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\brdrs\brdrw15\brsp42\brdrcf0\brdrr\brdrs\brdrw15\brsp42\brdrcf0\brdrb\brdrs\brd rw15\brsp42\brdrcf0 \f3\fs18 9110 IAS box;}{\s125\sb101\sa101\li720\brdrl\brdrs\ brdrw22\brsp42 \brdrcf3\brdrt\brdrs\brdrw22\brsp42\brdrcf3\brdrr\brdrs\brdrw22\brsp42\brdrcf3\b rdrb\brdrs\brdrw22\brsp42\brdrcf3\shading10000\cfpat0 \f3\fs18\cf4 9120 Example IAS;}{\s126\sb101\sa101\li720\tx720\tx1440\brdrl\brdrs\brdrw22\brsp42\brdrcf3\br drt\brdrs \brdrw22\brsp42\brdrcf3\brdrr\brdrs\brdrw22\brsp42\brdrcf3\brdrb\brdrs\brdrw22\b rsp42\brdrcf3\shading10000\cfpat0 \i\f3\fs18\cf4 9121 Example IAS Italic;}{\s127 \sb58\sa58\li720\tx1440 \f3 9132 Editor's Comment;}{\s128\sb72\sa72 \f3\fs18 913 3 Footnote Tex t;}{\s129\sb72\sa72\li360\fi-360\tx360 \f3\fs18 9133 Footnote Text Bullet;}{\s13 0\sb108\sa108\tx360 \f3\cf4 9134 Left Blue;}{\s131\qc\sb240\sa240 \b\f3\fs40\cf2 9193 Chapter Title center;}{\s132\tx2880\tx11520 \f5 Footer;}{\s133 Normal:Para ;}{\*\cs134\b0 \i 900 Italics;}{\*\cs135\b\i0 901 Bold;}{\*\cs136\b\i0\fs20 901 Bold small;}{\* \cs137\v\f3\fs20 902 Hidden;}{\*\cs138\b\i 903 bold italic;}{\*\cs139\b0\i0\ul0\ strike0\v0\f6\fs20\cf0\nosupersub 904 Bullet-symbol font;}{\*\cs140\b0\i0\ul0\st rike0\v0\cf0 \nosupersub 905 No bold No Italic;}{\*\cs141\b\i0\ul0\strike0\v0\cf0\nosupersub 906 Bold No italic;}{\*\cs142\b\i\ul 907 bold italic underline;}{\*\cs143\b\ul\s trike0\v0\cf0\nosupersub 908 Double Underline;}{\*\cs144\ul\strike0\v0\cf0\nosup ersub 908 Unde rline;}{\*\cs145\strike\v0\cf0\nosupersub 909 Strikeout;}{\*\cs146\ul0\strike\v0 \cf0\nosupersub 910 Strikeout;}{\*\cs147\strike0\v0\cb5 914 Background Shading;} {\*\cs148\strike0\v0\fs18\cf0\up6 915 Superscript;}{\*\cs149\strike0\v0\fs18\cf0 \dn6 916 Subsc ript;}{\*\cs150\b\i0\ul0\strike\v0\cf0\nosupersub 917 Bold Strikethrough;}{\*\cs 151\b0\i\ul0\strike\v0\cf0\nosupersub 918 Italic Strikethrough;}{\*\cs152\b0\i\u l\strike0\v0\cf0\nosupersub 919 Italic underline;}{\*\cs153\b\i\ul0\strike\v0\cf 0\nosupersub 9 20 Bold Italic Strikethrough;}{\*\cs154\b\i0\ul\strike0\v0 921 Bold Underline;}{ \*\cs155\i0\strike0\v0\fs20 922 Footnote Reference;}{\*\cs156 Default Paragraph Font;}{\*\cs157\b\i0\cf6 glossary;}{\*\cs158 Intro delete;}{\*\cs159 Note;}{\*\c s160 Popup;}{ \*\cs161 RevisionAdd;}{\*\cs162\v\cf3 RevisionDelete;}{\*\cs163\v0\cb5 Revisions ;}{\*\cs164\strike\v0\cb5 Revisions - Deleted;}} {\info{\title IFRS Handbook 2005 -- 08 NOV 04}{\doccomm Official IASB Standards as of March 15, 2004; consequential amendments to IFRS1 made by E&Y}} {\header\s14 \qj\sb180 }{\footer\s14 \qj\sb180 {\b\i0\ul0\strike0\v0\expnd0\expn dtw0\outl0\shad0\f3\fs20\cf0\nosupersub 4 \tab \'a9 IASCF\line }} \pard\plain \s86 \sb240\sa240\brdrt\brdrs\brdrw30\brsp0\brdrcf0\brdrb\brdrs\brdr w14\brsp0\brdrcf0 {\*\bkmkstart IFRS Framework}{\*\bkmkend IFRS Framework}{\b\f3 \fs40\cf2 Framework for the Preparation and \line Presentation of Financial Stat ements \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub The IASB }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\ outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expnd tw0\outl0 \shad0\f3\fs20\cf0\nosupersub was approved by the IASC Board in April 1989 for publication in July 1989, and adopted by the IASB in April 2001. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Preface \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub Financial statements are prepared and presented for ex ternal users by many entities around the world. Although such financial stateme nts may appear similar from country to country, there are differences which have probably been caused by a variety of social, economic and legal circumstances and by differen t countries having in mind the needs of different users of financial statements when setting n

ational requirements. \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub These different circumstances have led to the use of a variety of definitions of the elements of financial statements; that is, for ex ample, assets, liabilities, equity, income and expenses. They have also resulted in the use o f different criteria for the recognition of items in the financial statements an d in a preference for different bases of measurement. The scope of the financia l statements a nd the disclosures made in them have also been affected. \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub The International Accounting Standards Committee (IASC ) is committed to narrowing these differences by seeking to harmonise regulation s, accounting standards and procedures relating to the preparation and presentation of financi al statements. It believes that further harmonisation can best be pursued by fo cusing on financial statements that are prepared for the purpose of providing in formation that is useful in making economic decisions. \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub The Board of IASC believes that financial statements p repared for this purpose meet the common needs of most users. This is because n early all user s are making economic decisions, for example, to: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab decide when to buy, hold or sel l an equity investment; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab assess the stewardship or accou ntability of management; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab assess the ability of the entit y to pay and provide other benefits to its employees; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab assess the security for amounts lent to the entity; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (e)\tab determine taxation policies; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (f)\tab determine distributable profits and dividends; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (g)\tab prepare and use national income statistics; or \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (h)\tab regulate the activities of enti ties. \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub The Board recognises, however, that governments, in pa rticular, may specify different or additional requirements for their own purpose s. These requ irements should not, however, affect financial statements published for the bene fit of other users unless they also meet the needs of those other users. \par }\pard \s9 \qj\sb108\sa108 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub Financial statements are most commonly prepared in acc ordance with an accounting model based on recoverable historical cost and the no minal financia l capital maintenance concept. Other models and concepts may be more appropriat e in order to meet the objective of providing information that is useful for mak ing economic decisions although there is presently no consensus for change. Thi

