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CONCEPTUAL
FRAMEWORK AND
ACCOUNTING
STANDARDS
Question
What is conceptual framework? why it is
important?
Purpose of Conceptual
Framework
Assist the IASB in
developing standards
Assist the preparers in
developing consistent
accounting policies
Assist all parties in
understanding and
interpreting standards
Status of Conceptual Framework
 The conceptual framework is not an standard.
 If there is a conflict between the standard and
the conceptual framework standard will prevail.
SCOPE
Objective of financial reporting
Qualitative characteristics
Financial statements and the
reporting entity
Elements of FS
Recognition and Derecognition
Measurement
Presentation and disclosure
Concepts of capital and capital
maintenance
OBJECTIVE OF FINANCIAL
REPORTING
“the objective of general purpose financial
reporting is to provide financial information about
the reporting entity that is useful to its primary
users”
Question
Information about the nature and amounts of an
entity’s economic resources, claims and
performance can help users in assessing?
Liquidity –
ability to pay
short term
obligation
Solvency –
ability to pay
long term
obligation
Needs for
additional
financing
Management
stewardship –
how the
company
utilized is
economic
resources
QUALITATIVE
CHARACTERISTICS
Fundamental Qualitative
Characteristics
Enhancing Qualitative
Characteristics
Fundamental
Qualitative
Characteristics
Relevance - make
a difference
Predictive value –
making
predictions
Confirmatory
value – feedback
value
Faithful
Representation –
true, correct and
complete
Completeness – all
information is
provided
Neutrality –
without bias
Free from error –
no error from
description and
process
Enhancing Qualitative
Characteristic
Comparability – helps
user identify similarities
and differences
Verifiability – users can
reach a general
agreement as to what
the information
purports to represent
Timeliness – available
to users in time
Understandability –
presented in clear and
concise manner
Question
What is materiality?
MATERIALITY
 Information is material if omitting, misstating or
obscuring it could reasonably be expected to
influence decisions of the primary users.
 matter of professional judgment
Reporting Period
 prepared for a specified period of time
 FS provide comparative information for at least 1
preceding reporting period
 FS are designed to provide information about
past events.
 Information about possible future transactions
and other events is included if it relates to past
information
Reporting entity
 is one the is required, chooses or prepare the
financial statement
 controlling entity is called the parent
 controlled entity is called a subsidiary
 consolidated financial statements
 combined financial statements (no parent-
subsidiary relationship)
SCOPE
Objective of financial reporting
Qualitative characteristics
Financial statements and the
reporting entity
Elements of FS
Recognition and Derecognition
Measurement
Presentation and disclosure
Concepts of capital and capital
maintenance
Question
What is an asset?
ASSET
 Is a present economic resource controlled by the entity
as a result of past events. An economic resource is a
right that has the potential to produce economic
benefits. a right he basic purpose of accounting is to
provide information that is useful in making economic
decision.
 it has three aspects right, potential to produce
economic benefits and control
Rights includes:
• Right to receive cash, goods and resources
• Right to exchange on favorable terms
• Right to benefit from an obligation of
another party
1. Right that
corresponds to an
obligation of another
party
• Right over physical object
• Right to use intellectual property
2. Rights that do not
corresponds to an
obligation of another
party
Question
What are the ways an economic resources can
produce economic benefits for the entity?
Potential to produce economic benefits
 sold, leased, transferred or exchanged for other asset
 used singly or in combination with other asset to
produce goods or service
 use to enhance the value of other assets
 used to promote efficiency and cost savings
 used to settle liabilities
Control
 means the entity has the exclusive right over the
benefits of an asset and the ability to prevent others
from accessing those benefits
 control normally stems from legally enforceable rights
however ownership is not always necessary for control
to exists.
LIABILITY
“According to Conceptual Framework 4.26 a liability is a
present obligation of the entity to transfer economic
resource as a result of pas events”
Obligation
An obligation that results from a contract legislation
or other operation of law
Legal
Obligation
An obligation that results from an entity’s action that
create a valid expectation on others that the entity
will accept and discharge certain responsibilities
Constructive
obligation
Transfer of economic benefits
 pay cash, deliver goods, or render services
 exchange assets with another party on unfavorable
terms
 transfer assets if a specified uncertain future event
occurs
 issue a financial instrument that obliges the entity to
transfer economic resources
Present obligation as a result of past
events
 already obtained economic benefits or taken action
 the entity will or may have to transfer an economic
resource that it would not otherwise have had transfer
Examples
 Entity A intends to acquire goods in the future
 Entity B operates a nuclear power plant. In the current
year, a new law was enacted penalizing the improper
disposal of toxic waste. No similar law existed in prior
years.
