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Tutorial Questions
A statement on the objectives of financial statement (i.e. the
conceptual framework) has always been recognized as urgent and
essential if debate over alternative standards and reporting
techniques is to be resolved by reason and logic.
1.
2.
3.
4.
Question 1
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The
purpose of
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ou si
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assist
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Auditors
Assist IASB in
development of the
future accounting
standards
Review of existing
accounting standard
Ensuring consistency
across standards
To a
ssis
t
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In d
eve
lop
The
purpose of
a
Conceptual
Framework
ist
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IAS
te
mo
pro
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Assist IASB in
promoting
harmonisation of
regulations,
accounting standards
and procedures
Provide a basis for
reducing the number
of alternative
accounting treatment
permitted by
accounting standards
The
purpose of
a
Conceptual
Framework
The
purpose of
a
Conceptual
Framework
To
as
St
s is
an
t
-s
d
et ar
tin d
g
Assist standard-setting
bodies such as the
FASB and the IASB in
developing standards
of financial reporting
Enable all interested
parties to gain a better
understanding of the
reasons for standard
setters conclusions
Assist auditors in
forming an opinion
Whether financial
statements comply
with international
accounting standards
The
purpose of
a
Conceptual
Framework
st
To assi
Auditors
Assist preparers of
financial statements
such as accountant in
applying IASB
approved accounting
standards
The
purpose of
a
To
A
cc asConceptual
ou si
st
nt Framework
a
nt
The
purpose of
a
Conceptual
Framework
Users
To assist
Assist users of
financial statements
in interpreting the
information contained
in financial
statements
Conformity with IASB
approved accounting
standards
Guidance to provide
most consistent way
to prepare the
financial statement
s
a
t
c
a e
e
To th
c
n
a
d
i
gu
The
purpose of
a
Conceptual
Framework
Benefits
2
Increased international
compatibility of Accounting
Standards
Enhanced accountability
Benefits
3
Benefits
5
1
7
Measurement of the
Elements of Financial
Statements
2
CONCEPTUAL
FRAMEWORK
Elements
Underlying
Assumptions
Qualitative
Characteristics of
Financial
Statement
The Elements of
Financial Statements
Financial Statement
Financial Position
Financial
Performance
Changes in
Financial Position
2
CONCEPTUAL
FRAMEWORK
Elements
Accrual Basis
Going Concern
CONCEPTUAL
FRAMEWORK
Elements
Relevance
Reliability
Comparability
Constraints on
relevant & reliable
information
True & Fair view /
Fair Presentation
CONCEPTUAL
FRAMEWORK
Elements
Financial Position
Assets
Liabilities
Equity
Performance
Income
Expenses
Capital
maintenance
adjustments
CONCEPTUAL
FRAMEWORK
Elements
Reliability of
Measurement
Recognition of
assets, liabilities,
income expenses
CONCEPTUAL
FRAMEWORK
Elements
toward Assets,
Liabilities, Equity,
Income &
Expenses
7
CONCEPTUAL
FRAMEWORK
Elements
Concepts of
Capital
Concepts of
Capital
Maintenance and
the
determination of
profit
Matching
Full
Disclosure
Revenue
Recognition
Historical
Cost
Historical
Cost
recording of
financial
transactions
must be at
their original
cash
equivalent
cost.
Full
Disclosure
Financial
statements
contain
enough
information
that they are
not
misleading.
Matching
A company
records revenue
in the accounting
period when
services are
completed or
goods are
delivered to the
customer, not
when the
customer makes
payment.
Revenue
Recognition
Revenue
Recognition
A
company
records
expenses in the
accounting
period in which
it helped create
revenue, not
when payment
was made for
the expenses.
Tutorial Activities
Explain the main changes proposed in the new Exposure
Draft on Conceptual Framework by IASB issued on 28 May
2015. You need to prepare 20 minutes presentation
Objective
In describing the objective of general purpose financial
reporting, CF does not use the word stewardship. Some have
interpreted this as meaning that the Conceptual Framework no
longer treats information about stewardship as part of what is
needed to meet the objective of financial reporting.
