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SU 1b - Conceptual Framework

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15 views29 pages

SU 1b - Conceptual Framework

Uploaded by

sanelisiwembuli73
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCC272

Conceptual Framework
Learning Outcomes
At the end of this study unit, you should be able to:
- Explain and apply the scope of the Conceptual Framework
- Analyse facts and argue as to what the most suitable accounting
treatment of the elements in the financial statements would be,
based on the underlying assumptions and qualitative
characteristics of financial statements, as well as the identification
of the elements concerned and the recognition and measurement
thereof;
- Demonstrate the concept of Capital & capital maintenance
- Compile a set of financial statements in order to comply with
IFRSs – this includes the use of the correct classification,
presentation and disclosure of elements in the financial
statements and notes thereto, based on the overall considerations
in the compiling of financial statements, and
- Integrate any of the above outcomes with other learning outcomes
Conceptual framework

OVERVIEW
- Complete framework has
already been done in
ACCC112/122
- Please Revise the topic and
do your Homework Questions
- Refer to Chapter 2 Gripping
GAAP
Conceptual framework

What is CF?

 Is it IFRS?
Conceptual framework

What is CF?

 Its not IFRS,


 Forms the basis of IFRS,
 May not override the IFRS
Conceptual framework

The main purpose of the


conceptual framework is to

 Assist the IASB to develop


and evaluate IFRS
Conceptual framework

The objective of general-purpose


financial reporting

 Is essentially to give users financial


information, they will find useful in
their decision making.
 The info will be reported on the
general financial reports
(Statements: Financial Position,
Performance, Cash Flows)
Conceptual framework

Accrual basis

 Transactions are recognized when


they occur and not when cash is
received or paid.

 Record the transaction as and when


they happen, don’t wait for the cash
flows.
Conceptual framework

The qualitative characteristics of


useful financial statements

Two Fundamental characteristics

1. Relevance (which involves


materiality)
2. Faithful representation
Conceptual framework

1.Relevance ( which involves materiality)


 When deciding what’s relevant , we must
consider whether it could make a difference
in the user’s decision making.

 Relevant information is capable of making a


difference in the decisions made by the
user.
 This financial info must have Predictive
Value/confirmatory value or both
Conceptual framework

 Materiality is not a qualitative


characteristic but it is used in
assessing what is relevant.

 Information is material if the decisions


of the primary users about a specific
reporting entity could be influenced if
it were misstated or omitted from its
financial information.
Conceptual Framework

2. Faithful representation (substance


over form)

 Means complete, neutral and free of


error.

1. Complete: All information necessary for


a user to understand the phenomenon
2. Neutral: Free from bias in the selection
of presentation of information
3. Free of error: no errors or omissions
Conceptual framework

 Once information is both


relevant and faithfully
represented, we have useful
information.
Conceptual Framework

Four Enhancing Characteristics


 We then try to enhance this
usefulness by ensuring that the
information is comparable,
verifiable , and understandable
and produced on a timely basis.
These characteristics are referred to
as Enhancing Qualitative
Characteristics.
Conceptual Framework
Financial Statements
Statement Period Elements

Financial Position (& At Assets


the related notes) Liabilities
Equities
Financial during the period Income
performance (& the Expenses
related notes)
Other (Cash flow, BOY, during and YE Assets
Changes in equity, Liabilities
notes) Equity
Income and expenses

NB! Comparative info of the above statements

- Consolidated financial statements


Conceptual framework

Going concern assumption

 Financial statements are


prepared on the assumption that
the entity is a going concern
( i.e. that it will continue to
operate in the foreseeable future
– at least one year)
Conceptual framework

5 Elements in the financial


statements

 Assets
 Liabilities
 Income (self study)
 Expenses (self study)
 Equity(self study)
Conceptual framework
ASSET
 Present economic resource
 Controlled by the entity
 Resulting from past events

 Economic resource is defined as:


 a right that has,
 Potential to produce economic benefits
Conceptual framework
ASSET
For an entity to have CONTROL:
- If it has the present ability to direct the use of the
economic resource and
- Obtain economic benefits from the resource

Or if the entity can prevent others from directing the use


and obtaining the benefits

Easy way to prove control is if the entity has the ability to


enforce legal rights
Class Example 1

Class Test 1 2021


Microsoft Word
Document

10 minutes
Conceptual framework
LIABILITY
 A present obligation of the entity
 To transfer an economic resource
 As a result of a past events

(for application of the definition see example 3&4 of Gripping GAAP)


Conceptual framework
LIABILITY
Present obligation Past Event

(Legal/constructive/conditional)

- A duty/ responsibility that an entity The entity must have


- Has no practical ability to avoid already
- Obtained economic
benefits or
- Taken action

As a result the entity will


or may have to transfer an
economic resource, that it
would not have had to
transfer
Class Example 2

June Test 2020

Microsoft Word
Document
Conceptual Framework
Recognition of elements

Can only recognise if it provides users with


useful information:
 Relevant information:
 Not if there is existence uncertainty
 No Outcome uncertainty (Probability of
inflow or outflow of economic benefits are
low)
 Faithful presentation:
 Measurement uncertainty
 High level of measurement uncertainty does
not necessarily prevent estimate from being
Conceptual framework

Tutorial questions for


application
- Class Test 1 2020
- Class test 1 2019
Conceptual framework

Income Expense

- Increases in assets or - Decreases in assets


- Decreases in liabilities - Increases in liabilities
- Other than contribution - Other than distributions
from holders of equity to holders of equity
claims claims
Conceptual Framework
Derecognition
 Assets – when the entity
losses control
 Liabilities – when the entity
no longer has present
obligation
Conceptual framework

 Complete framework as it has


already been done in ACCC122
 Revise where necessary
 Refer to GG ch 2
Homework
 Go through the summary par
11 in Ch 2 of GG (it will
assist you in answering
the homework questions)
 See additional questions on
Efundi and complete the
Efundi Quiz

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