 Entity C enters into an irrevocable commitment with
another party to acquire goods in the future on credit
Executory contracts
 is a contract that is equally unperformed neither party
has fulfilled any of its obligations, or both parties have
partially fulfilled their obligations to an equal extent
Equity
 is the residual interest in the assets of the entity after
deducting the liabilities
 reserves may refer to amounts set aside by the entity
as protection for its creditors or stakeholders from
losses.
Income
 increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets
or decreases in liabilities
Question!
 What is the difference between revenue and gains?
Expenses
 decreases in economic benefits during the accounting
period in the form of outflows or depletion of assets or
incurrence of liabilities
 Expenses vs Losses
Recognition
meets the
definition
of an
elements
probable
future
economic
benefits
measured
reliably
Concept of Capital and Capital
Maintenance
 Financial Concept of Capital – capital is regarded as
the invested money or invested purchasing power.
Equity or net assets
 Physical Concept of Capital – capita is regarded as the
entity’s productive capacity
Concept of Capital and Capital
Maintenance
 Financial Capital Maintenance – profit is earned if net
assets at the end of the period exceeds the net assets
at the beginning of the period after excluding any
distributions to and contributions from owners during the
period.
 Physical Capital Maintenance – profit is earned only if
the entity’s productive capacity at the end of the period
exceeds the productive capacity at the beginning of the
period after excluding any distributions to and
contributions from owners during the period.

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UNIT ONE OF 2 Conceptual-Framework IFRS.pptx

  • 2. Question What is conceptual framework? why it is important?
  • 3. Purpose of Conceptual Framework Assist the IASB in developing standards Assist the preparers in developing consistent accounting policies Assist all parties in understanding and interpreting standards
  • 4. Status of Conceptual Framework  The conceptual framework is not an standard.  If there is a conflict between the standard and the conceptual framework standard will prevail.
  • 5. SCOPE Objective of financial reporting Qualitative characteristics Financial statements and the reporting entity Elements of FS Recognition and Derecognition Measurement Presentation and disclosure Concepts of capital and capital maintenance
  • 6. OBJECTIVE OF FINANCIAL REPORTING “the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to its primary users”
  • 7. Question Information about the nature and amounts of an entity’s economic resources, claims and performance can help users in assessing?
  • 8. Liquidity – ability to pay short term obligation Solvency – ability to pay long term obligation Needs for additional financing Management stewardship – how the company utilized is economic resources
  • 10. Fundamental Qualitative Characteristics Relevance - make a difference Predictive value – making predictions Confirmatory value – feedback value Faithful Representation – true, correct and complete Completeness – all information is provided Neutrality – without bias Free from error – no error from description and process
  • 11. Enhancing Qualitative Characteristic Comparability – helps user identify similarities and differences Verifiability – users can reach a general agreement as to what the information purports to represent Timeliness – available to users in time Understandability – presented in clear and concise manner
  • 13. MATERIALITY  Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions of the primary users.  matter of professional judgment
  • 14. Reporting Period  prepared for a specified period of time  FS provide comparative information for at least 1 preceding reporting period  FS are designed to provide information about past events.  Information about possible future transactions and other events is included if it relates to past information
  • 15. Reporting entity  is one the is required, chooses or prepare the financial statement  controlling entity is called the parent  controlled entity is called a subsidiary  consolidated financial statements  combined financial statements (no parent- subsidiary relationship)
  • 16. SCOPE Objective of financial reporting Qualitative characteristics Financial statements and the reporting entity Elements of FS Recognition and Derecognition Measurement Presentation and disclosure Concepts of capital and capital maintenance
  • 18. ASSET  Is a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits. a right he basic purpose of accounting is to provide information that is useful in making economic decision.  it has three aspects right, potential to produce economic benefits and control
  • 19. Rights includes: • Right to receive cash, goods and resources • Right to exchange on favorable terms • Right to benefit from an obligation of another party 1. Right that corresponds to an obligation of another party • Right over physical object • Right to use intellectual property 2. Rights that do not corresponds to an obligation of another party
  • 20. Question What are the ways an economic resources can produce economic benefits for the entity?
