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IASB CONCEPTUAL FRAMEWORK

IASB CONCEPTUAL FRAMEWORK. The conceptual framework is applicable for preparation and presentation of financial statements under MFRS or FRS framework The framework is not accounting standards and does not override MFRS/FRS

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IASB CONCEPTUAL FRAMEWORK

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  1. IASB CONCEPTUAL FRAMEWORK

  2. The conceptual framework is applicable for preparation and presentation of financial statements under MFRS or FRS framework • The framework is not accounting standards and does not override MFRS/FRS • In the case of conflict bet. Framework and MFRS/FRS , the standards requirements prevail. Over time the development of new stds and review of existing stds will narrow the conflict.

  3. Scope Objective of financial reporting Qualitative characteristics of useful financial information Definition, recognition and measurement of elements on which financial reports constructed Concepts of capital and capital maintenance

  4. Purpose Set out concepts for preparation and presentation of financial statements for external reporting Assist MASB in its future development of MFRS/FRS and review of existing MFRS/FRS Assist preparers in applying MFRS/FRS and in understanding topic yet to form subject of MFRS/FRS

  5. Continue… Assist auditors to form opinion whether finl stat comply with MFRS/FRS Assist users in interpreting info in finl stat prepared based on MFRS/FRS To provide info to those interested on MASB approach for formulatation of MFRS/FRS

  6. Objective of financial reporting External users To make economic and resources decisions To meet information needs of investors, lenders and other creditors Provide info about reporting entity economic resources and claims and their changes

  7. Qualitative characteristics of useful info Divided into: Fundamental qualitative characteristics Enhancing qualitative characteristics

  8. Fundamental qualitative characteristics Relevance – capable of making a different to users decision Materiality – info material if omitting it or misstating can hv different decision being made Faithful representation – faithfully present info that it purports to present i.e. complete, free of error and neutral

  9. Applying the fundamental qualitative characteristics – identify economic phenomenon, identify type of info determine availability of info and can be faithfully represented. If this satisfied stop fundamental qualitative characteristics identification. If not continue with most relevant info

  10. Enhancing qualitative characteristics Comparability – Involve choosing between alternative; able identify similarity and differences bet info Verifiability – knowledgeable and independent observers can reach consensus on faithful representation of info Timeliness – availability of info on time the decision made; Old info may not be useful; Trends assessment may require historical info Understandability – classification, characterisation and presenting info clearly and concisely ; reports prepared for users with reasonable knowledge of business, economic activities and who review and analyse info diligently. Applying enhancing qualitative characteristics – Should be maximised to extent possible

  11. The cost constraint on useful financial reporting Assess cost of reporting info justify costs incurred to provide and use that info

  12. Underlying assumption Going concern

  13. Elements of financial statements • Financial position – Measurement through assessment of A, L, E • Asset – resource controlled by entity, inflow of economic benefits • Liability – present obligation from past events, outflow of economic benefits • Equity – residual interest of assets after deducting liabilities • Performance – profits used as measure of performance • Income – increase in economic benefits, inflow or enhancements of assets or decrease in liabilities resulting in increase in equity other than owners’ contribution • Expenses – decrease in economic benefits , outflow or depletion of assets , incurrence of liabilities resulting in decrease in equity other than distribution to owners • Capital maintenance adjustments – revaluation or restatements of assets and liabilities give rise to increase or decrease in equity

  14. Recognition of elements of financial statements • Probability future economic benefits – will flow to or from entity • Reliability of measurements – cost or value • Recognition of: • Assets • Liabilities • Income • Expenses

  15. Measurement of elements of Financial Statements Historical cost – paid or fair value of payment given to acquire Current cost – value if acquired currently Realisable (settlement) value – amount obtained if the items are sold Present value – carried at discounted value of future cash flows.

  16. Capital maintenance and determination of profits • Capital • Financial concept = Equity = Net assets • Physical concept = operating capability, productive capacity eg units of output per day • Concept to use? Based on needs of users; determine goals to be attained in determining profits

  17. Continue • Financial capital maintenance • Profit = Financial (money ) amount of net assets at end finl period > Financial (money ) amount of net assets at beginning finl period • Physical capital maintenance • Profit = Physical productive capacity (operating capability) of entity at end finl period > Physical productive capacity (operating capability) of entity at beginning finl period

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