s }{\cs134\b0 \i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{ \b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub has be en developed so that it is applicable to a range of accounting models and concep ts of capital and capital maintenance. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Introduction \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Purpose and Status \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .1}{\*\bkmkend IFRS Framework, para.1}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 1.\tab This }{\cs134\b0\i\ul0\strike0\v0\expnd0\ expndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub sets out the concepts that underlie the prepa ration and presentation of financial statements for external users. The purpose of the }{ \cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Fr amework }{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupers ub is to: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab assist the Board of IASC in the development of future International Accounting Standards and in its review of e xisting Intern ational Accounting Standards; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab assist the Board of IASC in pro moting harmonisation of regulations, accounting standards and procedures relatin g to the prese ntation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by International Accounting Standard s; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab assist national standard-settin g bodies in developing national standards; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab assist preparers of financial s tatements in applying International Accounting Standards and in dealing with top ics that have yet to form the subject of an International Accounting Standard; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (e)\tab assist auditors in forming an o pinion as to whether financial statements conform with International Accounting Standards; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (f)\tab assist users of financial state ments in interpreting the information contained in financial statements prepared in conformity with International Accounting Standards; and \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (g)\tab provide those who are intereste d in the work of IASC with information about its approach to the formulation of International Accounting Standards. \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .2}{\*\bkmkend IFRS Framework, para.2}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 2.\tab This }{\cs134\b0\i\ul0\strike0\v0\expnd0\ expndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub is not an International Accounting Standard a nd hence does not define standards for any particular measurement or disclosure

issue. Nothin g in this }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\n osupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\c f0\nosupersub overrides any specific International Accounting Standard. \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .3}{\*\bkmkend IFRS Framework, para.3}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 3.\tab The Board of IASC recognises that in a li mited number o f cases there may be a conflict between the }{\cs134\b0\i\ul0\strike0\v0\expnd0\ expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\exp nd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub and an International Accounting Standard. In those cases where there is a conflict, the requirements of the International Ac counting Standard prevail over those of the }{\cs134\b0\i\ul0\strike0\v0\expnd0\ expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\exp nd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub . As, however, the Board of IASC will be gu ided by the }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0 \nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20 \cf0 \nosupersub in the development of future Standards and in its review of existin g Standards, the number of cases of conflict between the }{\cs134\b0\i\ul0\strik e0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\s trike0\v0 \expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub and International Accountin g Standards will diminish through time. \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .4}{\*\bkmkend IFRS Framework, para.4}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 4.\tab The }{\cs134\b0\i\ul0\strike0\v0\expnd0\e xpndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub will be revised from time to time on the basi s of the Board\'92s experience of working with it. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Scope \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .5}{\*\bkmkend IFRS Framework, para.5}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 5.\tab The }{\cs134\b0\i\ul0\strike0\v0\expnd0\e xpndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub deals with: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab the objective of financial stat ements; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab the qualitative characteristics that determine the usefulness of information in financial statements; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab the definition, recognition and measurement of the elements from which financial statements are constructed; an d \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab concepts of capital and capital maintenance. \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .6}{\*\bkmkend IFRS Framework, para.6}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 6.\tab The }{\cs134\b0\i\ul0\strike0\v0\expnd0\e xpndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub is concerned with general purpose financial s tatements (hereafter referred to as \'93financial statements\'94) including cons

olidated finan cial statements. Such financial statements are prepared and presented at least annually and are directed toward the common information needs of a wide range of users. Some of these users may require, and have the power to obtain, informat ion in additio n to that contained in the financial statements. Many users, however, have to r ely on the financial statements as their major source of financial information a nd such financial statements should, therefore, be prepared and presented with t heir needs in view. Special purpose financial reports, for example, prospectuses and computat ions prepared for taxation purposes, are outside the scope of this }{\cs134\b0\i \ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b 0\i0\ul0 \strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Nevertheless, the }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosuper sub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nos upersub may b e applied in the preparation of such special purpose reports where their require ments permit. \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .7}{\*\bkmkend IFRS Framework, para.7}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 7.\tab Financial statements form part of the pro cess of financ ial reporting. A complete set of financial statements normally includes a balan ce sheet, an income statement, a statement of changes in financial position (whi ch may be presented in a variety of ways, for example, as a statement of cash fl ows or a state ment of funds flow), and those notes and other statements and explanatory materi al that are an integral part of the financial statements. They may also include supplementary schedules and information based on or derived from, and expected to be read wit h, such statements. Such schedules and supplementary information may deal, for example, with financial information about industrial and geographical segments a nd disclosures about the effects of changing prices. Financial statements do no t, however, in clude such items as reports by directors, statements by the chairman, discussion and analysis by management and similar items that may be included in a financia l or annual report. \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .8}{\*\bkmkend IFRS Framework, para.8}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 8.\tab The }{\cs134\b0\i\ul0\strike0\v0\expnd0\e xpndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub applies to the financial statements of all co mmercial, industrial and business reporting entities, whether in the public or t he private sec tors. A reporting entity is an entity for which there are users who rely on the financial statements as their major source of financial information about the e ntity. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Users and Their Information Needs \par }\pard \s49 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .9}{\*\bkmkend IFRS Framework, para.9}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\out l0\shad0\f3\fs20\cf0\nosupersub 9.\tab The users of financial statements include present and p otential investors, employees, lenders, suppliers and other trade creditors, cus tomers, governments and their agencies and the public. They use financial state ments in order to satisfy some of their different needs for information. These needs include the following: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp

ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Investors}{\b0\i0\ul0\strike0\v 0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . The providers of risk capital an d their advisers are concerned with the risk inherent in, and return provided by , their investments. They need information to help them determine whether they should buy, ho ld or sell. Shareholders are also interested in information which enables them to assess the ability of the entity to pay dividends. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Employees}{\b0\i0\ul0\strike0\v 0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Employees and their representati ve groups are interested in information about the stability and profitability of their employers. They are also interested in information which enables them to assess the ab ility of the entity to provide remuneration, retirement benefits and employment opportunities. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Lenders}{\b0\i0\ul0\strike0\v0\ expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Lenders are interested in inform ation that enables them to determine whether their loans, and the interest attac hing to them, will be paid when due. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Suppliers and other trade credi tors}{\b0\i0 \ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due. Trade creditors are likel y to be intere sted in an entity over a shorter period than lenders unless they are dependent u pon the continuation of the entity as a major customer. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (e)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Customers}{\b0\i0\ul0\strike0\v 0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Customers have an interest in in formation about the continuance of an entity, especially when they have a long-t erm involvement with, or are dependent on, the entity. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (f)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Governments and their agencies} {\b0\i0\ul0 \strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Governments an d their agencies are interested in the allocation of resources and, therefore, t he activities of entities. They also require information in order to regulate t he activities of entities, determine taxation policies and as the basis for national income an d similar statistics. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (g)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Public}{\b0\i0\ul0\strike0\v0\e xpnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub . Entities affect members of the public in a variety of ways. For example, entities may make a substantial contribution to the local economy in many ways including the number of people they employ and t

heir patronage of local suppliers. Financial statements may assist the public by providing in formation about the trends and recent developments in the prosperity of the enti ty and the range of its activities. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .10}{\*\bkmkend IFRS Framework, para.10}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 10.\tab While all of the information needs of these users ca nnot be met by financial statements, there are needs which are common to all use rs. As investors are providers of risk capital to the entity, the provision of financial statements that meet their needs will also meet most of the needs of o ther users tha t financial statements can satisfy. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .11}{\*\bkmkend IFRS Framework, para.11}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 11.\tab The management of an entity has the pr imary responsi bility for the preparation and presentation of the financial statements of the e ntity. Management is also interested in the information contained in the financ ial statements even though it has access to additional management and financial information th at helps it carry out its planning, decision-making and control responsibilities . Management has the ability to determine the form and content of such addition al information in order to meet its own needs. The reporting of such informatio n, however, is beyond the scope of this }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\sha d0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub . Nevertheless, published financial statements are based on the information used by management about the financial position, performance and cha nges in financial position of the entity. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 The Objective of Financial Stateme nts \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .12}{\*\bkmkend IFRS Framework, para.12}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 12.\tab The objective of financial statements is to provide information about the financial position, performance and changes in financial p osition of an entity that is useful to a wide range of users in making economic decisions. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .13}{\*\bkmkend IFRS Framework, para.13}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 13.\tab Financial statements prepared for this purpose meet the common needs of most users. However, financial statements do not provide al l the information that users may need to make economic decisions since they larg ely portray the financial effects of past events and do not necessarily provide non-financial information. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .14}{\*\bkmkend IFRS Framework, para.14}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 14.\tab Financial statements also show the res ults of the st ewardship of management, or the accountability of management for the resources e ntrusted to it. Those users who wish to assess the stewardship or accountabilit y of management do so in order that they may make economic decisions; these deci sions may incl ude, for example, whether to hold or sell their investment in the entity or whet her to reappoint or replace the management. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Financial Position, Performance a

