WEEK 7 - Conceptual Framework Flashcards
Financial Reporting Council
- act as overseer and advisory body to the accounting and auditing standard setter (auditing and assurance std board)
Australian Accounting Standards Board
- issue accounting standards applicable to companies, for which legislative backing was given
- meetings are held in public
Australian Securities and Investments Commission
- maintain, facilitate and improve the performance of the financial system and entities in it
- promote confident and informed participation by investors and consumers in the financial system
- administer law effectively with minimal procedural requirements
- enforce and give effect to the law
- make info public as soon as practicable
- has developed a set of Market Integrity Rules
Australian Securities Exchange
- concerned with improving disclosure in financial reports of comapnies listed on the various exchanges
- push towards use of international standard supported by multinationals
International Accounting Standards Board
- replaced IASC, which previoulsy allowed too many alternatives,
IFRS Interpretations Committee
- ‘review on a timely basis widespread accounting issues that have arisen within the context of current IFRS and to provide authoritative guidance on those issues
- issues with unsatisfactory or conflicting interpretations develop in the absence of authoritative guidance
Developing the Conceptual Framework
- Define boundaries of financial reporting
- Define reporting entity
- Establish objectives of general purpose financial reporting
- Use broad framework established ^^ to develop qualitative characteristics of financial information on elements of reporting processes and recognition and measurement of those elements
Define Reporting Entity
- separation of management from economic interest
- economic or political important/influence
- financial characteristics
Enhancing Qualitative Characteristics of Financial Information (TRUCVF)
timeliness
-info is available to decision makers in time to be capable of influencing their decisions
relevance
-financial info must hace quality that makes a difference in a decision of an economic nature made by users
understandability
-does not imply simplicity
comparability
-enables users to identify and understand similarities in, and differences among, items
verifiability
-different knowledgable and independent observers could reach consensus, although not necessarily complete agreement, that a piece of financial information is a faithful representation of the economic phenomena
faithful representation
-info must be complete, neutral and free from material error
Cost Constraints on relevent, faithfully representative information
- costs of reporting info must be justifies by the benefits
- costs include: collection, storage, retreival, presentation, analysis and interpretation, and loss of competetive position, most of which are incurred by the reporting entity
Assets in Conceptual Framework
- asset = present economic resource controlled by the entity as a result of past events
Liabilities in the Conceptual Framework
liability = present obligation of the entity to transfer an economic resource as a result of past events
Equity in the Conceptual Framework
equity - residual interest in the assets of the entity after deducting all its liabilities
Income in the Conceptual Framework
income = increases in assets, or deceases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims
Expenses in the Conceptual Framework
expenses = decreases in assets, or increases in libailities, that result in decreases in equity, other than those relating to distributions ot holders of equity claims
Recognition of Assets and Liability
- recognised if provides users with relevant information about the asset or the liability and about any income, expenses or changes in equity
ie. information that results in benefits exceeding the cost of providing that information
- faithful representation of the asset or the liability and of any income, expenses or changes in equity
Recognition of the Elements: Relevance
- items not recognised may still need inclusion in notes
- elements must be RELEVANT to be recognised. Including elements may not always provide relebant information to decision makers because of uncertainty re existence, or asset or liability exists bu probability of inflow or outflow is low
Recognition of the Elements: Faithful Representation/Measurement Uncertainty
- FR recognition depends on both relevance and faithful representation estimates acceptable but may depend on MU
- HIGH MEASUREMENT UNCERTAINTY, A/L no recognised
eg. range of outcomes is very wide and prob of each outcome is exceptionally difficult to estimateeg. measure is very sensitive to small changes in estimates of the prob of different outcomes, - eg if the probabiltiy of future cash inflows or outflows occuring is exceptionally low, but the magnitude of those cash inflows or outflows will be exceptionally high if they occureeg. measure A/L is very difficult or exceptionally subjective allocationsn of cash flows that do not solely relate to a sset or liability being measured
Recognition of the Elements: Revenue form Contracts with Customers
Revenue Recognised if
- parties to contract have approve contract and are commited to perform their respective obligations
- entity can identify each party’s rights regarding the goods or services to be transferred
- payment terms identifyable
- contract has commercial substance
Recognition of the Elements: Expense
- recognised simultaneously wiht decrease in asset or increase in liabilties
- matching with revenue no longer the expense recognition criteria
- also recognised in the income statement
Measurement
different measurement bases include the following
- historical cost
- fair value
- value in use
- current cost
Measurement: Concepts of Capital (2)
Financial Capital
- synonymous with the net assets or equity of entity
Physical Capital
- not as equity recorded but as operating capability of the assets
