Topic 1 To 17

IASB Conceptual Framework
IASB Conceptual
Framework for
Financial Reporting
IASB Conceptual Framework - Introduction
The IASB framework

describes the objective of,
and the concepts for,
general-purpose financial
reporting.
The IASB framework is not a

standard, and nothing in the
framework overrides any
standard or any requirement
which the standards contain.
Theoretical principles that

Conceptual provide guidance for
Framework financial reporting
Assists IASB to develop

standards
Does not override any Not an

standard Blueprint / International
Bedrock of IFRS Accounting
Standard
Purpose
a) To assist the IASB to develop
standards which are based on
consistent concepts;
b) To assist preparers to develop
consistent accounting policies
when no standard applies to a
particular transaction or other
event; and
c) To assist all parties to
understand and interpret the
standards.
Chapters of IASB framework
1. The Objective of General-Purpose
Financial Reporting
2. Qualitative Characteristics of Useful
Financial Information
3. Financial Statements and the
Reporting Entity
4. The Elements of Financial
Statements
5. Recognition and Derecognition
6. Measurement
7. Presentation and Disclosure
8. Concepts of Capital and Capital
Maintenance
Objective of General
Purpose Financial
Statement
Objective of General Purpose Financial Statement
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.
General-purpose financial
statements provide information
about the financial position of
an entity, its resources and
claims against those resources.
Information is provided about
the strengths and weaknesses
of an entity and its ability to
acquire finance.
statements also provide
information about changes in
an entity’s economic resources
and claims that result in entity’s
financial performance.
Financial performance is
assessed both through the
process of accrual accounting
and changes in cash flows.
Financial Statement &

Reporting Entity
Financial Statement & Reporting Entity
statements consist of a
statement of financial position
(recognising assets, liabilities
and equity), a statement of
financial performance
(recognising income and
expenses), and other
statements and notes.
Financial statements are

prepared for a specified period
of time.
Comparative information for at
least one preceding reporting
period should also be provided
Going Concern
Financial statements are usually
prepared on the assumption
that the entity is a going
concern and will continue to
operate for the foreseeable
future.
Going concern
Assumption that a business unit will remain in existence for the
foreseeable future
Rules of the game which provide
A unifying Internal
theoretical logic of
and
structure accounting
Financial statements are

prepared from the perspective
of the entity as a whole, instead
of from the viewpoint of any
particular group of investors,
lenders or other creditors.
Reporting entity is not

necessarily a legal entity.
Elements of
Financial Statements
Elements of Financial Statements
The elements are linked to the

economic resources and claims,
and changes in those economic
resources and claims.
Assets
Income Liabilities
Elements of
Financial
Statements
Expenses Equity
An asset is defined as a present

economic resource controlled
by the entity as a result of past
events. An economic resource
is defined as a right that has the
potential to produce economic
benefits.
A liability is defined as a
present obligation of the entity
to transfer an economic
resource as a result of past
events.
Equity is defined as the residual

interest in the assets of the
entity after deducting all its
liabilities.
Income is defined as increases

in assets, or decreases in
liabilities, that result in
increases in equity, other than
those relating to contributions
from holders of equity claims.
Expenses are defined as

decreases in assets, or
increases in liabilities, that
result in decreases in equity,
other than those relating to
distributions to holders of
equity claims.
Elements of
Financial Statements
Practice
Elements of Financial Statements - Practice
Identify Assets (Y/N) ?

1. Office stationery
2. Computer & Printer
3. Airconditioning plant
4. Repair and maintenance of
machinery
5. Building purchased
6. Building on rent
Identify Liabilities (Y/N) ?

1. Loan from bank
2. Bank overdraft facility
3. Cash received in advance
from customer to deliver
goods in future
4. Cash received from credit
customer after one week of
sales of goods
5. Issue of bonds to raise
funds from public
Identify Equity (Y/N) ?