nd Changes in Financial Position \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .15}{\*\bkmkend IFRS Framework, para.15}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 15.\tab The economic decisions that are taken by users of fi nancial statements require an evaluation of the ability of an entity to generate cash and cash equivalents and of the timing and certainty of their generation. This ability ultimately determines, for example, the capacity of an entity to p ay its employe es and suppliers, meet interest payments, repay loans and make distributions to its owners. Users are better able to evaluate this ability to generate cash and cash equivalents if they are provided with information that focuses on the fina ncial position , performance and changes in financial position of an entity. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .16}{\*\bkmkend IFRS Framework, para.16}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 16.\tab The financial position of an entity is affected by t he economic resources it controls, its financial structure, its liquidity and so lvency, and its capacity to adapt to changes in the environment in which it oper ates. Information about the economic resources controlled by the entity and its capacity in t he past to modify these resources is useful in predicting the ability of the ent ity to generate cash and cash equivalents in the future. Information about fina ncial structure is useful in predicting future borrowing needs and how future pr ofits and cash flows will be distributed among those with an interest in the entity; it is als o useful in predicting how successful the entity is likely to be in raising furt her finance. Information about liquidity and solvency is useful in predicting t he ability of the entity to meet its financial commitments as they fall due. Liquidity refers to the availability of cash in the near future after taking account of financia l commitments over this period. Solvency refers to the availability of cash ove r the longer t erm to meet financial commitments as they fall due. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .17}{\*\bkmkend IFRS Framework, para.17}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 17.\tab Information about the performance of a n entity, in p articular its profitability, is required in order to assess potential changes in the economic resources that it is likely to control in the future. Information about variability of performance is important in this respect. Information abo ut performance is useful in predicting the capacity of the entity to generate cash flows from its existing resource base. It is also useful in forming judgements about the e ffectiveness with which the entity might employ additional resources. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .18}{\*\bkmkend IFRS Framework, para.18}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 18.\tab Information concerning changes in the financial posi tion of an entity is useful in order to assess its investing, financing and oper ating activities during the reporting period. This information is useful in pro viding the user with a basis to assess the ability of the entity to generate cas h and cash equ ivalents and the needs of the entity to utilise those cash flows. In constructi ng a statement of changes in financial position, funds can be defined in various ways, such as all financial resources, working capital, liquid assets or cash. No attempt is made in this }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\c f0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs

20\cf0\nosupersub to specify a definition of funds. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .19}{\*\bkmkend IFRS Framework, para.19}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 19.\tab Information about financial position i s primarily pr ovided in a balance sheet. Information about performance is primarily provided in an income statement. Information about changes in financial position is prov ided in the financial statements by means of a separate statement. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .20}{\*\bkmkend IFRS Framework, para.20}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 20.\tab The component parts of the financial s tatements inte rrelate because they reflect different aspects of the same transactions or other events. Although each statement provides information that is different from th e others, none is likely to serve only a single purpose or provide all the infor mation necessa ry for particular needs of users. For example, an income statement provides an incomplete picture of performance unless it is used in conjunction with the bala nce sheet and the statement of changes in financial position. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Notes and Supplementary Sc hedules \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .21}{\*\bkmkend IFRS Framework, para.21}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 21.\tab The financial statements also contain notes and supp lementary schedules and other information. For example, they may contain additi onal information that is relevant to the needs of users about the items in the b alance sheet and income statement. They may include disclosures about the risks and uncertain ties affecting the entity and any resources and obligations not recognised in th e balance sheet (such as mineral reserves). Information about geographical and industry segments and the effect on the entity of changing prices may also be pr ovided in the form of supplementary information. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Underlying Assumptions \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Accrual Basis \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .22}{\*\bkmkend IFRS Framework, para.22}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 22.\tab In order to meet their objectives, fin ancial stateme nts are prepared on the accrual basis of accounting. Under this basis, the effe cts of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the account ing records an d reported in the financial statements of the periods to which they relate. Fin ancial statements prepared on the accrual basis inform users not only of past tr ansactions involving the payment and receipt of cash but also of obligations to pay cash in th e future and of resources that represent cash to be received in the future. Hen ce, they provide the type of information about past transactions and other event s that is most useful to users in making economic decisions. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Going Concern \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .23}{\*\bkmkend IFRS Framework, para.23}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 23.\tab The financial statements are normally prepared on th e assumption that an entity is a going concern and will continue in operation fo r the foreseeable future. Hence, it is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its opera tions; if such

an intention or need exists, the financial statements may have to be prepared o n a different basis and, if so, the basis used is disclosed. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Qualitative Characteristics of Fin ancial Statements \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .24}{\*\bkmkend IFRS Framework, para.24}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 24.\tab Qualitative characteristics are the at tributes that make the information provided in financial statements useful to users. The four principal qualitative characteristics are understandability, relevance, reliabi lity and comparability. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Understandability \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .25}{\*\bkmkend IFRS Framework, para.25}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 25.\tab An essential quality of the informatio n provided in financial statements is that it is readily understandable by users. For this pu rpose, users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reaso nable diligenc e. However, information about complex matters that should be included in the fi nancial statements because of its relevance to the economic decision-making need s of users should not be excluded merely on the grounds that it may be too diffi cult for certa in users to understand. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Relevance \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .26}{\*\bkmkend IFRS Framework, para.26}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 26.\tab To be useful, information must be rele vant to the de cision-making needs of users. Information has the quality of relevance when it influences the economic decisions of users by helping them evaluate past, presen t or future events or confirming, or correcting, their past evaluations. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .27}{\*\bkmkend IFRS Framework, para.27}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 27.\tab The predictive and confirmatory roles of information are interrelated. For example, information about the current level and structu re of asset holdings has value to users when they endeavour to predict the abili ty of the entity to take advantage of opportunities and its ability to react to adverse situat ions. The same information plays a confirmatory role in respect of past predict ions about, for example, the way in which the entity would be structured or the outcome of planned operations. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .28}{\*\bkmkend IFRS Framework, para.28}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 28.\tab Information about financial position a nd past perfor mance is frequently used as the basis for predicting future financial position a nd performance and other matters in which users are directly interested, such as dividend and wage payments, security price movements and the ability of the ent ity to meet it s commitments as they fall due. To have predictive value, information need not be in the form of an explicit forecast. The ability to make predictions from fi nancial statements is enhanced, however, by the manner in which information on p ast transactio ns and events is displayed. For example, the predictive value of the income sta tement is enhanced if unusual, abnormal and infrequent items of income or expens e are separately disclosed. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Materiality

