Concept ual Framework

Status & Purpose

• Describes objective, concepts & general purpose of financial reporting
• The purpose is to:
• Assist to develop IFRS standards that are on consistent concepts
• Assist to develop consistent accounting policies when standards don’t apply
• Assist to understand & interpret standards
• Nothing in the conceptual framework overrides any standard
• Contributes to mission of bringing transparency, accountability & efficiency to financial markets
• Transparency:
• Enhancing the international comparability & quality of financial info
• Accountability
• Reduce info gap between providers of capital & entities
• Info needed to hold management accountable is provided
• Efficiency
• Contribute to economic efficiency
• Help investors identify opportunities and risks
• Improving capital allocation

Objective, Usefulne & Limitations of General Purpose

Financial Reporting
• Objective:
• Provide financial info about the reporting entity
• Must be useful to existing & potential investors, lenders & creditors in making
decision
• Decisions about:
• Buying, selling/holding equity & debt instruments
• Providing/settling loans & other forms of credit
• Exercising rights to vote on/influence management’s actions
• Info needed is about:
• Economic resources of entity, claims against entity & changes in resources and
claims
• How efficiently & effectively entity’s management & governing board have
discharged responsibilities to use economic resources
• Limitations
• Cannot provide all info stakeholders need
• Users need to consider relevant info from other sources
• Not designed to show value of reporting entity
• But they provide info to help users estimate the value
• Individual primary users have different/conflicting info, needs & desires
• Board will try to provide info that will meet the needs of the majority

Elements of Financial Statements

Assets

• Present economic resource controlled by entities a result of past events

• An economic resource is a right that has the potential to produce economic benefits.
• Right
• Have potential to produce economic benefits
• Correspond to an obligation of another party

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 • Eg. Right to receive cash, right to receive goods/services, right to exchange

economic. With another party on favourable terms, right to benefit from an
obligation of another party to transfer an economic resource if a specified
uncertain future event occurs
• Do not correspond to an obligation of another party
• Rights to use intellectual property
• Rights over physical objects
• Established by contract, legislation or similar means
• Entity cannot have a right to obtain economic benefit form itself
• Potential to produce economic benefits
• Economic resource is a right that has the potential to produce economic benefits
• For the potential to exist:
• It does not need to be certain that right will produce economic benefit
• It is only necessary that right already exists
• In at least one circumstance it could produce economic benefit beyond those
available o other parties
• A right can meet the definition of an economic resource
• An economic resource could produce economic benefits by enabling it to:
• Receive contractual cashflows or another economic resource
• Exchanging economic resources with another party on favourable terms
• Producing cash inflows/avoiding outflows by:
• Using the resource either individually/in combination with other economic
resources to produce goods/services
• Using resource to enhance the value of other economic resources
• Leasing the resource to other parties
• Receive cash/other resources by selling the economic resource
• Extinguish liabilities by transferring the resource
• Though an economy resource derives its value from its present potential to produce future
economic benefits
• The economic resource is the present right that contains