1. Contribution of personal
resources by owner
2. Distribution of entity’s
resources to owner
3. Issue of certificate to raise
funds from owner upon a
promise to redeem the
certificates in future
Recognition of the
elements of financial
statement
Recognition
Recognition.
Recognition is the process of
capturing for inclusion in the
statement of financial position
or the statement of financial
performance an item that
meets the definition of one of
the elements of financial
statements (an asset, a liability,
equity, income or expenses).
Recognition
Recognition Criteria Relevance may be affected by
Low probability
probable future of flow of Uncertainty of
economic Existence
economic the item has a benefits
benefit cost or value
associated with that can be Faithful representation may be affected by
the item will measured with
flow to or from reliability. recognition
uncertainty
the entity; and of
inconsistency presentation
(accounting and disclosure
measurement mismatch)
Derecognition of the
elements of financial
statements
Derecognition
Derecognition.
Derecognition is the
removal of all or part of
an asset or liability from
an entity’s statement of
financial position.
Derecognition
For an Asset
Derecognition normally
occurs when the entity
loses control of all or part
of a recognised asset.
Derecognition
For a Liability
Derecognition normally
occurs when the entity no
longer has a present
obligation for all or part of
the recognised liability.
Derecognition
Any assets or liabilities

which have expired or
been consumed,
collected, fulfilled or
transferred will be
derecognised, with the
associated recognition of
any resultant income and
expenses.
Measurement
Measurement
Elements recognised in
financial statements are
quantified in monetary terms.
Measurement
Measurement bases.
Measurement bases are
categorised as either historic
cost or current values.
Measurement
Measurement Bases
Current Value
Historical Cost
Measurement
Measurement Bases
Bases
HC of liability Value in Use

HC of asset reduces (for assets)
increases when Fair Value Current Cost
when impaired Fulfilment Value
onerous
(for liabilities)
Base: Exit Price and Market Base: Present Value of Base: Entry Price of
Participants Future Cash Flows Equivalent Asset/Liability
Measurement
Selection of a measurement
basis.
It is noted that for the
information provided by a
particular measurement basis
to be useful to the users of the
financial statements, it must be
relevant, and it must faithfully
represent what it purports to
represent.
Measurement
Historical Cost
Measurement – Historical Cost
The historical cost measure

provides financial information
about assets, liabilities and
their related income and
expenses derived essentially
from the price of the
transaction or other event
which gave rise to them.
Changes in value of the asset or

liability over time are not
reflected, except to the extent
that an asset has become
impaired or a liability has
become onerous.
Following initial recognition,

the historical cost of an asset is
updated over time to take
account of consumption of the
asset (depreciation or
amortisation).
Measurement
Fair Value
Measurement – Fair Value
Fair value is the price that

would be received to sell an
asset, or paid to transfer a
liability, in an orderly
transaction between market
participants at the
measurement date.
It reflects the perspective of

participants in a market to
which the entity has access.
Fair value can sometimes be

determined directly by
observing prices in an active
market.
In other cases, it must be

determined indirectly using
measurement techniques such
as cash flow forecasting.
Measurement
Value in use (of
assets)
Fulfilment value (of
liabilities)
Measurement – Value in Use
Value in use is the present

value of the cash flows that an
entity expects to derive from
the use of an asset and from its
ultimate disposal.
Fulfilment value is the present

value of the cash that an entity
expects to be obliged to
transfer as it fulfils a liability.
Value in use and fulfilment

value are based on entity-
specific assumptions, rather
than assumptions made by
market participants.
Measurement
Current Cost
Measurement – Current Cost
Current cost of an asset is the

cost of an equivalent asset at
the measurement date. It
includes the consideration that
would be paid at the
measurement date plus the
transaction costs that would be
incurred at that date
Current cost of a liability is the

consideration that would be
received for an equivalent
liability at the measurement
date minus the transaction
costs that would be incurred at
that date.
Current cost can sometimes be

observed directly (in an active
market for similar age and
condition to the asset in
question) but where this is not
possible, derive current cost
indirectly by adjusting the price
of a new asset to reflect the age
and condition of the asset in
question.
Selection of
Measurement Basis
Selection of Measurement Basis
Measurement basis to be useful

to the users of the financial
statements; it must be relevant,
and it must faithfully represent
what it purports to represent.
Cost is recognised as a
constraint on the selection of a
measurement basis, as it is with
all other areas of financial
reporting.
The enhancing qualitative

characteristics of comparability,
verifiability and
understandability are also
recognised as having
implications for the selection of
a measurement basis.
Measurement Basis
Practice
Measurement Basis - Practice
Sample Co. Purchased a Farm
House for Rs. 100 million on 1st
Jan, 2011. Its useful life was
estimated to be 50 years. The
Farm House can be sold at its
market price on 31st Dec, 2020
at Rs. 250 million.
Whereas the same size and
style of Farm House in the same
location can be bought for Rs.
260 million on which Rs. 10
million will be incurred for its
registration and legal fee.
Measure the value of Farm