\par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .29}{\*\bkmkend IFRS Framework, para.29}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 29.\tab The relevance of information is affect ed by its natu re and materiality. In some cases, the nature of information alone is sufficien t to determine its relevance. For example, the reporting of a new segment may a ffect the assessment of the risks and opportunities facing the entity irrespecti ve of the mate riality of the results achieved by the new segment in the reporting period. In other cases, both the nature and materiality are important, for example, the amo unts of inventories held in each of the main categories that are appropriate to the business. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .30}{\*\bkmkend IFRS Framework, para.30}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 30.\tab Information is material if its omissio n or misstatem ent could influence the economic decisions of users taken on the basis of the fi nancial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materia lity provides a threshold or cut-off point rather than being a primary qualitative characteris tic which information must have if it is to be useful. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Reliability \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .31}{\*\bkmkend IFRS Framework, para.31}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 31.\tab To be useful, information must also be reliable. In formation has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it ei ther purports to represent or could reasonably be expected to represent. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .32}{\*\bkmkend IFRS Framework, para.32}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 32.\tab Information may be relevant but so unr eliable in nat ure or representation that its recognition may be potentially misleading. For e xample, if the validity and amount of a claim for damages under a legal action a re disputed, it may be inappropriate for the entity to recognise the full amount of the claim in the balance sheet, although it may be appropriate to disclose the amount and circumstances of the claim. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Faithful Representation \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .33}{\*\bkmkend IFRS Framework, para.33}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 33.\tab To be reliable, information must repre sent faithfull y the transactions and other events it either purports to represent or could rea sonably be expected to represent. Thus, for example, a balance sheet should rep resent faithfully the transactions and other events that result in assets, liabi lities and equ ity of the entity at the reporting date which meet the recognition criteria. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .34}{\*\bkmkend IFRS Framework, para.34}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 34.\tab Most financial information is subject to some risk o f being less than a faithful representation of that which it purports to portray . This is not due to bias, but rather to inherent difficulties either in identi fying the transactions and other events to be measured or in devising and applyi ng measurement and presentation techniques that can convey messages that correspond with those transactions and events. In certain cases, the measurement of the financial ef

fects of items could be so uncertain that entities generally would not recognise them in the f inancial statements; for example, although most entities generate goodwill inter nally over time, it is usually difficult to identify or measure that goodwill re liably. In other cases, however, it may be relevant to recognise items and to d isclose the ri sk of error surrounding their recognition and measurement. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Substance Over Form \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .35}{\*\bkmkend IFRS Framework, para.35}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 35.\tab If information is to represent faithfu lly the transa ctions and other events that it purports to represent, it is necessary that they are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. The substance of transactions or othe r events is no t always consistent with that which is apparent from their legal or contrived fo rm. For example, an entity may dispose of an asset to another party in such a w ay that the documentation purports to pass legal ownership to that party; nevert heless, agreem ents may exist that ensure that the entity continues to enjoy the future economi c benefits embodied in the asset. In such circumstances, the reporting of a sal e would not represent faithfully the transaction entered into (if indeed there w as a transacti on). \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Neutrality \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .36}{\*\bkmkend IFRS Framework, para.36}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 36.\tab To be reliable, the information contai ned in financi al statements must be neutral, that is, free from bias. Financial statements ar e not neutral if, by the selection or presentation of information, they influenc e the making of a decision or judgement in order to achieve a predetermined resu lt or outcome. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Prudence \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .37}{\*\bkmkend IFRS Framework, para.37}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 37.\tab The preparers of financial statements do, however, h ave to contend with the uncertainties that inevitably surround many events and c ircumstances, such as the collectability of doubtful receivables, the probable u seful life of plant and equipment and the number of warranty claims that may occ ur. Such unce rtainties are recognised by the disclosure of their nature and extent and by the exercise of prudence in the preparation of the financial statements. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, th e exercise of prudence does not allow, for example, the creation of hidden reser ves or excessi ve provisions, the deliberate understatement of assets or income, or the deliber ate overstatement of liabilities or expenses, because the financial statements w ould not be neutral and, therefore, not have the quality of reliability. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Completeness \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .38}{\*\bkmkend IFRS Framework, para.38}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 38.\tab To be reliable, the information in fin ancial stateme nts must be complete within the bounds of materiality and cost. An omission can

cause information to be false or misleading and thus unreliable and deficient i n terms of its relevance. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Comparability \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .39}{\*\bkmkend IFRS Framework, para.39}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 39.\tab Users must be able to compare the fina ncial statemen ts of an entity through time in order to identify trends in its financial positi on and performance. Users must also be able to compare the financial statements of different entities in order to evaluate their relative financial position, p erformance and changes in financial position. Hence, the measurement and display of the finan cial effect of like transactions and other events must be carried out in a consi stent way throughout an entity and over time for that entity and in a consistent way for diffe rent entities. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .40}{\*\bkmkend IFRS Framework, para.40}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 40.\tab An important implication of the qualit ative characte ristic of comparability is that users be informed of the accounting policies emp loyed in the preparation of the financial statements, any changes in those polic ies and the effects of such changes. Users need to be able to identify differen ces between th e accounting policies for like transactions and other events used by the same en tity from period to period and by different entities. Compliance with Internati onal Accounting Standards, including the disclosure of the accounting policies u sed by the ent ity, helps to achieve comparability. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .41}{\*\bkmkend IFRS Framework, para.41}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 41.\tab The need for comparability should not be confused wi th mere uniformity and should not be allowed to become an impediment to the intr oduction of improved accounting standards. It is not appropriate for an entity to continue accounting in the same manner for a transaction or other event if th e policy adopt ed is not in keeping with the qualitative characteristics of relevance and relia bility. It is also inappropriate for an entity to leave its accounting policies unchanged when more relevant and reliable alternatives exist. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .42}{\*\bkmkend IFRS Framework, para.42}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 42.\tab Because users wish to compare the fina ncial position , performance and changes in financial position of an entity over time, it is im portant that the financial statements show corresponding information for the pre ceding periods. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Constraints on Relevant and Relia ble Information \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Timeliness \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .43}{\*\bkmkend IFRS Framework, para.43}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 43.\tab If there is undue delay in the reporti ng of informat ion it may lose its relevance. Management may need to balance the relative meri ts of timely reporting and the provision of reliable information. To provide in formation on a timely basis it may often be necessary to report before all aspec ts of a transa ction or other event are known, thus impairing reliability. Conversely, if repo rting is delayed until all aspects are known, the information may be highly reli

able but of little use to users who have had to make decisions in the interim. In achieving a balance between relevance and reliability, the overriding consideration is how best to satisfy the economic decision-making needs of users. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Balance between Benefit an d Cost \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .44}{\*\bkmkend IFRS Framework, para.44}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 44.\tab The balance between benefit and cost i s a pervasive constraint rather than a qualitative characteristic. The benefits derived from information should exceed the cost of providing it. The evaluation of benefits and costs is, however, substantially a judgemental process. Furthermore, the co sts do not nec essarily fall on those users who enjoy the benefits. Benefits may also be enjoy ed by users other than those for whom the information is prepared; for example, the provision of further information to lenders may reduce the borrowing costs o f an entity. For these reasons, it is difficult to apply a cost-benefit test in any particula r case. Nevertheless, standard-setters in particular, as well as the preparers and users of financial statements, should be aware of this constraint. \par }\pard \s81 \sb240\sa125\keepn {\b\i\f3\fs22\cf2 Balance between Qualitativ e Characteristics \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .45}{\*\bkmkend IFRS Framework, para.45}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 45.\tab In practice a balancing, or trade-off, between quali tative characteristics is often necessary. Generally the aim is to achieve an a ppropriate balance among the characteristics in order to meet the objective of f inancial statements. The relative importance of the characteristics in differen t cases is a m atter of professional judgement. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 True and Fair View/Fair Presentat ion \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .46}{\*\bkmkend IFRS Framework, para.46}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 46.\tab Financial statements are frequently de scribed as sho wing a true and fair view of, or as presenting fairly, the financial position, p erformance and changes in financial position of an entity. Although this }{\cs1 34\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framew ork}{\b0\i0 \ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub does not dea l directly with such concepts, the application of the principal qualitative char acteristics and of appropriate accounting standards normally results in financia l statements t hat convey what is generally understood as a true and fair view of, or as presen ting fairly such information. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 The Elements of Financial Statemen ts \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .47}{\*\bkmkend IFRS Framework, para.47}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 47.\tab Financial statements portray the finan cial effects o f transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed the elements of financial statements. The elements directly related to the measurement of fina ncial position in the balance sheet are assets, liabilities and equity. The elements directly related to the measurement of performance in the income statement are income an

