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traits
A conceptualframework is a set
of
generally
accepted
theoretical principles
which form
the
frameof
reference
for
financial reporting
Itsprinciples
provide the basis
for
development
of
accounting
standards
understanding interpretation
of
accounting
standards
advantages
consistently developing accounting
standards
avoids large
volume
of
rules through a principle
based approach
makes development
of
standards less subject to politicalpressure
disadvantages
due to diversity
of
users
may
notsuit all users
IFRS standards are
based on conceptual
framework for
financialreporting
Need
for
a conceptual framework
Assists IASB develop
IFRS
standards based on
consistent concepts
Assists all parties to
understand interpretIFRS standards
Assists
preparers of
accounts to developaccounting policies incases with
no IFRS
standards applicable to a particular
transaction
characteristics
of
conceptual framework
Underlying
characteristics
Going
concern assumptionthat an entityis a going
concern and will
continue
operations
for
theforseeable future
However
if
theentityhas an
intention to
liquidate or materially curtail its operations financial
statements will have to
prepared on a break
up
basis
Accrual Accounting the conceptual framework requires financial
statements tobe
prepared using
accrual accounting The
effects
of
transactions events are
reported in the periods
in which those effects occur even
if
the resulting
cash receipts paymentsoccur in a
different period This is alsocalled the
matching concept
Fundamental Characteristics
Relevance relevant information is capable of
making a
difference in the
decision
made
by
the users It haspredictive and or confirmatory
value
FaithfulRepresentation it
reflects economic substance ratherthan legalform it is
tj.fi
jifiies
ii
mtpi
te
intitiility
complete neutral and free from error
Enhancing
characteristics
Comparability
enables users to identify
understandsimilarities differences among
ts
Verifiability
intofaithfully represents economic phenomenon
Timeliness having into available
for
decisionmakers in time
Understandability
classifying presenting intoclearly concisely
Elements
of financial
statements
1 Asset economic resource controlled
by
the entity
as a result
of
past
events
2
liability
present obligation
of
an entity
to transfer
an economic
resource as a result
of
past
events
3
Equity
residualinterest in
assets
of
an entity
after deducting all liabilit
laityparticiplinititions
om
u income assets liabilities
Yuitythpit.ie
patifutiotnstos
Expenses
tassets liabilities
legal
vs commercial view of
accounting
This concept explains 2
different
waysof looking
at accounting financial
statements
A
Legal view of
Accounting
Under the legal
view
accounts are prepared according to laws regulati
the main purpose being legal compliance Emphasis on form
over
substance not
economic benefit
B
Commercial view of
Accounting
The commercial view focuses on
business
reality
usefulness The
accounts
are prepared to reflect economic reality fair
presentation to help
investors
managers
creditors make decisions Emphasis is on
substance over
form
focus on
economic control
benefits.if
acompany uses an
asset but
doesn't
legallyown it
legal viewnot shown inBls
commercial view shown in
Blspreferred
when making
modern accounting
standards
Alternative Models Practices
Differentmethods techniques of measuring recording and presenting
accounting information can be used Thisis used as
business situations diffe
assets behave differently no single
method
fits
all
situations
1 Historical CostModel assets are
recorded at original purchase price
it is simple objective
easy
toverify
however it
doesn't show currentvalue inflation
11 Fair Value Model assets are
recorded at
current marketvalue
it is useful
for
decision
making
accurate
however involvement
of
estimates MV fluctuates
depreciation sumwow
inventory
valuation
revenue
recognition
FIFOLIFOweighted Avg
atsale
overtime
111 Replacement cost Model assets are valued at the cost to replace
themtoday
Regulatory
Framework
A
Regulatory framework is required to ensure that
relevant reliable financial reporting
achieved to meet the needs
of
shareholders and
other users It isnecessary for thefollowing
reasons reliableenvironment
for
financial reporting
ensures users receive information tomake
decisions about the entity
Harmonisation itrefers to theprocess
of
makingaccounting
standardsconsistent on a
worldwide basis Ithasthe following
benefits
easier access to
international finance
simplerpreparation
of
financial
statements
increased efficiency easier
consolidation
allows better comparison
easy
to compute tax
liabilities
global practices make accounting auditingsimpler
Howare IFRS
standards developed
Agenda
consultation every sy
IASB consults globally
Research project planning
board identifies a subject discusses sol issues Discussion Paper forpublic com
ExposureDraft ED
publishes draftversion
of
intended std for
global
feedback
FinalTest
final
tent is publishedafterat least votes from 1sBoard members
Postimplementation Review PIR
fewyears later std are
assessed
if
it meets its purpose
