Objective of financial reporting
To provide useful information to investors, lenders, and creditors for decision-making about providing resources.
Fundamental qualitative characteristics
Relevance and faithful representation.
Relevance
Information that can influence users’ decisions by helping them predict or confirm outcomes.
Faithful representation
Information that faithfully reflects economic substance—complete, neutral, and free from error.
Enhancing qualitative characteristics
Comparability, verifiability, timeliness, understandability.
Comparability
Allows users to identify similarities and differences between entities or time periods.
Verifiability
Different knowledgeable observers can reach the same conclusion about information accuracy.
Timeliness
Information is available in time to influence decisions.
Understandability
Information is classified, characterized, and presented clearly.
Materiality
Information is material if omitting or misstating it could influence user decisions.
Asset
Present economic resource controlled by the entity as a result of past events.
Liability
Present obligation to transfer an economic resource as a result of past events.
Equity
Residual interest in assets after deducting liabilities.
Income
Increases in assets or decreases in liabilities that increase equity, excluding owner contributions.
Expenses
Decreases in assets or increases in liabilities that reduce equity, excluding distributions to owners.
Recognition
Process of including an item in the financial statements.
Derecognition
Removing an item when it no longer meets the definition of an element.
Measurement
Determining the monetary amount of an element.
Measurement bases
Historical cost, current cost, fair value, value in use, or fulfillment value.