d expenses. The statement of changes in financial position usually reflects inc ome statement elements and changes in balance sheet elements; accordingly, this }{\cs134\b0\i\ ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0 \i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub identifie s no elements that are unique to this statement. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .48}{\*\bkmkend IFRS Framework, para.48}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 48.\tab The presentation of these elements in the balance sh eet and the income statement involves a process of sub-classification. For exam ple, assets and liabilities may be classified by their nature or function in the business of the entity in order to display information in the manner most usefu l to users for purposes of making economic decisions. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Financial Position \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .49}{\*\bkmkend IFRS Framework, para.49}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 49.\tab The elements directly related to the m easurement of financial position are assets, liabilities and equity. These are defined as fol lows: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab An asset is a resource controll ed by the entity as a result of past events and from which future economic benef its are expect ed to flow to the entity. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab A liability is a present obliga tion of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab Equity is the residual interest in the assets of the entity after deducting all its liabilities. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .50}{\*\bkmkend IFRS Framework, para.50}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 50.\tab The definitions of an asset and a liab ility identify their essential features but do not attempt to specify the criteria that need t o be met before they are recognised in the balance sheet. Thus, the definitions embrace items that are not recognised as assets or liabilities in the balance s heet because t hey do not satisfy the criteria for recognition discussed in paragraphs 82 to 98 . In particular, the expectation that future economic benefits will flow to or from an entity must be sufficiently certain to meet the probability criterion in paragraph 83 before an asset or liability is recognised. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .51}{\*\bkmkend IFRS Framework, para.51}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 51.\tab In assessing whether an item meets the definition of an asset, liability or equity, attention needs to be given to its underlying su bstance and economic reality and not merely its legal form. Thus, for example, in the case of finance leases, the substance and economic reality are that the l essee acquires the economic benefits of the use of the leased asset for the major part of its useful life in return for entering into an obligation to pay for that right an a mount approximating to the fair value of the asset and the related finance charg

e. Hence, the finance lease gives rise to items that satisfy the definition of an asset and a liability and are recognised as such in the lessee\'92s balance sheet. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .52}{\*\bkmkend IFRS Framework, para.52}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 52.\tab Balance sheets drawn up in accordance with current I nternational Accounting Standards may include items that do not satisfy the defi nitions of an asset or liability and are not shown as part of equity. The defin itions set out in paragraph 49 will, however, underlie future reviews of existin g Internationa l Accounting Standards and the formulation of further Standards. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Assets \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .53}{\*\bkmkend IFRS Framework, para.53}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 53.\tab The future economic benefit embodied i n an asset is the potential to contribute, directly or indirectly, to the flow of cash and cas h equivalents to the entity. The potential may be a productive one that is part of the operating activities of the entity. It may also take the form of conver tibility into cash or cash equivalents or a capability to reduce cash outflows, such as when a n alternative manufacturing process lowers the costs of production. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .54}{\*\bkmkend IFRS Framework, para.54}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 54.\tab An entity usually employs its assets t o produce good s or services capable of satisfying the wants or needs of customers; because the se goods or services can satisfy these wants or needs, customers are prepared to pay for them and hence contribute to the cash flow of the entity. Cash itself renders a serv ice to the entity because of its command over other resources. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .55}{\*\bkmkend IFRS Framework, para.55}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 55.\tab The future economic benefits embodied in an asset ma y flow to the entity in a number of ways. For example, an asset may be: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab used singly or in combination w ith other assets in the production of goods or services to be sold by the entity ; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab exchanged for other assets; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab used to settle a liability; or \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab distributed to the owners of th e entity. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .56}{\*\bkmkend IFRS Framework, para.56}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 56.\tab Many assets, for example, property, pl ant and equipm ent, have a physical form. However, physical form is not essential to the exist ence of an asset; hence patents and copyrights, for example, are assets if futur e economic benefits are expected to flow from them to the entity and if they are controlled by the entity. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .57}{\*\bkmkend IFRS Framework, para.57}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 57.\tab Many assets, for example, receivables

and property, are associated with legal rights, including the right of ownership. In determin ing the existence of an asset, the right of ownership is not essential; thus, fo r example, property held on a lease is an asset if the entity controls the benef its which are expected to flow from the property. Although the capacity of an entity to contr ol benefits is usually the result of legal rights, an item may nonetheless satis fy the definition of an asset even when there is no legal control. For example, know-how obta ined from a development activity may meet the definition of an asset when, by ke eping that know-how secret, an entity controls the benefits that are expected to flow from it. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .58}{\*\bkmkend IFRS Framework, para.58}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 58.\tab The assets of an entity result from pa st transaction s or other past events. Entities normally obtain assets by purchasing or produc ing them, but other transactions or events may generate assets; examples include property received by an entity from government as part of a programme to encour age economic g rowth in an area and the discovery of mineral deposits. Transactions or events expected to occur in the future do not in themselves give rise to assets; hence, for example, an intention to purchase inventory does not, of itself, meet the d efinition of a n asset. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .59}{\*\bkmkend IFRS Framework, para.59}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 59.\tab There is a close association between i ncurring expen diture and generating assets but the two do not necessarily coincide. Hence, wh en an entity incurs expenditure, this may provide evidence that future economic benefits were sought but is not conclusive proof that an item satisfying the def inition of an asset has been obtained. Similarly the absence of a related expenditure does no t preclude an item from satisfying the definition of an asset and thus becoming a candidate for recognition in the balance sheet; for example, items that have b een donated to the entity may satisfy the definition of an asset. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Liabilities \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .60}{\*\bkmkend IFRS Framework, para.60}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 60.\tab An essential characteristic of a liabi lity is that t he entity has a present obligation. An obligation is a duty or responsibility t o act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. This is normally th e case, for ex ample, with amounts payable for goods and services received. Obligations also a rise, however, from normal business practice, custom and a desire to maintain go od business relations or act in an equitable manner. If, for example, an entity decides as a matter of policy to rectify faults in its products even when these become appare nt after the warranty period has expired, the amounts that are expected to be ex pended in respect of goods already sold are liabilities. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .61}{\*\bkmkend IFRS Framework, para.61}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 61.\tab A distinction needs to be drawn betwee n a present ob ligation and a future commitment. A decision by the management of an entity to acquire assets in the future does not, of itself, give rise to a present obligat

ion. An obligation normally arises only when the asset is delivered or the enti ty enters into an irrevocable agreement to acquire the asset. In the latter case, the irrevoc able nature of the agreement means that the economic consequences of failing to honour the obligation, for example, because of the existence of a substantial pe nalty, leave t he entity with little, if any, discretion to avoid the outflow of resources to a nother party. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .62}{\*\bkmkend IFRS Framework, para.62}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 62.\tab The settlement of a present obligation usually invol ves the entity giving up resources embodying economic benefits in order to satis fy the claim of the other party. Settlement of a present obligation may occur i n a number of ways, for example, by: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab payment of cash; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab transfer of other assets; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab provision of services; \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab replacement of that obligation with another obligation; or \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (e)\tab conversion of the obligation to equity. \par }\pard \s10 \qj\sb108\sa108\li720 {\b0\i0\ul0\strike0\v0\expnd0\expndtw0\ou tl0\shad0\f3\fs20\cf0\nosupersub An obligation may also be extinguished by other means, such as a creditor waiving or forfeiting its rights. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .63}{\*\bkmkend IFRS Framework, para.63}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 63.\tab Liabilities result from past transacti ons or other p ast events. Thus, for example, the acquisition of goods and the use of services give rise to trade payables (unless paid for in advance or on delivery) and the receipt of a bank loan results in an obligation to repay the loan. An entity m ay also recogn ise future rebates based on annual purchases by customers as liabilities; in thi s case, the sale of the goods in the past is the transaction that gives rise to the liability. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .64}{\*\bkmkend IFRS Framework, para.64}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 64.\tab Some liabilities can be measured only by using a sub stantial degree of estimation. Some entities describe these liabilities as prov isions. In some countries, such provisions are not regarded as liabilities beca use the concept of a liability is defined narrowly so as to include only amounts that can be e stablished without the need to make estimates. The definition of a liability in paragraph 49 follows a broader approach. Thus, when a provision involves a pre sent obligation and satisfies the rest of the definition, it is a liability even if the amount has to be estimated. Examples include provisions for payments to be made under existing warranties and provisions to cover pension obligations. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Equity \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .65}{\*\bkmkend IFRS Framework, para.65}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 65.\tab Although equity is defined in paragrap h 49 as a resi