  • 21. Potential to produce economic benefits  sold, leased, transferred or exchanged for other asset  used singly or in combination with other asset to produce goods or service  use to enhance the value of other assets  used to promote efficiency and cost savings  used to settle liabilities
  • 22. Control  means the entity has the exclusive right over the benefits of an asset and the ability to prevent others from accessing those benefits  control normally stems from legally enforceable rights however ownership is not always necessary for control to exists.
  • 23. LIABILITY “According to Conceptual Framework 4.26 a liability is a present obligation of the entity to transfer economic resource as a result of pas events”
  • 24. Obligation An obligation that results from a contract legislation or other operation of law Legal Obligation An obligation that results from an entity’s action that create a valid expectation on others that the entity will accept and discharge certain responsibilities Constructive obligation
  • 25. Transfer of economic benefits  pay cash, deliver goods, or render services  exchange assets with another party on unfavorable terms  transfer assets if a specified uncertain future event occurs  issue a financial instrument that obliges the entity to transfer economic resources
  • 26. Present obligation as a result of past events  already obtained economic benefits or taken action  the entity will or may have to transfer an economic resource that it would not otherwise have had transfer
  • 27. Examples  Entity A intends to acquire goods in the future  Entity B operates a nuclear power plant. In the current year, a new law was enacted penalizing the improper disposal of toxic waste. No similar law existed in prior years.  Entity C enters into an irrevocable commitment with another party to acquire goods in the future on credit
  • 28. Executory contracts  is a contract that is equally unperformed neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent
  • 29. Equity  is the residual interest in the assets of the entity after deducting the liabilities  reserves may refer to amounts set aside by the entity as protection for its creditors or stakeholders from losses.
  • 30. Income  increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in liabilities Question!  What is the difference between revenue and gains?
  • 31. Expenses  decreases in economic benefits during the accounting period in the form of outflows or depletion of assets or incurrence of liabilities  Expenses vs Losses
  • 33. Concept of Capital and Capital Maintenance  Financial Concept of Capital – capital is regarded as the invested money or invested purchasing power. Equity or net assets  Physical Concept of Capital – capita is regarded as the entity’s productive capacity
  • 34. Concept of Capital and Capital Maintenance  Financial Capital Maintenance – profit is earned if net assets at the end of the period exceeds the net assets at the beginning of the period after excluding any distributions to and contributions from owners during the period.  Physical Capital Maintenance – profit is earned only if the entity’s productive capacity at the end of the period exceeds the productive capacity at the beginning of the period after excluding any distributions to and contributions from owners during the period.

Editor's Notes

  1. These users investors, lenders and creditors cannot demand directly from the reporting entities and must rely on general purpose FS General purpose FS does not provide information about the value of the entity but it helps users in estimating it
  2. The decision of primary users are based on the assessments of an entity’s prospect for future net cash inflows and management stewardship.
  3. Fundamental Qualitative Charactersitics – make information useful to users Enhancing qualitative – enhance the usefulness of information
  4. Relevance – make a difference in the decision of the user Substance over form Neutrality is supported by prudence
  5. Consistency refers to the use of the same methods for the same items
  6. Not necessary the legal entity Jollibee foods corporation controlled chowking Greenwich mang inasal dunkin donuts Chowking and Greenwich combined fs Consolidated fs provide information on parent and subsidiary and single reporting entity
  7. Rights normally arise from law contract or similar means Treasury shares are not assets entity cannot obtain a right from itself
  8. Bank financing bank have the legal title until full payment the company had the right to used it.
  9. Identity may not know ex. Owed to society For example a buyer obligation to pay an accounts payable of P100 normally corresponds to the sellers right to collect ar of 100
  10. Entity a has already purchased and received the goods Entity B does not violate the lawavoid penalty by changing future method of waste disposal Previos disposal has caused damages A non cancellable future commitment gives rise to present obligation only when it become onerous burdensome for example if the goods become obsolete before delivery but entty c cannot cancel
  11. Entering into employment contract neither recognize asset nor liability upon
  12. Recording an item in the BS or IS Meet all the requirement if not disclosed in the notes Probable means more likely than not higher chance Capitalizable cost assets/ do not provide future economic benefits expense immediately Must have a cost or value