Financial Accounting 3: Conceptual Framework

The primary objective of financial statements is to provide information about an entity's financial position, performance, and changes in financial position.

The IASB's primary role is to develop and oversee the creation of financial reporting standards that ensure consistency and transparency in financial reporting.

Relevance, Comparability, Timeliness, Understandability.

General purpose financial statements aim to provide information that meets the needs of a wide range of users, including investors, creditors, and the public. They focus on providing an overview of an entity's financial performance, position, and cash flow.

They provide detailed explanations for items recognized in the financial statements, disclose risks and uncertainties affecting the entity, and fulfill specific disclosure requirements.

Information that is relevant, faithfully represented, comparable, verifiable, timely, and understandable. These characteristics are vital for making informed decisions based on financial statements.

Information that helps confirm or correct past judgments made by users. It ensures the reliability and accuracy of financial data.

Information that allows users to compare the financial performance and position of different entities over time or across different periods. It helps users see patterns and analyze trends.

An economic resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Information that is able to make a difference in the decisions made by users of financial statements by influencing their evaluations or predictions.

Information that is complete, neutral, and free from error. It ensures that the information is reliable and accurate.

Information that is presented and structured in a way that makes it easy for users to understand and interpret.

Some items that do not fit into the categories of assets, liabilities, or equity can still be recognized in the statement of financial position.

Prudence in accounting means exercising caution when making judgments in uncertain situations. It's about being conservative and not overstating profits or assets.

High measurement uncertainty doesn't automatically mean an asset shouldn't be recognized. It depends on the specific circumstances and whether reasonable estimates can be made.

The Conceptual Framework doesn't specify one preferred measurement basis for all assets and liabilities. Different bases might be appropriate depending on the specific asset or liability.

The going concern assumption is also known as the continuity assumption, which assumes that the entity will continue to operate in the foreseeable future and will not be liquidated.

If an entity is going to liquidate, financial statements should be prepared based on liquidation values. This means the assets are valued at their estimated selling price.

The Conceptual Framework provides guidance on accounting principles and standards. However, it can be overridden by specific requirements in a Standard when necessary.

The objective of general purpose financial reporting is to provide information that is useful for decision-making by existing and potential investors, lenders, and other creditors.

Existing and potential investors, lenders, and other creditors are identified as the primary users of general-purpose financial reports.

Consolidated financial statements show the financial performance and position of a parent company and its subsidiaries as a single reporting entity, combining their assets, liabilities, equity, income, and expenses.

For a right to be considered an asset, it must be likely that it will generate economic benefits for the entity. This means the entity should be able to use the right to produce something of value.