dual, it may be sub-classified in the balance sheet. For example, in a corporat e entity, funds contributed by shareholders, retained earnings, reserves represe nting appropriations of retained earnings and reserves representing capital main tenance adjust ments may be shown separately. Such classifications can be relevant to the deci sion-making needs of the users of financial statements when they indicate legal or other restrictions on the ability of the entity to distribute or otherwise ap ply its equity . They may also reflect the fact that parties with ownership interests in an en tity have differing rights in relation to the receipt of dividends or the repaym ent of contributed equity. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .66}{\*\bkmkend IFRS Framework, para.66}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 66.\tab The creation of reserves is sometimes required by st atute or other law in order to give the entity and its creditors an added measur e of protection from the effects of losses. Other reserves may be established i f national tax law grants exemptions from, or reductions in, taxation liabilitie s when transfe rs to such reserves are made. The existence and size of these legal, statutory and tax reserves is information that can be relevant to the decision-making need s of users. Transfers to such reserves are appropriations of retained earnings rather than ex penses. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .67}{\*\bkmkend IFRS Framework, para.67}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 67.\tab The amount at which equity is shown in the balance s heet is dependent on the measurement of assets and liabilities. Normally, the a ggregate amount of equity only by coincidence corresponds with the aggregate mar ket value of the shares of the entity or the sum that could be raised by disposi ng of either t he net assets on a piecemeal basis or the entity as a whole on a going concern b asis. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .68}{\*\bkmkend IFRS Framework, para.68}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 68.\tab Commercial, industrial and business ac tivities are o ften undertaken by means of entities such as sole proprietorships, partnerships and trusts and various types of government business undertakings. The legal and regulatory framework for such entities is often different from that applying to corporate ent ities. For example, there may be few, if any, restrictions on the distribution to owners or other beneficiaries of amounts included in equity. Nevertheless, t he definition of equity and the other aspects of this }{\cs134\b0\i\ul0\strike0\ v0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub that deal with equity are appr opriate for such entities. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Performance \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .69}{\*\bkmkend IFRS Framework, para.69}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 69.\tab Profit is frequently used as a measure of performanc e or as the basis for other measures, such as return on investment or earnings p er share. The elements directly related to the measurement of profit are income and expenses. The recognition and measurement of income and expenses, and henc e profit, depe nds in part on the concepts of capital and capital maintenance used by the entit y in preparing its financial statements. These concepts are discussed in paragr

aphs 102 to 110. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .70}{\*\bkmkend IFRS Framework, para.70}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 70.\tab The elements of income and expenses ar e defined as f ollows: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or dec reases of liabilities that result in increases in equity, other than those relat ing to contributions from equity participants. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab Expenses are decreases in econo mic benefits during the accounting period in the form of outflows or depletions of assets or i ncurrences of liabilities that result in decreases in equity, other than those r elating to distributions to equity participants. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .71}{\*\bkmkend IFRS Framework, para.71}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 71.\tab The definitions of income and expenses identify thei r essential features but do not attempt to specify the criteria that would need to be met before they are recognised in the income statement. Criteria for the recognition of income and expenses are discussed in paragraphs 82 to 98. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .72}{\*\bkmkend IFRS Framework, para.72}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 72.\tab Income and expenses may be presented i n the income s tatement in different ways so as to provide information that is relevant for eco nomic decision-making. For example, it is common practice to distinguish betwee n those items of income and expenses that arise in the course of the ordinary ac tivities of th e entity and those that do not. This distinction is made on the basis that the source of an item is relevant in evaluating the ability of the entity to generat e cash and cash equivalents in the future; for example, incidental activities su ch as the disp osal of a long-term investment are unlikely to recur on a regular basis. When d istinguishing between items in this way consideration needs to be given to the n ature of the entity and its operations. Items that arise from the ordinary acti vities of one entity may be unusual in respect of another. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .73}{\*\bkmkend IFRS Framework, para.73}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 73.\tab Distinguishing between items of income and expense a nd combining them in different ways also permits several measures of entity perf ormance to be displayed. These have differing degrees of inclusiveness. For ex ample, the income statement could display gross margin, profit or loss from ordi nary activitie s before taxation, profit or loss from ordinary activities after taxation, and p rofit or loss. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Income \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .74}{\*\bkmkend IFRS Framework, para.74}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 74.\tab The definition of income encompasses b oth revenue an d gains. Revenue arises in the course of the ordinary activities of an entity a nd is referred to by a variety of different names including sales, fees, interes t, dividends, royalties and rent.

\par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .75}{\*\bkmkend IFRS Framework, para.75}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 75.\tab Gains represent other items that meet the definition of income and may, or may not, arise in the course of the ordinary activities o f an entity. Gains represent increases in economic benefits and as such are no different in nature from revenue. Hence, they are not regarded as constituting a separate ele ment in this }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf 0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs2 0\cf0\nosupersub . \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .76}{\*\bkmkend IFRS Framework, para.76}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 76.\tab Gains include, for example, those aris ing on the dis posal of non-current assets. The definition of income also includes unrealised gains; for example, those arising on the revaluation of marketable securities an d those resulting from increases in the carrying amount of long-term assets. Wh en gains are r ecognised in the income statement, they are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions. Gain s are often reported net of related expenses. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .77}{\*\bkmkend IFRS Framework, para.77}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 77.\tab Various kinds of assets may be receive d or enhanced by income; examples include cash, receivables and goods and services received in exchange for goods and services supplied. Income may also result from the sett lement of liabilities. For example, an entity may provide goods and services to a lender in s ettlement of an obligation to repay an outstanding loan. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Expenses \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .78}{\*\bkmkend IFRS Framework, para.78}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 78.\tab The definition of expenses encompasses losses as wel l as those expenses that arise in the course of the ordinary activities of the e ntity. Expenses that arise in the course of the ordinary activities of the enti ty include, for example, cost of sales, wages and depreciation. They usually ta ke the form of an outflow or depletion of assets such as cash and cash equivalents, inventory, property, plant and equipment. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .79}{\*\bkmkend IFRS Framework, para.79}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 79.\tab Losses represent other items that meet the definitio n of expenses and may, or may not, arise in the course of the ordinary activitie s of the entity. Losses represent decreases in economic benefits and as such th ey are no different in nature from other expenses. Hence, they are not regarded as a separate element in this }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs2 0\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3 \fs20\cf0\nosupersub . \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .80}{\*\bkmkend IFRS Framework, para.80}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 80.\tab Losses include, for example, those res ulting from di sasters such as fire and flood, as well as those arising on the disposal of noncurrent assets. The definition of expenses also includes unrealised losses, for example, those arising from the effects of increases in the rate of exchange fo

