Conceptual Framework for
Financial Reporting
Chapter 2
PAS
PFRS
IAS
IFRS
Conceptual Framework
STATUS AND PURPOSE OF THE CONCEPTUAL FRAMEWORK
Chapter 1- THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL
REPORTING
CHAPTER 2- QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL
INFORMATION
CHAPTER 3- FINANCIAL STATEMENTS AND REPORTING ENTITY
CHAPTER 4- THE ELEMENTS OF FINANCIAL STATEMENTS
CHAPTER 5- RECOGNITION AND DERECOGNITION
CHAPTER 6- MEASUREMENT
CHAPTER 7- PRESENTATION AND DISCLOSURE
CHAPTER 8- CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE
STATUS AND PURPOSE OF THE CONCEPTUAL FRAMEWORK
To assist in developing Standards
To be a basis for accounting policies when no standards apply
To assist all parties in understanding and interpreting the
standard
The Conceptual Framework is NOT a standard
Chapter 1- THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL
REPORTING
To provide financial information for creditors and investors in
making decisions to provide resources.
General Purpose Financial Reporting
General Purpose Financial Statements
CHAPTER 2- QUALITATIVE CHARACTERISTICS OF USEFUL
FINANCIAL INFORMATION
Qualitative
Characteristics
Fundamental Enhancing
Faithful
Relevant Comparability Verifiability Timeliness Understandability
Representation
CHAPTER 2- QUALITATIVE CHARACTERISTICS OF USEFUL
FINANCIAL INFORMATION
Fundament
al
Faithful
Relevant Representa
tion
Predictive Confirmato Completen Free from
Materiality Neutrality
Value ry Value ess Errors
Enhancing
Understandabilit
Comparability Verifiability Timeliness
y
CHAPTER 3- FINANCIAL STATEMENTS AND REPORTING ENTITY
General purpose financial statements are a form of financial reports
Why make Financial Statements?
Assess future net cash inflows
Assess management’s ability
5 Types of Financial Statements
SFP
SCI
SCE
SCF
Notes to Financial Statements
Consolidated Financial Statements (Parent and Subsidiary)
Unconsolidated Financial Statements (Parent only)
Combined Financial Statements (Different entitites)
CHAPTER 4- THE ELEMENTS OF FINANCIAL STATEMENTS
Items Elements Definition
Economic Resource Asset 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.
Claim 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.
Items Elements Definition
Changes in economic Income Increases in assets, or decreases in liabilities,
resources and claims, that result in increases in equity, other than
reflecting financial those relating to contributions from holders of
performance equity claims
Expenses Expenses Decreases in assets, or increases in liabilities,
that result in decreases in equity, other than
those relating to distributions to holders of
equity claims.
Other changes in - Contributions from holders of equity claims,
economic resources and and distributions to them.
claims - Exchanges of assets or liabilities that do not
result in increases or decreases in equity
Unit of Account
Executory Contracts
CHAPTER 5- RECOGNITION AND DERECOGNITION
When to recognise items to financial statements
Recognize income/expense, recognize Asset/Liability/Equity
Consider when to only recognize income/expense instead of
Asset, Liability, and Equity
(basis are relevance, materiality, and faithful representation)
CHAPTER 5- RECOGNITION AND DERECOGNITION
Carrying amount
Existence uncertainty
Material uncertainty
CHAPTER 5- RECOGNITION AND DERECOGNITION
transferred component
retained component
Contract modifications
CHAPTER 6- MEASUREMENT
Quantitative
Measurement basis:
Historical Cost
Current Value
CHAPTER 7- PRESENTATION AND DISCLOSURE
Difference between IAS and IFRS: differencesbetween.com
CHAPTER 8- CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE
Protection
Return ON capital
Return OF capital
Financial concept of capital
Physical concept of capital
References
Chapter 8:
https://www.investopedia.com/terms/c/capital-maintenance.
asp
,
https://www.charterededucation.com/ifrs/the-2-concepts-of-
capital-under-ifrs/
Quiz
1-2. Give at least 2 Elements of Financial Statements. ALERE
3-4. Users of General Purpose Financial Statements- Investors,
Creditors/Lenders
5-6. Fundamental Qualitative Characteristics of Useful
Financial Information- Relevance, Faithful Representation
7-10. Enhancing Qualitative Characteristics of Useful Financial
Information- Comparability, Verifiability, Timeliness,
Understandability
Answers
1-2. Assets, Liabilities, Equity, Income, Expense
3-4. Investors/Existing Investors/Potential Investors,
Creditors/Lenders
5-6. Relevance, Faithful Representation
7-10. Comparability, Verifiability, Timeliness,
Understandability
