Conceptual framework
The foundation for developing accounting standards
It is not a standard
General purpose of conceptual framework
Board: assists the IASB in the development of IFRSs that are based on consistent concepts
Preparers: assists the preparers of financial statements to develop consistent accounting policies
Users : Assists all parties to understand and interpret IFRSs
General purpose of financial reports
To provide information to users
About the financial position ,financial performance as well as the cash flow of the reporting entity
That is useful to users in making economic decisions
USERS OF FINANCIAL INFORMATION
💥existing and potential investors
💥lenders and other creditors
💥government
💥employees
💥customers
💥community
FINANCIAL STATEMENTS
A form of general purpose financial reports
FINANCIAL STATEMENTS GIVE INFORMATION ABOUT ?
Economic resources of the reporting entity (assets )
Claims against the reporting entity (liabilities)
Changes in those resources and claims(equity)
COMPONENTS OF FINANCIAL STATEMENTS
Statement of financial position: a snapshot of the position of the entity at the reporting date
Statement of profit or loss: The performance of the entity for a period (ususally 12 months )
Statement of changes in equity
Statement of cash flow
FINANCIAL STATEMENTS INCLUDING? REPORTING….
Reporting entity: the entity that is preparing the financial statements
Reporting period: the time span in which the company Reports its financial position and performance
Reporting date :the last date/day of the reporting period
QUALITATIVE CHARACTERISTICS OF USEFUL INFORMATION
Fundamental qualitative characteristics
Enhancing characteristics
FUNDAMENTAL QUALITATIVE CHARACTERISTICS
Relevance
✨️makes difference in users decision
✨️predictive/comfirmatory value
✨️materiality: entity specific and has a nature
Faithful representation
🍓complete:includes all information necessary
🍓Neutral:no bias
🍓free from error : does not mean perfectly accurate
ENHANCING RELEVANCE AND FAITHFUL REPRESENTATION :(ENHANCING CHARACTERSTICS)
COMPARABILITY: compare with other entities and trends
VERIFIABILITY: direct and indirect verification……as well as independent observers to reach a consensus
TIMELINESS: having information on Time
UNDERSTABILITY: presenting information clearly
NB: INFO THAT IS RELEVANT AND FAITHFULLY REPRESENTED IS USEFUL EVEN WITHOUT ENHANCING CHARACTERISTICS
IT COSTS MONEY TO PROVIDE USEFUL FINANCIAL STATEMENTS
PREPARATION OF FINANCIAL STATEMENTS
GOING CONCERN
🫑Financial statements are prepared with the assumption that the reporting entity is a going concern
🫑Meaning they will continue to operate in the foreseeable future
🫑they have no intention/need
ACCRUAL BASIS
💦transactions are recorded in the period they are incured/earned…..not necessarily when cash is paid/received
💦components of financial statements are prepared on ACCRUAL basis …..except for statement of cash flow
PREPARATION OF FINANCIAL STATEMENTS (TRANSACTIONS/EVENTS )
Starts with a transaction or event
Transactions or events need to be classified into categories(elements)
Transaction or events need to be recorded
TRANSACTION
Exchange of goods or services
EVENTS
🔥assets are destroyed in a fire
🔥entity is being sued
ELEMENTS OF FINACIAL STATEMENTS
🍒Assets
🍒Liabilities
🍒Equity
🍒income
🍒expenses
ASSET
A present right that has the potential to produce economic benefits ,controlled by the entity as a result of a past event
3 REQUIREMENTS OF THE DEFINITION OF AN ASSET
RIGHT:
Arises from contracts,legislation or other means
POTENTIAL:
Right has to already exist
Right doesn't have to be certain or even likely
CONTROL:
THE entity has the present ability to:
Direct the use of the economic resources
Obtain the economic benefits
Prevent others from:
Direct use of the economic resources
Obtaining the ecomic benefits
PAST EVENT:
Usually the delivery of the goods (which is when control is transfered)
RIGHT AS THE RESULT OF THE OBLIGATION OF ANOTHER PARTY
Right to receive cash=Other party has an obligation to deliver the cash
Right to receive goods or services= Other party has an obligation to deliver the goods and services
Last changed2 months ago