r a foreign cu rrency in respect of the borrowings of an entity in that currency. When losses are recognised in the income statement, they are usually displayed separately be cause knowledge of them is useful for the purpose of making economic decisions. Losses are of ten reported net of related income. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Capital Maintenance Adjustments \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .81}{\*\bkmkend IFRS Framework, para.81}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 81.\tab The revaluation or restatement of asse ts and liabili ties gives rise to increases or decreases in equity. While these increases or d ecreases meet the definition of income and expenses, they are not included in th e income statement under certain concepts of capital maintenance. Instead these items are inc luded in equity as capital maintenance adjustments or revaluation reserves. The se concepts of capital maintenance are discussed in paragraphs 102 to 110 of thi s }{\cs134\b0\i\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersu b Framework}{ \b0\i0\ul0\strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Recognition of the Elements of Fin ancial Statements \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .82}{\*\bkmkend IFRS Framework, para.82}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 82.\tab Recognition is the process of incorpor ating in the b alance sheet or income statement an item that meets the definition of an element and satisfies the criteria for recognition set out in paragraph 83. It involve s the depiction of the item in words and by a monetary amount and the inclusion of that amount in the balance sheet or income statement totals. Items that satisfy the recogn ition criteria should be recognised in the balance sheet or income statement. T he failure to recognise such items is not rectified by disclosure of the account ing policies u sed nor by notes or explanatory material. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .83}{\*\bkmkend IFRS Framework, para.83}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 83.\tab An item that meets the definition of a n element shou ld be recognised if: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab it is probable that any future economic benefit associated with the item will flow to or from the entity; and \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab the item has a cost or value th at can be measured with reliability. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .84}{\*\bkmkend IFRS Framework, para.84}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 84.\tab In assessing whether an item meets the se criteria an d therefore qualifies for recognition in the financial statements, regard needs to be given to the materiality considerations discussed in paragraphs 29 and 30. The interrelationship between the elements means that an item that meets the d efinition and recognition criteria for a particular element, for example, an asset, automatica lly requires the recognition of another element, for example, income or a liabil ity. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 The Probability of Future Economi c Benefit \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para

.85}{\*\bkmkend IFRS Framework, para.85}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 85.\tab The concept of probability is used in the recognitio n criteria to refer to the degree of uncertainty that the future economic benefi ts associated with the item will flow to or from the entity. The concept is in keeping with the uncertainty that characterises the environment in which an enti ty operates. Assessments of the degree of uncertainty attaching to the flow of future economi c benefits are made on the basis of the evidence available when the financial st atements are prepared. For example, when it is probable that a receivable owed to an entity w ill be paid, it is then justifiable, in the absence of any evidence to the contr ary, to recognise the receivable as an asset. For a large population of receiva bles, however, some degree of non-payment is normally considered probable; hence an expense re presenting the expected reduction in economic benefits is recognised. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Reliability of Measurement \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .86}{\*\bkmkend IFRS Framework, para.86}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 86.\tab The second criterion for the recogniti on of an item is that it possesses a cost or value that can be measured with reliability as di scussed in paragraphs 31 to 38 of this }{\cs134\b0\i\ul0\strike0\v0\expnd0\expnd tw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\e xpndtw0\outl0 \shad0\f3\fs20\cf0\nosupersub . In many cases, cost or value must be estimated; the use of reasonable estimates is an essential part of the preparation of fina ncial statements and does not undermine their reliability. When, however, a rea sonable estima te cannot be made the item is not recognised in the balance sheet or income stat ement. For example, the expected proceeds from a lawsuit may meet the definitio ns of both an asset and income as well as the probability criterion for recognit ion; however, if it is not possible for the claim to be measured reliably, it should not be re cognised as an asset or as income; the existence of the claim, however, would be disclosed in the notes, explanatory material or supplementary schedules. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .87}{\*\bkmkend IFRS Framework, para.87}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 87.\tab An item that, at a particular point in time, fails t o meet the recognition criteria in paragraph 83 may qualify for recognition at a later date as a result of subsequent circumstances or events. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .88}{\*\bkmkend IFRS Framework, para.88}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 88.\tab An item that possesses the essential c haracteristics of an element but fails to meet the criteria for recognition may nonetheless wa rrant disclosure in the notes, explanatory material or in supplementary schedule s. This is appropriate when knowledge of the item is considered to be relevant to the evaluat ion of the financial position, performance and changes in financial position of an entity by the users of financial statements. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Recognition of Assets \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .89}{\*\bkmkend IFRS Framework, para.89}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 89.\tab An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the entity and the as set has a cost or value that can be measured reliably. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para

.90}{\*\bkmkend IFRS Framework, para.90}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 90.\tab An asset is not recognised in the bala nce sheet when expenditure has been incurred for which it is considered improbable that econom ic benefits will flow to the entity beyond the current accounting period. Inste ad such a transaction results in the recognition of an expense in the income sta tement. This treatment does not imply either that the intention of management in incurring ex penditure was other than to generate future economic benefits for the entity or that management was misguided. The only implication is that the degree of certa inty that econ omic benefits will flow to the entity beyond the current accounting period is in sufficient to warrant the recognition of an asset. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Recognition of Liabilities \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .91}{\*\bkmkend IFRS Framework, para.91}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 91.\tab A liability is recognised in the balan ce sheet when it is probable that an outflow of resources embodying economic benefits will res ult from the settlement of a present obligation and the amount at which the sett lement will take place can be measured reliably. In practice, obligations under contracts tha t are equally proportionately unperformed (for example, liabilities for inventor y ordered but not yet received) are generally not recognised as liabilities in t he financial statements. However, such obligations may meet the definition of l iabilities and , provided the recognition criteria are met in the particular circumstances, may qualify for recognition. In such circumstances, recognition of liabilities ent ails recognition of related assets or expenses. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Recognition of Income \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .92}{\*\bkmkend IFRS Framework, para.92}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 92.\tab Income is recognised in the income sta tement when an increase in future economic benefits related to an increase in an asset or a de crease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets aris ing on a sale of goods or services or the decrease in liabilities arising from t he waiver of a debt payable). \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .93}{\*\bkmkend IFRS Framework, para.93}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 93.\tab The procedures normally adopted in pra ctice for reco gnising income, for example, the requirement that revenue should be earned, are applications of the recognition criteria in this }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v 0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Such procedures are generally di rected at restricting the recognition as income to those items that can be measu red reliably and have a sufficient degree of certainty. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Recognition of Expenses \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .94}{\*\bkmkend IFRS Framework, para.94}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 94.\tab Expenses are recognised in the income statement when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, i n effect, that recognition of expenses occurs simultaneously with the recognitio

n of an increa se in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment). \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .95}{\*\bkmkend IFRS Framework, para.95}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 95.\tab Expenses are recognised in the income statement on t he basis of a direct association between the costs incurred and the earning of s pecific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenu es and expense s that result directly and jointly from the same transactions or other events; f or example, the various components of expense making up the cost of goods sold a re recognised at the same time as the income derived from the sale of the goods. However, the application of the matching concept under this }{\cs134\b0\i\ul0\strike0\v0\exp nd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0 \expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub does not allow the recognit ion of items i n the balance sheet which do not meet the definition of assets or liabilities. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .96}{\*\bkmkend IFRS Framework, para.96}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 96.\tab When economic benefits are expected to arise over se veral accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognised in the income statement on the ba sis of systematic and rational allocation procedures. This is often necessary i n recognising the expenses associated with the using up of assets such as property, plant, equ ipment, goodwill, patents and trademarks; in such cases the expense is referred to as depreciation or amortisation. These allocation procedures are intended to recognise exp enses in the accounting periods in which the economic benefits associated with t hese items are consumed or expire. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .97}{\*\bkmkend IFRS Framework, para.97}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 97.\tab An expense is recognised immediately i n the income s tatement when an expenditure produces no future economic benefits or when, and t o the extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the balance sheet as an asset. \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .98}{\*\bkmkend IFRS Framework, para.98}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 98.\tab An expense is also recognised in the i ncome statemen t in those cases when a liability is incurred without the recognition of an asse t, as when a liability under a product warranty arises. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Measurement of the Elements of Fin ancial Statements \par }\pard \s47 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .99}{\*\bkmkend IFRS Framework, para.99}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0\o utl0\shad0\f3\fs20\cf0\nosupersub 99.\tab Measurement is the process of determin ing the moneta ry amounts at which the elements of the financial statements are to be recognise d and carried in the balance sheet and income statement. This involves the sele ction of the particular basis of measurement. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .100}{\*\bkmkend IFRS Framework, para.100}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 100.\tab A number of different measurement b ases are emplo

