What is a

A statement of generally accepted theoretical principles, which form the frame of reference for financial
conceptual reporting
framework?

Assist the IASB to develop IFRSs

Purpose Assist preparers where no IFRS applies

Assist in understanding & interpretation of IFRSs

I. IASB's Conceptual The Conceptual Framework requires the use of accrual accounting in
Accrual accounting
Framework preparing financial statements

Underlying
Financial statements are normally prepared on the assumption that the
assumption: Going
entity will continue to operate in the foreseeable future
concern

is capable of making a difference in users'

decision
Relevance Information has predictive/confirmatory value

2 Fundametal Its relevance affected by Materiality & Nature

qualitative
characteristics Complete

Neutral
II. Qualitative Faithful representation
Free from error
characteristics of
Substance over form
financial
Chapter 1: information Comparibility
enable users to identify & understand similarities &
differences
The
4 Enhancing Verifiability faithful representation of transactions or events
Conceptual qualitative
characteristics
Framework Timeliness available in time

Understandability classified & presented clearly

Assets Present economic resource controlled as a result of past events

Present obligation to transfer economic resources as a result of past

SOFP Liability
events

Equity Residual interest in the assets after deducting all its liabilities
Elements
Increase in assets or decrease in liabilities that results in increase in
Income
equity
SOPL
Decrease in assets or increase in liabilities that results in decrease in
Expenses
equity

Probable inflow of economic

benefits
Assets
Reliable measurement

Probable outflow of economic

when the item meets the benefits
Recognition Liability
definition of the element Reliable measurement

Income Reliable measurement

Expenses Realiable measurement

Historical Assets The amount paid to acquire at acquisition

III. Financial cost Liabilities The amount received in exchange of the obligation
statements
Current Assets The amount paid to acquire an equivalent asset currently
cost Liabilities The undiscounted amount to settle the obligation currently

Measurement Assets
The amount obtained by selling the asset in an orderly disposal
Realizable currently
value
Liabilities At settlement values

Present discounted value of future net cash inflows which the item is
Assets
Present expected to generate
value Present discounted value of future net cash outflows which are
Liabilities
expected to settle the liabilities

Grouping items with similar nature to avoid "offsetting" issue

Avoiding unnecessary detail

Principles
Provide relevant details

Presentation Specific details on elements classification

& Disclosure
Dislosure of compliance with IFRS

IAS 1 All relevant IFRS must be followed

Innapropriate accounting treatment cannot be rectified

 CONCEPTUAL FRAMEWORK 17 Student’s notes

Chapter 1 Quiz

Question 1:

How does the Conceptual Framework define an asset?

A. A present economic resource, which is right that has the potential to
produce economic benefits, owned by an entity as a result of past
events.
B. A present economic resource over which an entity has legal rights. An
economic resource is a right that has the potential to produce economic
benefits.
C. A present economic resource controlled by an entity as a result of past
events. An economic resource is a right that has the potential to
produce economic benefits.
D. A present economic resource to which an entity has a future
commitment as a result of past events. An economic resource is a right
that has the potential to produce economic benefits.

CONCEPTUAL FRAMEWORK 18 Student’s notes

Chapter 1 Quiz

Question 2:

The Conceptual Framework identifies four enhancing qualitative characteristics

of financial information
Which ONE of the following is NOT an enhancing qualitative characteristic?
A. Verifiability
B. Timeliness
C. Consistency
D. Understandability
 CONCEPTUAL FRAMEWORK 19 Student’s notes

Chapter 1 Quiz

Question 3:

In accordance with the Conceptual Framework which of the following is/are

true in relation to the enhancing characteristic of comparability?
(1) Permitting alternative accounting treatments for some economic
phenomena enhances comparability
(2) Comparability requires uniformity
A. Both 1 and 2
B. Neither 1 nor 2
C. 1 only
D. 2 only

CONCEPTUAL FRAMEWORK 20 Student’s notes

Chapter 1 Quiz

Answer

Question 1:
The correct answer is C.
A present economic resource controlled by an entity as a result of past events.
An economic resource is a right that has the potential to produce economic
benefits.

ASSETS

• A present resource controlled

by the entity as a result of the
past event.
• An economic resource is a
Conceptual Framework
right that has the potential to
produce economic benefits.
There are two types of assets:
• Non-current assets
• Current assets
 CONCEPTUAL FRAMEWORK 21 Student’s notes

Chapter 1 Quiz

Answer

Question 2:
The correct answer is C.
Consistency is an important part of the qualitative characteristic of
comparability, but it is not the same thing. Comparability of financial
statements is aided by the consistency of policies and methods used, either
between companies within the same industry or within the same company,
between different years.

Information enable users to identify and

Comparibility understand similarities in, and differences
among, items.

Information is a faithful representation of

Verifiability the transactions or events it purports to
represent.

