You are on page 1of 2

THEORY OF ACCOUNTS

CONCEPTUAL FRAMEWORK
 basis, guidelines & theoretical concepts
 NOT a standard
“PFRS” – PAS, PFRS, Interpretations
SCOPE [COQE]
C – concepts of capital & capital maintenance

QUALITATIVE CHARACTERISTICS
OLD
NEW
[CURRy]
Fundamental / Primary
C – comparability
Relevance
– inclusion/ exclusion would have
an effect on the decision of the
users
 predictive value
 confirmatory value

O – objective of financial reporting

 Materiality
– omission would have an effect on
the decision of the users ; entity
specific relevance

Q – qualitative characteristics
E – elements of financial reporting
“R” – reporting entity
OBJECTIVE OF FINANCIAL REPORTING

U – understandability

Faithful Representation
[CoNe-F]
- transactions should be
presented/recorded as it purports
to be
Co – completeness
 complete depiction (quantitative)
– a) amount b) what the amount
represents/description (qualitative)
Ne – neutrality
 NO bias
F – free from (material) error

R – relevance
Ry – reliability

Enhancing / Secondary
V – verifiability
 different knowledgeable parties
will arrive at a consensus that a
part transaction’s is faithfully
represented
C – comparability
(consistency in application)
 identify similarities and
differences
Intercomparability
intracomparability
U – understandability
 clear and concise presentation to
knowledgeable parties (due
diligence in reading)
T – timeliness
 information losses its usefulness
in time

 general purpose financial reports
 provide financial information about the reporting entity to
existing and potential investors, lenders, and other creditors
that is useful in decision making
USERS
 Primary – existing and potential investors, lenders and
creditors [EPIC-L]
 Secondary – management, government, other regulatory
agencies, general public

FINANCIAL INFORMATION
 info regarding the entity’s economic resources (assets) and
claims (liabilities)
 Financial Information
– assess financial position ; Statement of Financial Position
 Financial Information about changes in Economic
Resources and claims
 performance :
Accrual – statement of comprehensive income
Cash – statement of cashflows
 NOT due to performance – statement of changes in equity

“substance over form”

NADZ 

arising from past transactions/events .ELEMENTS Financial Position Assets .expected future economic benefit Liabilities .present obligation .decrease in asset / increase in liabilities that result in a decrease in equity other than distribution to owners UNDERLYING ASSUMPTION OLD NEW Going Concern Going Concern Accrual CONSTRAINT Cost constraint – pervasive constraint MEASUREMENT BASIS  acquisition cost at date of purchase  past acquisition cost 2) Current Cost  Present acquisition cost  Replacement cost 3) Realizable Value  Present selling price  Fair Value (IFRS 13) 4) Present Value  Discounted Future Cashflows 1) Historical Cost CONCEPTS of CAPITAL and CAPITAL MAINTENANCE  Capital / Equity – determine income/expense Capital Maintenance Approach 1) Physical Capital Maintenance – “current cost” 2) Financial Capital Maintenance – normal NADZ  .resources controlled by the entity .arising from past transactions/events .increases / enhancements in economic benefit .increase in assets / decrease in liabilities that result in an increase in equity other that contributed from owners Expenses .expected outflow of future economic benefit Equity Performance .residual interest in assets Income after deducting liabilities .decrease in economic benefit .