Current objective of general purpose financial reporting:
Objective (cont)
Sources from the article Commentary on phase A of the revised conceptual framework:
Implications for global financial reporting Rajni Mala & Parmod Chand (2015)
Objective (cont)
In 2015 Exposure Draft proposes:
Qualitative Characteristics
Since 2010, the Conceptual Framework has no longer identified
was reliability is no longer identified as a qualitative
characteristic of useful financial information. And description of
faithful representation was too general. As a result it failed to
identify the kind of information that should be presented in
financial statements. Their main concern seems to be that
measurement uncertainty makes financial information less
useful. In response, the IASB proposes to clarify that
measurement uncertainty is one factor that can make financial
information less relevant.
Qualitative Characteristics
In this Exposure Draft proposes:
2.
Recommendations
(Exposure Draft
28.5.2015)
Direct Control
Indirect Control
1. Financial
Statement of
reporting entity
Unconsolidated
financial
statements
Consolidated
financial
statements
2. Reported by
parents
Economic
resources
controlled
directly
Economic
resources
controlled
indirectly
3. Returns to
investor., lenders
and other
creditors
Depend on the
future net cash
flows of the
parent entity
Depend partly on
the future net
cash inflows and
benefits flow into
subsidiary.
4. Useful
information
Less useful
More useful
Asset
Liability
(i) Confused
about expected
future economic
benefit
-Expected will
be interpreted as
conveying
probability and
not provide
guideline on the
minimum
threshold.
(ii) Emphasize
more on
identifying the
future economic
benefits.
(i) Confused
about expected
future economic
benefit
-Expected will
be interpreted
as conveying
probability and
not provide
guideline on the
minimum
threshold.
(ii) Lack of
guideline on
justify pass
event sufficient
to create
present
obligation.
Equity
Income
No effect.
Expense
s
1. ASSET
Existing CF:
An asset is a resource which is controlled by an entity as
a result of past event and future economic benefits are
expected to flow into the entity.
Current ED:
An asset is the present economic resource controlled by
an entity as a result of past events.
Present = Economic resources and right to use the
assets must exist on balance sheet date.
Economic resources = right to produce economic
benefits.
Economic benefit need not be certain but must capable
to produce economic benefits.
Asset is a resource, not ultimate cash inflow.
2. LIABILITY
Existing CF:
A liability is a present obligation of the entity arising
from past events, the settlements of which is expected
to result in an outflow from the entity of resources
embodying economic benefits.
Current ED:
A liability is a present obligation of the entity to transfer
an economic resource as a result of past events.
Present = Economic obligation and entity is the obligor
must exist on balance sheet date.
Economic obligation = unconditional promises to give up
economic resources.
Present obligation need not be certain but must
capable to transfer the economic resources in future.
Recommendation
Main
Recommendation:
Revised the definition
3. EQUITY
4. INCOME
5. EXPENSES
Asset
Liability
(i) Stand-ready
obligation
Based on ED,
stand-ready
obligation will
be recognized as
liability.
Capability to
transfer the
economic
resources
.Eg: obligation
under a product
warranty
Equity
Income
Expense
s
Problem
Recognition Criteria
i.
ii.
iii.
i.
ii.
iii.
Impact
An entity should recognise all its assets and liabilities,
unless the IASB decides that:
i.
ii.
Derecognition
Process of removing all or a part of an
assets or liability from the statement
of financial position.
ii.
Enhanced disclosure;
(ii)
(iii)
ii.
Measurement
Problem:
Impact / examples:
Measure all the assets and liabilities on the same or one basis
- Measure at fair value basis
Some of the users may consider information about current market
prices to be less relevant than information about margins generated
by past transactions
- Measure at historical cost basis
Fail to provide relevant information to the users of financial
statement
Recommendation / suggestion:
Impact / examples:
$m
$m
Dr Land PPE
10
Cr Cash
10
On revaluation
$m
$m
Dr Land PPE
Cr OCE and
recognized
in OCI
On disposal
Dr Cash
$m
$m
13
Cr Land PPE
12
Cr P/L
On transfer
$m
$m
Dr OCE
Cr Retained earnings
Recommendation / suggestion :
Mismatched remeasurements
- arises when offsetting impact of linked transactions or other events
is not yet recognized
Q&A