deducting all its liabilities

25
Q

Define income

A

Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants

26
Q

Define expenses

A

Decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants

27
Q

What are the basic elements of financial statements?

A
  1. Assets
  2. Liabilities
  3. Equity
  4. Income
  5. Expenses
28
Q

What are the basic assumptions?

A
  1. Economic entity
  2. Going concern
  3. Monetary unit
  4. Periodicity
  5. Accrual basis
29
Q

Define economic entity assumption

A

A company keeps its activity separate and distinct from its owners and any other business unit

30
Q

Define going concern assumption

A

The company will have a long enough life to fulfill their objectives and commitments

31
Q

Define monetary unit assumption

A

money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis

32
Q

Define periodicity assumption

A

a company can divide its economic activities into artificial time periods

33
Q

Define accrual basis of accounting

A

transactions that change a company’s financial statements are recorded in the periods in which the events occur

34
Q

What are the basic principles of accounting?

A
  1. Measurement
  2. Revenue Recognition
  3. Expense recognition
  4. Full disclosure
35
Q

What are the two measurement principles?

A
  1. Cost
  2. Fair value
36
Q

Define cost

A

Acquisition price

37
Q

Define fair value

A

the amount for which an asset could be exchanged

38
Q

Define the revenue recognition principle (IFRS)

A

revenue is to be recognized when it is probable that future economic benefits will flow to the company and reliable measurement of the amount of revenue is possible

39
Q

Define the revenue recognition principle (GAAP)

A

Revenue is recognized when realized (when the company receives cash or claims to cash) and earned (when the company substantially accomplishes what it must do to be entitled to the benefits represented by the revenues)

40
Q

Generally, when is revenue recognized?

A

At the time of sale

41
Q

Define the expense recognition principle

A

“let the expense follow the revenues”

42
Q

Define the full disclosure principle

A

providing information that is of sufficient importance to influence the judgment and decisions of an informed user

43
Q

What are the two constraints of financial reporting?

A
  1. Cost
  2. Materiality
44
Q

Define the cost constraint

A

weighing the costs of providing the information against the benefits that can be derived from using it

45
Q

Define the materiality constraint

A

An item is material if its inclusion or omission would influence or change the judgment of a reasonable person

IFRS (7 decks)

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