What is the purpose of general purpose financial reporting per IAS?
to provide financial information that is useful to existing and potential investors and lenders
what does financial accounting communicate in regards to financial position?
- economic resources
- information on liquidity and use of resources
what does financial accounting communicate in regards to financial performance?
- assess stewardship
- assess profit
- allow comparisons to be made between periods
what does financial accounting communicate in regards to changes financial position?
- provide information about investing, financing, and operating
- assess ability to generate cash and how cash flows are used
What are the five elements of the financial statements?
- assets
- equity
- liabilities
- income
- expenses
The three areas of regulatory framework
- accounting standards
- company law
- conceptual framework for financial reporting
The purposes of the IFRS’s
- to provide a framework for preparing and presenting financial statements
- to standardise financial statements
- to reduce the variations of accounting treatments
- to help ensure high quality financial accounting
- to help compliance with companies Acts and audit requirements
- To enable fair inter-company comparisons
Which sets the bar, conceptual framework, or the IFRS?
the conceptual framework sets the tone for the accounting standards so that standards are consistent with the concepts
Going concern meaning
a business entity that is expected to keep trading at the same level for the foreseeable future
what are the fundamental qualitative characteristics of financial reporting?
- relevant
- faithful representation
what are the enhancing qualitative features of financial reporting?
- comparability
- verifiability
- timeliness
- understandability
neutrality to supported by what? What does this mean?
prudence. Prudence prevents overstating income and understating expenses
who bears responsibility over deciding whether an item is material or not?
The preparer of the financial statements
What makes something material?
Conceptual framework definition:
If committing, misstating or obscuring that element would result in an impact on the decision making of the primary users of the general purpose financial reports
Definition of an asset
A present economical resource controlled by the entity as a result of past events
Definition of a liability
A present obligation of the entity to transfer an economic resource as a result of past events
Definition of equity
residual interest in the assets of an entity after deducting all the liabilities
What is ‘recognition’?
The process of deciding whether an item in the financial position or performance is useful to the reports’ users and therefore include it at its’ carrying amount (for BS)
What is ‘Measurement?’
The process of ascertaining the value of an item that is to be included in a statement
Ways to measure the value of an asset or liability
- Historically
- Current value
What is historical value?
original purchase price less depreciation or amortisation
What is current value?
- fair value
- value in use
- current cost