yed to different degrees and in varying combinations in financial statements. T hey include the following: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Historical cost}{\b0\i0\ul0\str ike0\v0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Assets are recorded at the amoun t of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at t he amount of p roceeds received in exchange for the obligation, or in some circumstances (for e xample, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Current cost}{\b0\i0\ul0\strike 0\v0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equiva lent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (c)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Realisable (settlement) value}{ \b0\i0\ul0 \strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Assets are car ried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their s ettlement valu es; that is, the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (d)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Present value}{\b0\i0\ul0\strik e0\v0\expnd0 \expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Assets are carried at the presen t discounted value of the future net cash inflows that the item is expected to g enerate in the normal course of business. Liabilities are carried at the presen t discounted v alue of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .101}{\*\bkmkend IFRS Framework, para.101}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 101.\tab The measurement basis most commonly adopted by en tities in preparing their financial statements is historical cost. This is usua lly combined with other measurement bases. For example, inventories are usually carried at the lower of cost and net realisable value, marketable securities ma y be carried a t market value and pension liabilities are carried at their present value. Furt hermore, some entities use the current cost basis as a response to the inability of the historical cost accounting model to deal with the effects of changing pr ices of non-mo netary assets. \par }\pard \s23 \sb279\sa120 {\b\f3\fs28\cf2 Concepts of Capital and Capital Ma intenance \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Concepts of Capital \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .102}{\*\bkmkend IFRS Framework, para.102}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0

\outl0\shad0\f3\fs20\cf0\nosupersub 102.\tab A financial concept of capital is a dopted by most entities in preparing their financial statements. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synony mous with the net assets or equity of the entity. Under a physical concept of c apital, such a s operating capability, capital is regarded as the productive capacity of the en tity based on, for example, units of output per day. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .103}{\*\bkmkend IFRS Framework, para.103}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 103.\tab The selection of the appropriate co ncept of capit al by an entity should be based on the needs of the users of its financial state ments. Thus, a financial concept of capital should be adopted if the users of f inancial statements are primarily concerned with the maintenance of nominal inve sted capital o r the purchasing power of invested capital. If, however, the main concern of us ers is with the operating capability of the entity, a physical concept of capita l should be used. The concept chosen indicates the goal to be attained in deter mining profit, even though there may be some measurement difficulties in making the concept op erational. \par }\pard \s24 \sb240\sa60 {\b\i\f3\fs24\cf2 Concepts of Capital Maintenance a nd the Determination of Profit \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .104}{\*\bkmkend IFRS Framework, para.104}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 104.\tab The concepts of capital in paragrap h 102 give ris e to the following concepts of capital maintenance: \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (a)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Financial capital maintenance}{ \b0\i0\ul0 \strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Under this con cept a profit is earned only if the financial (or money) amount of the net asset s at the end of the period exceeds the financial (or money) amount of net assets at the beginn ing of the period, after excluding any distributions to, and contributions from, owners during the period. Financial capital maintenance can be measured in eit her nominal monetary units or units of constant purchasing power. \par }\pard \s59 \qj\sb108\sa108\li1440\fi-720 {\b0\i0\ul0\strike0\v0\expnd0\exp ndtw0\outl0\shad0\f3\fs20\cf0\nosupersub (b)\tab }{\cs134\b0\i\ul0\strike0\v0\ex pnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub Physical capital maintenance}{\ b0\i0\ul0 \strike0\v0\expnd0\expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub . Under this con cept a profit is earned only if the physical productive capacity (or operating c apability) of the entity (or the resources or funds needed to achieve that capac ity) at the en d of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners du ring the period. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .105}{\*\bkmkend IFRS Framework, para.105}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 105.\tab The concept of capital maintenance is concerned w ith how an entity defines the capital that it seeks to maintain. It provides th e linkage between the concepts of capital and the concepts of profit because it provides the point of reference by which profit is measured; it is a prerequisit e for distingu ishing between an entity\'92s return on capital and its return of capital; only

inflows of assets in excess of amounts needed to maintain capital may be regarde d as profit and therefore as a return on capital. Hence, profit is the residual amount that r emains after expenses (including capital maintenance adjustments, where appropri ate) have been deducted from income. If expenses exceed income the residual amo unt is a loss. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .106}{\*\bkmkend IFRS Framework, para.106}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 106.\tab The physical capital maintenance co ncept requires the adoption of the current cost basis of measurement. The financial capital m aintenance concept, however, does not require the use of a particular basis of m easurement. Selection of the basis under this concept is dependent on the type of financial c apital that the entity is seeking to maintain. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .107}{\*\bkmkend IFRS Framework, para.107}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 107.\tab The principal difference between th e two concepts of capital maintenance is the treatment of the effects of changes in the prices of assets and liabilities of the entity. In general terms, an entity has maint ained its capital if it has as much capital at the end of the period as it had a t the beginnin g of the period. Any amount over and above that required to maintain the capita l at the beginning of the period is profit. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .108}{\*\bkmkend IFRS Framework, para.108}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 108.\tab Under the concept of financial capi tal maintenanc e where capital is defined in terms of nominal monetary units, profit represents the increase in nominal money capital over the period. Thus, increases in the prices of assets held over the period, conventionally referred to as holding gai ns, are, conce ptually, profits. They may not be recognised as such, however, until the assets are disposed of in an exchange transaction. When the concept of financial capi tal maintenance is defined in terms of constant purchasing power units, profit r epresents the increase in invested purchasing power over the period. Thus, only that part of the increase in the prices of assets that exceeds the increase in the general le vel of prices is regarded as profit. The rest of the increase is treated as a c apital mainten ance adjustment and, hence, as part of equity. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .109}{\*\bkmkend IFRS Framework, para.109}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 109.\tab Under the concept of physical capit al maintenance when capital is defined in terms of the physical productive capacity, profit re presents the increase in that capital over the period. All price changes affect ing the assets and liabilities of the entity are viewed as changes in the measur ement of the p hysical productive capacity of the entity; hence, they are treated as capital ma intenance adjustments that are part of equity and not as profit. \par }\pard \s46 \qj\sb108\sa108\li720\fi-720 {\*\bkmkstart IFRS Framework, para .110}{\*\bkmkend IFRS Framework, para.110}{\b0\i0\ul0\strike0\v0\expnd0\expndtw0 \outl0\shad0\f3\fs20\cf0\nosupersub 110.\tab The selection of the measurement ba ses and concep t of capital maintenance will determine the accounting model used in the prepara tion of the financial statements. Different accounting models exhibit different degrees of relevance and reliability and, as in other areas, management must se ek a balance b

etween relevance and reliability. This }{\cs134\b0\i\ul0\strike0\v0\expnd0\expn dtw0\outl0\shad0\f3\fs20\cf0\nosupersub Framework}{\b0\i0\ul0\strike0\v0\expnd0\ expndtw0\outl0\shad0\f3\fs20\cf0\nosupersub is applicable to a range of account ing models and provides guidance on preparing and presenting the financial statements construc ted under the chosen model. At the present time, it is not the intention of the Board of IASC to prescribe a particular model other than in exceptional circums tances, such a s for those entities reporting in the currency of a hyperinflationary economy. This intention will, however, be reviewed in the light of world developments.}}