Lecture 2 Flashcards
When was the IFRS Conceptual Framework first published?
July 1989
What significant change occurred in April 2001 regarding the IFRS Conceptual Framework?
Framework adopted by the IASB
Which two chapters were changed in the IFRS Conceptual Framework in September 2010?
- The objective of general-purpose financial reporting
- Qualitative characteristics of useful financial information
When was the revised Conceptual Framework published?
March 2018
What is the effective date for companies using the revised Conceptual Framework for annual reporting?
Beginning on or after 1 January 2020
How many chapters are in the 2018 revised Conceptual Framework?
8 chapters
What is the objective of general-purpose financial reporting?
To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors
What are the fundamental qualitative characteristics of useful financial information?
- Relevance
- Faithful representation
Define relevance in the context of financial information
Relevant financial information is capable of making a difference in the decisions made by users
What is materiality in financial reporting?
Information is material if omitting it or misstating it could influence decisions made by primary users
What does faithful representation mean in financial reporting?
Financial information must represent relevant phenomena and faithfully represent the substance of those phenomena
What are the enhancing qualitative characteristics of financial information?
- Comparability
- Verifiability
- Timeliness
- Understandability
What does comparability mean in financial reporting?
Information is more useful if it can be compared with similar information about other entities or periods
What is verifiability in financial reporting?
Different knowledgeable and independent observers could reach consensus that a depiction is a faithful representation
Define timeliness in the context of financial information
Having information available to decision-makers in time to influence their decisions
What does understandability mean in financial reporting?
Classifying, characterising, and presenting information clearly and concisely makes it understandable
What elements are defined in the Conceptual Framework for financial statements?
- Assets
- Liabilities
- Equity
- Income
- Expenses
Define an asset according to the IFRS Conceptual Framework
A present economic resource controlled by the entity as a result of past events
How is a liability defined in the IFRS Conceptual Framework?
A present obligation of the entity to transfer an economic resource as a result of past events
What is equity according to the IFRS Conceptual Framework?
The residual interest in the assets of the entity after deducting all its liabilities
Define income in the context of financial statements
Increases in assets or decreases in liabilities that result in increases in equity, other than contributions from equity holders
What are expenses in financial reporting?
Decreases in assets or increases in liabilities that result in decreases in equity, other than distributions to holders of equity claims
What are the two groups of measurement bases in the Conceptual Framework?
- Bases based on historical cost
- Bases based on current value
What does historical cost measurement provide?
Monetary information about assets, liabilities, and related income and expenses based on the transaction price
How is the historical cost of an asset determined?
Value of costs incurred in acquiring or creating the asset, including consideration paid and transaction costs
What is fair value in the context of measurement bases?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
Define value in use
The present value of the cash flows or other economic benefits expected from the use of an asset
What is fulfilment value?
The present value of the cash or other economic resources expected to be transferred as a liability is fulfilled
What is current cost in measurement bases?
The cost of an equivalent asset at the measurement date, including transaction costs
What are the basic measurement models in IFRS for property, plant and equipment?
- Cost model
- Revaluation model
What happens when a revaluation results in an increase in the carrying amount of an asset?
The increase is recognized in other comprehensive income and accumulated in equity as ‘revaluation surplus’
What are the elements of financial statements defined by US GAAP?
- Assets
- Liabilities
- Equity
- Investments by owners
- Distributions to owners
- Revenues
- Gains
- Expenses
- Losses
- Comprehensive income
Define comprehensive income according to US GAAP.
The change in equity during a period from transactions and other events from non-owner sources
