Ch 2 Conceptual Framework Financial Reporting V3.1

Ch 2 Conceptual Framework Financial Reporting V3.1 -...

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Ch.2 Conceptual Framework  Underlying Financial Reporting 1
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2 Conceptual Framework Underlying  Financial Reporting Conceptual Framework Rationale Development Objective of Financial Reporting Qualitative characteristics of useful information Elements of financial statements Foundational Principles Recognition / derecognition Measurement Presentation and disclosure Financial Reporting Issues Principles- based approach Financial engineering Fraudulent financial reporting IFRS / Private GAAP Comparison Looking ahead
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3 The overall objective of financial reporting is to provide information that is: 1. useful to users (e.g. Investors, creditors, etc), and 2. decision relevant (resource allocation) Resource allocation decisions are assumed to include assessment of management stewardship (i.e. management role in maximizing shareholder value) Conceptual building blocks (second level) include: –. qualitative characteristics (relevance, representational faithfulness), and –. elements of financial statements Objective of Financial Reporting
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4 Enhancing Qualitative  Characteristics 1. Comparability Information measured and reported in similar way (company to company, and year to year) Allows users to identify real economic similarities and differences 2. Verifiability Similar results achieved if same methods are used 3. Timeliness 4. Understandability Allows reasonably informed users to see the significance of the information
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5 Trade-Offs It is not always possible to have all fundamental and enhancing qualitative characteristics Trade-offs happen when one qualitative characteristics is sacrificed for another Constraints Materiality If leaving or including information would influence/change the judgement of a reasonable person, then that information is considered material Quantitative guidelines for materiality are usually made based on income from continuing operations, assets and liabilities, or revenues Cost versus Benefits Benefits of using the information should outweigh the costs of providing that information Tradeoffs and Constraints
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6 Basic elements of financial statements include the following: Assets Liabilities Equity Revenues Expenses Gains Losses Elements of Financial Statements
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7 Elements of Financial Statements Revenues Increases
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Ch 2 Conceptual Framework Financial Reporting V3.1 -...

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