Information is available to decision-makers

Timeliness
in times.

Understandability Information is classified

. and presented clearly.

CONCEPTUAL FRAMEWORK 22 Student’s notes

Chapter 1 Quiz

Answer

Question 3:
The correct answer is B.
The Conceptual Framework states that permitting alternative accounting
treatments for the same economic phenomenon diminishes comparability and
it also states that comparability does not equal uniformity
 23 Student’s notes

CHAPTER 2: THE REGULATORY

FRAMEWORK

THE REGULATORY FRAMEWORK 24 Student’s notes

OVERVIEW
What will you learn?

The regulatory framework

Overview about the Structure of international The international financial

regulatory system regulatory system reporting standards (IFRS)

Introduction of the IFRS Foundation The use and application

regulatory system (The Foundation) of IFRS

International Accounting
Current value Capital maintenance in
Standards Board
accounting inflation
(The Board – IASB)

The IFRS Advisory

Council (The Council)

The IFRS
Interpretations
Committee (IFRIC)
 THE REGULATORY FRAMEWORK 25 Student’s notes

I. OVERVIEW ABOUT THE REGULATORY SYSTEM

1. Introduction of the regulatory system

There are 6 Factors Shaped Financial Accounting

National/local Accounting concepts

legislation and
individual judgment

Other
FINANCIAL Accounting
international
ACCOUNTING standards
influences

Generally accepted
True and fair view/ accounting principles
fair presentation (GAAP)

THE REGULATORY FRAMEWORK 26 Student’s notes

I. OVERVIEW ABOUT THE REGULATORY SYSTEM

1. Introduction of the regulatory system
The following factors that have shaped financial accounting can be identified:

Factors Explanation
The form and content of the accounts are regulated
National/local legislation
primarily by national legislation.

This can be to subjectivity.

Accounting concepts and
Accounting standards were developed to try to
individual judgment
address this subjectivity.

In an attempt to deal with some of the subjectivity,

Accounting standards and to achieve comparability between different
organizations.
GAAP signifies all the rules from govern accounting:
Generally accepted • The Companies Act 2006
accounting principles • UK and IAS and IFRS
(GAAP) • Statutory requirements in other countries
• Stock exchange listing requirements.
True and fair view/ Financial information must be relevant and faithfully
fair presentation represent what it supports to represent to be useful.

Other international There is an agreement between 2 or more countries.

influences So these countries have to follow this agreement.
 THE REGULATORY FRAMEWORK 27 Student’s notes

I. OVERVIEW ABOUT THE REGULATORY SYSTEM

2. IFRS versus GAAP
Although GAAP is very similar to IFRS in style, there are minor differences that lead to
ambiguity in the interpretation of financial results. The 6 criteria where these differences
are more prominent are as follows:

IFRS GAAP
Accounting
1 Principle based Rules based
system

2 Scope International Nation

3 Judgment Encourage judgment Restrict judgment

Accounting
4 Not give details regulation Give details regulation
treatment

5 More flexible More comparable and

Advantage
consistent

• Inconsistencies between
• Less flexible
6 Disadvantage reporting entities
• Lead to loopholes in
• Lead to manipulation of
standard
FSs

THE REGULATORY FRAMEWORK 28 Student’s notes

I. OVERVIEW ABOUT THE REGULATORY SYSTEM

2. IFRS versus GAAP

Example 1: (December 2016 exam)

Which of the following is a possible advantage of a rules-based system of financial

reporting?
A. It encourages the exercise of professional judgement
B. It prevents a fire-fighting approach to the formulation of standards
C. It ensures that no standards conflict with each other
D. It offers accountants more protection in the event of litigation

Answer:
D. It offers accountants more protection in the event of litigation
A, B are features of IFRS.
C is false because both IFRS and GAAP do NOT ensure this statement
 THE REGULATORY FRAMEWORK 29 Student’s notes

II. STRUCTURE OF
INTERNATIONAL REGULATORY SYSTEM
1. Organizations of Regulatory System

The Monitoring Board

Appoints, reviews & advises

IFRS Foundation (The Foundation)

Appoints
Advises
& Oversees

The IFRS
The IFRS Advisory The IASB
Interpretations
Council (the Council) (the Board)
Committee (IFRIC)

Develop Interprets
& issues

IFRS Standards

THE REGULATORY FRAMEWORK 30 Student’s notes

III. THE INTERNATIONAL

FINANCIAL REPORTING STANDARDS (IFRS)
1. Standard-setting process

The procedure for the development of an IFRS Standard including 4 steps as follows:

1 IASB may develop and publish Discussion Papers for public comment

2 Establish an Advisory Committee to advise on issues arising in the project

3 IASB develops and publishes an Exposure Draft for public comment

4 IASB issues a final IFRS