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Conceptual Framework: Objectives

The document provides an overview of the conceptual framework for financial statements. It describes the objectives of financial statements as providing information about a company's financial position, financial performance, and cash flows that is useful for economic decision making. The key elements of financial statements are assets, liabilities, equity, income, and expenses. Items meet the definition of an element if it is probable they will generate economic benefits and their cost or value can be reliably measured.

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Pang Siulien
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20 views

Conceptual Framework: Objectives

The document provides an overview of the conceptual framework for financial statements. It describes the objectives of financial statements as providing information about a company's financial position, financial performance, and cash flows that is useful for economic decision making. The key elements of financial statements are assets, liabilities, equity, income, and expenses. Items meet the definition of an element if it is probable they will generate economic benefits and their cost or value can be reliably measured.

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Pang Siulien
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CONCEPTUAL FRAMEWORK

Objectives:
1. Describe the basic objective of Financial Statements.
2. Interpret the qualitative characteristics of financial information.
3. Define and distinguish the Elements of Financial Statements
OBJECTIVE of Financial Statements
• The objective of general purpose financial
statements is to provide information about
the financial position, financial performance
and cash flows of an entity that is useful to a
wide range of users in making economic
decisions.
INFORMATION
Financial Position Financial Performance Cash Flows

 Assets  Revenue  Cash


 Liabilities  Expenses Receipts
 Equity  Net Income  Cash
or Loss Payments

 Statement of Cash
 Statement of Flows
Financial Position  Income Statement or
Statement of
Comprehensive Income
COMPLETE Set of FSs
 Statement of Financial Position
 Income Statement
 Statement of Comprehensive Income
 Statement of Changes in Equity
 Statement of Cash Flows
 Notes (comprising a summary of SIGNIFICANT accounting policies and other explanatory
information)
QUALITATIVE Characteristics of USEFUL
Financial Information
• Financial information is useful when it is relevant
AND represents faithfully what it purports to
represent.
• The usefulness of financial information is enhanced
if it is comparable, verifiable, timely AND
understandable.

Enhancing qualitative characteristics (either individually or collectively) cannot render


information useful if that information is irrelevant or not represented faithfully.

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FUNDAMENTAL Qualitative Characteristics

RELEVANCE FAITHFUL REPRESENTATION


• It is capable of making a • Faithful representation means
difference in the decisions made representation of the substance of
by users. an economic phenomenon instead
• Financial information is capable of of representation of its legal form
making a difference in decisions if only.
it has predictive value, Substance over legal form alone
confirmatory value, OR both.  Completeness

 Neutrality – (Prudence)
Prudence is the exercise of caution when making
Materiality is an entity-specific aspect of relevance
judgments under conditions of uncertainty.
based on the nature or magnitude (or both) of the items
to which the information relates in the context of an
individual entity's financial report.  Freedom from error

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ENHANCING Qualitative Characteristics

COMPARABILITY VERIFIABILITY
• Information about a reporting • Verifiability means that different
entity is more useful if knowledgeable and independent
observers could reach consensus,
 it can be compared with a similar although not necessarily
information about other entities complete agreement, that a
AND particular depiction is a faithful
representation.
 with similar information about
the same entity for another
period or another date.

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ENHANCING Qualitative Characteristics

TIMELINESS UNDERSTANDABILITY
• Timeliness means that • Classifying, characterizing and
information is available to presenting information clearly
decision-makers in time to be and concisely makes it
capable of influencing their understandable.
decisions.

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ELEMENTS OF FINANCIAL
STATEMENTS
ELEMENTS RECOGNITION
of (the process of reporting of an A, L, I & E on the
Financial Statements face of the financial statements of an entity)

The elements of financial An item that meets the definition of an element


statements are broad shall be recognized if:
classes of EVENTS or
TRANSACTIONS that are
1. It is probable that any future economic
grouped according to their
benefit associated with the item will flow
Economic Characteristics.
to or from the entity.
2. The item has a cost or value that can be
The elements of financial measured with reliability.
statements are the
Building Blocks from which
financial statements are
constructed.
ASSET
1. It is probable that future economic benefits
will flow to the entity. AND
2. The cost or value of the asset can be
measured reliably.

The term “probable” means that the chance of the future economic benefit arising is
more likely rather than less likely.
LIABILITY
1. It is probable that an outflow of economic
benefits will be required for the settlement of
a present obligation. AND
2. The amount of obligation can be measured
reliably.
INCOME
1. It is probable that future economic benefits
will flow to the entity as a result of an
increase in an asset or a decrease in a
liability. AND
2. The economic benefits can be measured
reliably.

Point of income recognition Point of Sale Point of delivery


INCOME
SALE OF GOODS RENDERING OF SERVICES
• The entity has transferred to the buyer • The amount of revenue can be
the significant risks and rewards of measured reliably.
ownership of the goods • It is probable that the economic
• The entity retains neither continuing benefits associated with the
managerial involvement nor effective transaction will flow to the entity.
control over the goods sold. • The stage of completion of the
• The amount of revenue can be transaction at the end of reporting
measured reliably. period can be measured reliably.
• It is probable that economic benefits • The costs incurred for the transaction
associated with the transaction will flow
and the costs to complete can be
to the entity.
measured reliably.
• The costs incurred or to be incurred in
respect of the transaction can be
measured reliably.

PAS 18
EXPENSE
• It is probable that a decrease in future
economic benefits has occurred as a result of
a decrease in an asset or an increase in a
liability.
• The decrease in economic benefits can be
measured reliably.

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