Unit 01 : Conceptual Framework
traits
& Regulatory Framework
A conceptualframework is a setofgenerally accepted theoreticalprinciples
whichform theframeofreference
forfinancial reporting Its principles
IFRSstandardsarebasedonconceptual
provide the basisfor
for
framework financialr eporting development
ofaccounting standards
understanding interpretation
ofaccounting standards
advantages
consistently developing accounting standards
avoids large volumeofrules through a principle based approach
makes developmentofstandards less subject to politicalpressure
disadvantages
due to diversity users maynotsuit all users
of
Need
for a conceptualframework
based on consistent concepts
Assists IASB develop IFRS
standards
Assists allparties tounderstand interpret IFRS standards
Assistspreparers accounts to developaccounting policies in cases with
of
no IFRS standards applicable to a particular transaction
characteristics
ofconceptualframework
Underlying characteristics
Going concern assumptionthat an entity is a going concernandwillcontinue
operations
fortheforseeablefuture However
iftheentityhas an intention to
liquidate or materially curtail itsoperations financial statements will have to
prepared on a break
upbasis
AccrualAccounting the conceptual framework requiresfinancial statements tobe
, prepared using accrual accounting Theeffectsoftransactions events are
reported in the periods in which thoseeffects occur even
ifthe resulting
cash receipts paymentsoccur in a different period Thisisalsocalled the
matching concept
Fundamental Characteristics
Relevance relevant information is capable making a difference
of inthe decision
made
bythe users It has predictive and or confirmatoryvalue
FaithfulRepresentation it reflects economic substance ratherthan legalform it is
tj.fijifiies ii te
mtpi intitiility
complete neutralandfreefrom error
Enhancing characteristics
Comparability
enablesuserstoidentify understandsimilarities differences
amongts
intofaithfullyrepresentseconomicphenomenon
Verifiability
Timeliness havingintoavailable fordecisionmakers in time
classifying presentingintoclearly concisely
Understandability
Elements
offinancial statements
1 Asset a resultofpast
economic resource controlled
by the entity as
events
2 present obligation of an entity to transfer an economic
liability
resource as a result past events
of
3
laityparticiplinititions om Equity residualinterest in assetsof an entity after deducting all liabilit
u income assets liabilities
Expenses tassets liabilities
patifutiotnstos
Yuitythpit.ie
traits
& Regulatory Framework
A conceptualframework is a setofgenerally accepted theoreticalprinciples
whichform theframeofreference
forfinancial reporting Its principles
IFRSstandardsarebasedonconceptual
provide the basisfor
for
framework financialr eporting development
ofaccounting standards
understanding interpretation
ofaccounting standards
advantages
consistently developing accounting standards
avoids large volumeofrules through a principle based approach
makes developmentofstandards less subject to politicalpressure
disadvantages
due to diversity users maynotsuit all users
of
Need
for a conceptualframework
based on consistent concepts
Assists IASB develop IFRS
standards
Assists allparties tounderstand interpret IFRS standards
Assistspreparers accounts to developaccounting policies in cases with
of
no IFRS standards applicable to a particular transaction
characteristics
ofconceptualframework
Underlying characteristics
Going concern assumptionthat an entity is a going concernandwillcontinue
operations
fortheforseeablefuture However
iftheentityhas an intention to
liquidate or materially curtail itsoperations financial statements will have to
prepared on a break
upbasis
AccrualAccounting the conceptual framework requiresfinancial statements tobe
, prepared using accrual accounting Theeffectsoftransactions events are
reported in the periods in which thoseeffects occur even
ifthe resulting
cash receipts paymentsoccur in a different period Thisisalsocalled the
matching concept
Fundamental Characteristics
Relevance relevant information is capable making a difference
of inthe decision
made
bythe users It has predictive and or confirmatoryvalue
FaithfulRepresentation it reflects economic substance ratherthan legalform it is
tj.fijifiies ii te
mtpi intitiility
complete neutralandfreefrom error
Enhancing characteristics
Comparability
enablesuserstoidentify understandsimilarities differences
amongts
intofaithfullyrepresentseconomicphenomenon
Verifiability
Timeliness havingintoavailable fordecisionmakers in time
classifying presentingintoclearly concisely
Understandability
Elements
offinancial statements
1 Asset a resultofpast
economic resource controlled
by the entity as
events
2 present obligation of an entity to transfer an economic
liability
resource as a result past events
of
3
laityparticiplinititions om Equity residualinterest in assetsof an entity after deducting all liabilit
u income assets liabilities
Expenses tassets liabilities
patifutiotnstos
Yuitythpit.ie
