The Conceptual Framework

Front 1

Fundamental Qualitative Charateristics

Back 1

Relevance and faithful representation

Front 2

Relevance

Back 2

Financial information that is capable of making a difference in desisions if it has predictive value, confirmatory value or both. Materiality is also a factor

Front 3

Predictive value

Back 3

If it can be used as an input to process employed by users to predict future outcomes. It on its own does not need to be predictive but if users can use it to make their own predictions it is

Front 4

Confirmatory value

Back 4

If it provides feedback on previous evaluations. These may be confirms or changes

Front 5

Materiality

Back 5

If ommiting it or mistating it could influence the desisions that users make on the basis of financial information about a specific reporting entity.

I.e. entity specific aspectRelevance based on nature or magnitude

Front 6

Faithful Representation

Back 6

Financial information must not only represent relevant phenomena it must also faithfully represent the phenomena that it purports to represent. It therefore must be complete neutral and free from error

Front 7

Complete

Back 7

Al information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations

Front 8

Neutral

Back 8

Without bias in the selection or presentation of financial information. Not slanted, weighted, emphasized de-emphasized or otherwise manipulated to increase the probability that financial info will be received favourably or unfavourable by users

Front 9

Free from error

Back 9

Does not mean accurate in all respects, but that there are no errors or omissions in the description of the phenomenon and the process used to produce the reported information has been selected and applied with no errors

Front 10

Enhancing Qualitative Characteristics

Back 10

Comparability verifiability timeliness and understandability

Front 11

The cost constraint on useful financial reporting

Back 11

Assess the benefits of reporting particular information are likely to justify the costs incurred to provide( collect process verify and disseminate ) and use (analyse and interpret) that information

Front 12

Underlying Assumption

Back 12

Going concern: will continue operation for the foreseeable future. Therefore does not have the intention or need to liquidate or curtail materially the scale of operations

Front 13

Financial position

Back 13

The elements directly related to the measurement of financial position are assets liability and equity

Front 14

Asset

Back 14

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

Front 15

Asset: future economic benefits

Back 15

The potential to contribute directly or indirectly to the flow of cash and cash equivalents to the entity

E.g. used singularly or in combination with other assets in the production of G&S; Exchanges for other assets; used to settle a liability; distributed to owners

Front 16

Asset: resource

Back 16

Can be in physical form or be a patent copy right.

Usually has a legal right or right of onwership but this is not necessary to be an asset

Front 17

Asset: past event

Back 17

Purchasing or producing the item; or generate assets.

Note, an intention to purchase does not in itself meet the requirement.

Front 18

Liability

Back 18

A present obligation of the entity arising from a past event, the settlement of which is expected to result in an outflow of economic benefits

Front 19

Liability : present obligation

Back 19

A duty or responsibility to act or perform in a certain way. May be legally enforceable or a statutory requirement. Can arise from normal business practice, custom or a desire to maintain good business relations

Hint 19

Make a distinction between present obligation and future commitment

Front 20

Liability: settlement of a present obligation

Back 20

Entity gives up resources embodying economic benefits in order to satisfy the claim of the other party. E.g. payments ; transfer of assets; provision of services; replace obligation with another; conversion f obligation into equity.

Front 21

Equity

Back 21

The residual interest in assets of the entity after deducting all its liabilities

Front 22

Equity: Residuals

Back 22

Can be sub-classified as funds contributed by shareholders, retained earnings, reserves representing appropriations of retained earnings or capital maintenance adjustments

Front 23

Performance

Back 23

Aka profit. Used as a measure of performance or as a basis of other measures. Directly related to income and expenses and is dependent on concepts of capital and capital maintenance

Front 24

Income

Back 24

Increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increase in equity, other than those relating to contributions from equity participants

Front 25

Income: revenue vs gains

Back 25

Revenue arises in the course of ordinary activities of an entity.

Gains represent other items that meet the definition of income and may or may not arise in the ordinary course of business.

Def also includes unrealized gains

Front 26

Expenses

Back 26

Decrease in economic benefits during the accounting period in the form of outflows or depletions of assets or incurence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants

Front 27

Expense :losses and other

Back 27

There are expenses that arise from the ordinary activities of the entity. Losses are other items that meet the definition of expenses but may or may not arise from normal operating activities of the entity.

Front 28

Capital Maintenance adjustments

Back 28

Revaluation or restatement of assets and liabilities that gives rise to increases or decreases in equity. Meet def of income and expenses not included due to certain concepts of capital maintenance. Instead included in equity

Front 29

Recognition criteria

Back 29

Probability that future economic benefits associated with the item will flow to or from the entity

The item has a cost or value that can be reliably measured

Front 30

Measurement

Back 30

The process of determining the monetary amounts at which the elements of financial statements are to be recognized and carried in the balance sheet and income statement

There are 4 types of measurements

Front 31

Historical cost

Back 31

Items are recorded at the amount of cash or cash equivalents paid or the fair value of consideration given to a quite the item at the time of acquisition.

Front 32

Current cost

Back 32

Items are carried at the amount of cash or cash equivalents that would have been paid if the same or a equivalent item was acquired currently

Front 33

Realisable value (settlement)

Back 33

Items are carried at the amount of cash or cash equivalents that could currently be obtained by selling the item in an orderly disposal. If a liability its an undiscounted amount

Front 34

Present value

Back 34

Items are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business

Front 35

Financial concept of capital

Back 35

Capital is synonymous with the net assets or equity of the entity. Adopted when users are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital.

Front 36

Physical concept of capital

Back 36

Capital is regarded as the productive capacity of the entity. The main concern of users are the operating capacity of the entity.

Front 37

Concept of capital maintenance

Back 37

How an entity defines the capital that it seeks to maintain. Provides a linkage between the concepts of capital and the concepts of profit because it gives a point of reference by which profit is measured and is a pre-requisite for distinguishing between an entity return on capital and return of capital

Front 38

Financial capital maintenance

Back 38

Profit is earned only if the financial amount of the assets at the end of the period, exceeds the financial amount of net assets at the beginning of the period, after excluding any distributions and contributions from equity participants during the period. Measured in nominal monetary units or unit of constant purchasing power.

Front 39

Physical capital maintenance

Back 39

Profit is earned only if the physical productive capacity of the entity at the end of the period, exceeds the productive capacity at the beginning of the period, after excluding any distributions and contributions from equity participants during the period.

Front 40

The objective of general purpose financial reporting

Back 40

Provide financial information about the reporting entity that makes it useful to existing and potential investors, lenders and other creditors in making desisions about providing resources to the entity

Front 41

The objective of general purpose financial reporting

Back 41

Provide financial information about the reporting entity that makes it useful to existing and potential investors, lenders and other creditors in making desisions about providing resources to the entity

Front 42

Desisions of users

Back 42

Buying selling or holding equity and debts instruments and providing or settle loans or other forms of settlement

Front 43

Assessing an entities prospects

Back 43

Need information about the resources of the entity,claims against the entity and how efficiently and effectively the entity's management and governing board have discharged their responsibilities to use entity's resources

Front 44

Accrual accounting

Back 44

Depicts the effects of transactions and other events and circumstances on the reporting entity's economic resources and claims in the period in which those effects occur, even if the resulting cash receipt and payments occur in a different period