House under each of the
following measurement basis:
• Historical cost
• Current cost
• Fair value
Historical cost
Rs. 100 million less depreciation
for 10 out of 50 years Rs. 20
million, equals to Rs. 80 million
Fair Value
Rs. 250 million being the exit
price available in the market
among market participants.
Current Cost
Rs. 260 million being purchase
consideration plus transaction
cost of Rs. 10 million, equals to
Rs. 270 million.
Presentation and
Disclosure
Presentation and Disclosure
Effective communication
through presentation and
disclosure makes the
information more relevant and
contributes to a faithful
representation of the entity’s
assets, liabilities, equity, income
and expenses.
Classification.
Classification is the sorting of
assets, liabilities, equity, income
and expenses on the basis of
shared characteristics for
presentation and disclosure
purposes. Like; current asset.
Aggregation.
Aggregation is the adding
together of assets, liabilities,
equity, income and expenses
that have shared characteristics
and are included in the same
classification. Like; balance in
different bank accounts
whether current account or
short-term deposit account.
Accounting Framework in Pakistan
Financial Accounting
and Reporting
Framework in
Pakistan - I
Role of SECP
Companies must prepare
financial statements in
accordance with accounting
standards approved as
applicable and notified in the
official gazette by the Securities
and Exchange Commission of
Pakistan (SECP) and in
accordance with rules in the
Companies’ Act 2017.
Role of ICAP
ICAP regulates the Chartered
Accountancy profession.
ICAP is responsible for
recommending reporting
standards for notification by the
Securities and Exchange
Commission of Pakistan.
Companies Act 2017

The Companies Act 2017
contains a series of appendices
called schedules which set out
detailed requirements in
certain areas of financial
reporting.
Schedules
3rd Schedule classifies
companies on the basis of size
and nature (profit or nonprofit).
4th Schedule sets out disclosure
requirements for listed
companies.
5th Schedule applies to non-
listed companies.
Financial Accounting
and Reporting
Framework in
Pakistan - II
Adoption of IFRS
IFRSs cannot be applied in any
country without approval of the
national regulators in that
country.
All jurisdictions have some kind
of formal approval process
which is followed before IFRS
can be applied there.
Adoption Process for IFRSs

Step 1
As a first step the IFRS/IAS is
considered by ICAP’s
Accounting Standards Board,
which identifies any issues that
may arise on adoption.

Step 2
The Board also determines how
the adoption and
implementation of the standard
can be facilitated. It considers
issues like how long any
transition period should be.

Step 3
The Board also identifies the
need for changes to regulations
it refers the matter to the SECP
(and/or the SBP for matters
affecting banks and other
financial institutions).
This process is managed by the
Coordination Committees of
ICAP and SECP (SBP).

Step 4
After the satisfactory resolution
of issues the Board and the
Council reconsider the matter
of adoption.

Step 5
ICAP recommends the adoption
to the SECP by decision of the
Council.
The decision to adopt the
standard rests with the SECP.

Step 6
IFRSs are adopted by the SECP
by notification in the official
gazette.
When notified, the standards
have the authority of the law.

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Topic 1 To 17

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IASB Conceptual Framework

The IASB framework

The IASB framework is not a

Theoretical principles that

Assists IASB to develop

Does not override any Not an

To provide financial information

Financial Statement &

Financial statements are

Rules of the game which provide

Financial statements are

Reporting entity is not

The elements are linked to the

An asset is defined as a present

Equity is defined as the residual

Income is defined as increases

Expenses are defined as

Identify Assets (Y/N) ?

Identify Liabilities (Y/N) ?

Identify Equity (Y/N) ?

Recognition Criteria Relevance may be affected by

Any assets or liabilities

HC of liability Value in Use

The historical cost measure

Changes in value of the asset or

Following initial recognition,

Fair value is the price that

It reflects the perspective of

Fair value can sometimes be

In other cases, it must be

Value in use is the present

Fulfilment value is the present

Value in use and fulfilment

Current cost of an asset is the

Current cost of a liability is the

Current cost can sometimes be

Measurement basis to be useful

The enhancing qualitative

Measure the value of Farm

Companies Act 2017

Adoption Process for IFRSs

Adoption Process for IFRSs

Adoption Process for IFRSs

Adoption Process for IFRSs

Adoption Process for IFRSs

Adoption Process for IFRSs

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