L1 Financial Accounting

Question 1

What are the three benefits of the conceptual framework?

Answer 1

Technical, political and professional.

Question 2

What are the problems with the conceptual framework?

Answer 2

It is too ambiguous - principles are too vague and there is too much room for alternative interpretations

Too descriptive and not prescriptive - simply describes accounting practices. Should be prescriptive (normative and try to improve practice)

Question 3

Describe technical benefits

Answer 3

Improves accounting practice and provides basics for answers to specific q’s and problems -

1. providing a basis and guidance for those who set the specific accounting rules.
2. helping individuals involved in preparing or auditing or using financial statements.

Question 4

Describe political benefits

Answer 4

• Prevent political interference in setting accounting standards.
• Accounting information has significant real-world effects.

Question 5

Describe professional benefits

Answer 5

• Protect the professional status of accounting and accountants.

Question 6

What are the 8 chapters of the conceptual framework

Answer 6

• Chapter 1 – The objective of financial reporting – introduced the concept of stewardship and clarified the resulting information needed.
• Chapter 2 – Qualitative characteristics of useful financial information
• Chapter 3 – Financial statements and the reporting entity
• Chapter 4 – The elements of financial statements – income and expenses the definitions have changed to reflect changes in the definitions of an asset and a liability.
• Chapter 5 – Recognition and derecognition – new derecognition guidance
• Chapter 6 – Measurement
• Chapter 7 – Presentation and disclosure - In principle, all income and expenses should be included in the statement of profit or loss.
• Chapter 8 – Concepts of capital and capital maintenance – unchanged in revised framework

Question 7

What are the 5 W’s

Answer 7

What is the purpose of financial statements
Who are financial statements prepared for
What are the assumptions to be made when preparing them
What type of information should be included
What are the elements of financial statements
When should the elements of financial statements be included.

Question 8

What is the deal with heritage assets?

Answer 8

May not reflect financial value
Disposal by sale is prohibited or severe restrictions
Value may increase over time
Difficult to estimate useful life
IPSASBCFW public sector entities - measurement has objective to reflect operational capacity.