The Conceptual Framework for Financial Reporting 2011
2
Contents
Conceptual framework for financial reporting
Objectives 2.1 Why a conceptual framework? 2.2 IASB Framework for the Preparation and Presentation of Financial Statements 2.2.1 The objective of financial statements 2.2.2 Stewardship as an objective of financial statements: the current debate 2.2.3 Underlying assumptions 2.2.4 A note on the ‘going concern’ assumption 2.2.5 Qualitative characteristics of financial reporting information 2.2.6 Constraints on financial reporting 2.3 Elements of financial statements 2.4 Measurement of the elements of financial statements 2.4.1 Fair value 2.4.2 Alternatives to fair value 2.5 Concepts of capital and capital maintenance Appendix to Chapter 2: Use of present value in accounting Summary Research and references Discussion questions Notes
36 36 37 38 40 43 43 47 51 52 57 58 61 63 65 68 68 70 72
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2: Conceptual framework for financial reporting
Objectives
When you have completed this chapter you should be able to: • • • • • • • • • Understand what a framework for financial reporting is Understand the purpose of the IASB Framework Describe the primary groups of users at which general-purpose financial statements are aimed Understand the accrual basis and going concern assumptions which underlie the preparation of financial statements Identify the qualities that make financial statements useful Define the basic elements of financial statements – assets, liabilities, equity, income and expenses Explain the criteria which determine whether or not an element should be recognised in the financial statements Explain the measurement bases which are identified in the Framework Distinguish between the concepts of financial capital maintenance and physical capital maintenance.
2.1
Why a conceptual framework?
The conceptual framework is a recent concept. In fact, many accounting standard setters have historically operated without having a conceptual framework in place. This resulted in accounting
Contents
Conceptual framework for financial reporting
Objectives 2.1 Why a conceptual framework? 2.2 IASB Framework for the Preparation and Presentation of Financial Statements 2.2.1 The objective of financial statements 2.2.2 Stewardship as an objective of financial statements: the current debate 2.2.3 Underlying assumptions 2.2.4 A note on the ‘going concern’ assumption 2.2.5 Qualitative characteristics of financial reporting information 2.2.6 Constraints on financial reporting 2.3 Elements of financial statements 2.4 Measurement of the elements of financial statements 2.4.1 Fair value 2.4.2 Alternatives to fair value 2.5 Concepts of capital and capital maintenance Appendix to Chapter 2: Use of present value in accounting Summary Research and references Discussion questions Notes
36 36 37 38 40 43 43 47 51 52 57 58 61 63 65 68 68 70 72
36
2: Conceptual framework for financial reporting
Objectives
When you have completed this chapter you should be able to: • • • • • • • • • Understand what a framework for financial reporting is Understand the purpose of the IASB Framework Describe the primary groups of users at which general-purpose financial statements are aimed Understand the accrual basis and going concern assumptions which underlie the preparation of financial statements Identify the qualities that make financial statements useful Define the basic elements of financial statements – assets, liabilities, equity, income and expenses Explain the criteria which determine whether or not an element should be recognised in the financial statements Explain the measurement bases which are identified in the Framework Distinguish between the concepts of financial capital maintenance and physical capital maintenance.
2.1
Why a conceptual framework?
The conceptual framework is a recent concept. In fact, many accounting standard setters have historically operated without having a conceptual framework in place. This resulted in accounting