Strategic Business Reporting (SBR) June 2022 Exam

Revised IASB’s Conceptual Framework for Financial Reporting

Chapter 1: Objective of general purpose of financial information

To provide financial information about the reporting entity that is useful to existing
and potential investors, lenders and other creditors in making decisions relating to
providing resources to the entity.

Chapter 2: Qualitative characteristics of useful financial information

Fundamental characteristics:

 Relevance

 Faithful representation:
(a) Complete
(b) Neutral (without bias)
(c) Free from errors
(d) Apply substance over form

Enhancing characteristics:

 Timeliness – older information is less useful

 Understandability – information should be presented as clearly & concisely

as possible

 Verifiability – knowledgeable users should be able to agree that a particular

depiction of a transaction offers a faithful representation

 Comparability:

(a) Within entity over the periods – identify trends

(b) Other entities same industry – relative position & performance

This chapter reintroduces ‘Prudence’ and states that the exercise of prudence
supports neutrality.

Prudence is defined as the exercise of caution when making judgments under

conditions of uncertainty.

When making estimate, assets should not be overstated and liability should not
be understated.

Also new in this chapter is a clarification that faithful representation means

representation of the substance of an economic phenomenon instead of
representation of its legal form only.

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Strategic Business Reporting (SBR) June 2022 Exam

Chapter 3: Financial statements and the reporting entity

This chapter states that the objective of the FS is to provide information about an
entity’s assets, liabilities, equity, income and expenses that is useful to users in
assessing the prospects for future net cash inflows to the entity and in assessing
management’s stewardship the entity’s resources.

New to the Framework is the definition of a ‘reporting entity’.

A reporting entity is one that prepares financial statements.

Financial statements produced for a reporting entity that comprises a parent

company and its subsidiaries are called ‘consolidated financial statements’. These
FS show the parent and its subsidiaries as a single economic entity. This information
is important for investors in the parent because their economic returns are
dependent on distributions from the subsidiary to the parent.

Unconsolidated FS also provide useful information to investors in a parent company

but they are not a substitute for information provided in consolidated FS.

Chapter 4: Elements of financial statements

The main focus of this chapter is on the definition of assets, liabilities, equity, income
and expenses.

 Asset – A present economic resource controlled by the entity as a result of

past events.

An economic resource is right that has the potential to produce economic

benefits.

 Liability – A present obligation of the entity to transfer an economic resource

as a result of past events

 Equity – The residual interest in the assets of the entity after deducting all its
liabilities

 Income – Increase in assets or decreases in liabilities that result in increase

in equity, other than those relating to contributions from holders of equity
claims

 Expenses – Decrease in assets or increases in liabilities that result in

decreases in equity, other than those relating to distribution to holders of
equity claims

Myo Thein Nain g

ACCA, CIMA (STRATEGIC LEVEL)
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Strategic Business Reporting (SBR) June 2022 Exam

Chapter 5: Recognition and derecognition

Recognition

The Framework states that only items that the definition of an asset, a liability or
equity are recognised in the SOFP and only items that meets the definition of
income or expense are to be recognised in the SOPL&OCI.

However, their recognition is dependent on providing the users with:

(i) relevant information; and

(ii) a faithful representation of the asset or liability and resulting income,

expense or changes in equity; and

(iii) Information that results in benefits exceeding the costs of providing that
information

Derecognition

Derecognition is the removal of some or all of an asset or liability from the SOFP.
This normally occurs when the entity:

 Losses control of the asset, or

 Has no present obligation for the liability.

Accounting for derecognition should faithfully represent the changes in an entity’s

net assets, as well as any assets or liabilities retained.

This is achieved by:

 Derecognizing any transferred, expired or consumed component

 Recognizing a gain or loss on the above, and
 Recognizing any retained component.

Sometimes an entity might appear to have transferred an asset or liability. However,

derecognition would not be appropriate if exposure to variations in the element’s
economic benefits is retained.

Chapter 6: Measurement

This chapter describes different measurement bases such as historical cost,

current value, fair value, value in use and current cost. It explains in detail about
the information they provide and their advantages and disadvantages.

Current cost is newly introduced in The Framework as it is widely supported.

Current cost is different from fair value and value in use (which are ‘exit value’
gained from the item), as current cost is an ‘entry value’ (ie value in which entity
would acquire the asset).

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ACCA, CIMA (STRATEGIC LEVEL)
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Strategic Business Reporting (SBR) June 2022 Exam

Selecting a measurement base

The information provided to users by the measurement base must be useful. In

other words, it must be relevant and offer a faithful representation of the
transactions that have occurred.

When selecting a measurement basis, the Conceptual Framework states that

relevance is maximized if the following are considered:

 The characteristics of the asset and/or liability

 The ways in which the asset and/or liability contribute to future cash flows.

Chapter 7: Presentation and Disclosure

The Framework states that the SOPL is the primary source of information about
an entity’s financial performance for the reporting period and that only in
‘exceptional circumstances’ the Board may decide that income or expenses are
to be included in other comprehensive income.

Myo Thein Nain g

ACCA, CIMA (STRATEGIC LEVEL)
BSc (Hons) (OXFORD BROOKES UNIVERSITY) Page | 16