What is primary users
Primary users are “capital provider” which include potential investors, lenders and other creditors
What is fundamental qualitative characteristics
Relevance - predictive value and confirmatory value
Faithful representation - substance over legal form, completeness, prudence (not overstated asset and understated liability) and free from error
What are enhancing qualitative characteristics
Comparability
Verifiability
Timeliness
Understandability
What is asset
It is a present economic resources that controlled by an entity as a result of past event
Controlled means - present ability to direct use of economic resources OR present ability to prevent others from directing use of economic resources
What is liability
It is a present unavoidable obligation (legal obligation or constructive obligation) of the entity to transfer economic resources as a result of past event
If shareholders invest and company issue shares , is it an income for the shareholders?
No, it is a share capital (equity)
Dr bank Cr share capital
If company declare dividend for shareholders, is it an expense for company?
No, it is retained earning (equity)
Dr retained earning Cr bank
What is SOPL in conceptual framework
SOPL contains primary sources of information on financial performance of the company, i.e, income, expense etc
What is OCI in conceptual framework
record in OCI if the income and expense is as a result of remeasuring an item to current value
current value means fair value, current cost, value in use etc.
Exp:
* Translation gain/loss in subsi, associate…
* Gain on revaluation PPE
When can reclassify from OCI to SOPL?
- Can reclassify from OCI to SOPL if it results in SOPL to be more relevant.
- It cannot reclassify if there is no clear basis for identifying the amount or timing of reclassification
Items can reclassified from OCI to SOPL:
* Scenario 2 FVTOCI
* Cash flow hedge (effective portion)
* In foreign subsi / JV / associate, gain / loss on translation of foreign currency
Investor focus question
Refer to conceptual framework:
* According to conceptual framewor, the objective of financial reporting is to provide useful information to the primary users (potential investors, lenders, creditors) in order for them to make decision on providing resources to the entity.
* To be able to do so, investors would need information to help them to assess future cash flows.
What are included in fundamental principles?
- Confidentiality - not disclose any confidential information without client / employer consent
- Objectivity
- Professional behavior - not bias, not purposely overstated assets or profits, comply to rules and regulations
- Integrity - honest, fair
- Professional competence and due care - not purposely record wrong accounting treatment
Threats to compliance with fundamental principles
- Familiarity threat - close relationship / long association with client
- Advocacy - auditor represent client interest
- Self-interest - i.e, want money, promotion etc
- Intimidation - threaten to fire
- Self-review - auditor audit his/her own work
- identify self-interest
- Lack of what fundamental principles i,e competence and due care for wrong recording a/c treatment
- A/C error pattern - i,e, overstate profit (no integrity or objectivity)
- threaten - i,e, intimidation
- action to be taken - i,e, consult with ACCA, legal advise, discuss with… or consider resign
Fair value measurement
Paid received to sell an asset/paid to transfer a liability is an orderly transaction between market participant at measurement date (MARKET PERSPECTIVE NOT ENTITY PERSPECTIVE)
When measure Non-Financial Asset (PPE, Investment property…), 如果我有一块land 还没develop成任何building but 四周围都是residential use的 我们measure land的FV要based on FV of residential use, 也就是based on market perspective - this known as Highest and Best Use (HBU)
