stor, 159 AM ‘AUD NOTES January 10, 2022) m FAR > CONCEPTUAL FRAMEWORK * PURPOSE * Basic Purpose ~ to serve as guide in developing future PFRSs and guide in resolving accounting issues. * Specific Purpose 4 1. Assist in developing future PFRSs and reviewing existing ones. 2. Assist in promoting harmonization of of regulations, accounting standards, and procedures relating to presenting FSs. 3. Assist in applying PFRSs. 4, Assist users of FS in interpreting info in FS. 5. Assist Auditors forming an opinion as to whether the FS conforms with PERS 6. Provide information to those interested with the work of FRSC © AUTHORITATIVE STATUS OF THE CONEPTUAL FRAMEWORK J * Conceptual Framework not a PFRS * If there is conflict, PFRS > Conceptual Framework * Hierarchy of Reporting Standards * UNDERLYING ASSUMPTIONS. J ‘Stated Under) ing Assumptio: List of Underlying Assumptions ‘Going Concer Principle Accrual Principle ‘Accounting / Economic Entity Concept Time Period Principle Monetary Unit Principle hitpshwuu.remnate,comwi61488928920c940034bdb84b/ZgGxONHaPKKAIBaDe wrsvt0r, 159 aM ‘AUD NOTES (January 10, 2022) * (GAATM) * SCOPE OF CONCEPTUAL FRAMEWORK JV 1. Objective of Financial Reporting * "The objective of General purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders ,and other creditors in making decisions about providing resources to entity." (Conceptual Framework. OB2) * Specific Objectives 1 * Provide information useful in making decisions about providing resources to the entity. * Provide information useful in assessing the prospects of future net cash flows to the entity * Provide information about entity resources, claims, and changes in resources. 2. Qualitative Characteristics of useful information * Fundamental Qualitative Characteristics + 1, Relevance <> the capacity of information to make a difference ina decision made by users. * "Ingredients" of Relevance + 1, Predictive Value > information that can help user predict or forecast outcome of events 2. Confirmatory Value > information that enables users confirm their earlier predictions. * NOTES: * Predictive and Confirmatory values are interrelated © Materiality is an aspect of relevance, not an ingredient of the latter * All material items are relevant, but not all relevant items are material hitpshwuu.remnate.comwi6148892892ec940034bdb84b/ZgGxINHaPKKAIBaDe arsvt0r, 159 aM ‘AUD NOTES (January 10, 2022) 2. Faithful Representation <> means that the descriptions and figures match what really existed or happened; information is true, correct, and complete depiction of what it represents; actual effects of transactions are properly accounted and reported. * Ingredients of Faithful Representation 1. Completeness 2. Neutrality 3. Free from error * NOTES: * Substance over form and Conservatism are NOT ingredients of faithful representation. + Enhancing Qualitative Characteristics 4 1. Verifiability <> when different users could reach consensus, although not complete agreement, that the info is faithfully represented 2. Comparable < when users can identify similarities and differences between different sets of info provided by the same entity but in another period (intra), or by different entities. 3. Understandability <> when information is comprehensible, clear, and concise. 4, Timeliness © when information is available to users in time to be able to influence their decisions. 3. The Financial Statements and The Reporting Entity * Objective and Scope of FS: * Provide financial information about entity's A, L, Eq, |, and Ex * used to assess chances probability for future cash inflows and management stewardship 4, Elements of Financial Statements * Asset, Liability, Equity (these three for Financial Position), Income, and Expense (these two for Financial Performance) hitpshwuu.remnate,comwi61488928920c940034bdb84b/ZgGxONHaPKKAIBaDe a7svt0r, 159 aM ‘AUD NOTES (January 10, 2022) * Elements 1. Assets € present economic resource controlled by the entity as a result of past event. © Characteristics 1. Controlled by entity 2. Result of a past transaction or event 3. Provides future economic benefits 4. Cost of asset can be measured reliably 2. Liability > present obligation of an entity arising from past transaction or event, settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits * Characteristics 4 1, the present obligation of a particular entity 2. arises from past transaction or event 3. settlement requires outflow of resources embodying economic benefits 3. Equity <> residual interest in assets of the entity after deducting liabs 4. Income ¢> inflow of future economic benefit that increases equity OTHER THAN contribution by owners. * Revenue, when presented in FS, is at gross amount. Gains are presented at net amount (net of direct cost). * Comprehensive income is split into two: P/L and Other Comprehensive Income (OCI) © GENERAL RULE: an income is part of P/L unless it is classified as OCI 5. Expense <> decrease in economic benefit during the accounting period in the form or outflow, decrease in asset, or increase in liabilities that decreases equity, OTHER THAN distribution to equity participants. hitpshwuu.remnate,comwi61488928920c940034bdb84b/ZgGxONHaPKKAIBaDe arsvt0r, 159 aM ‘AUD NOTES (January 10, 2022) 5, Recognition and Derecognition * Recognition Criteria + 1. meets the definition of an element of the FS 2. recognizing it would provide useful info * Recognition of an item may not provide useful info if 4 1. uncertainty of item's existence 2. asset/liab exists but porbability of inflow our outflow economic benefits is low. * NOTE * Expense recognition principle is the application of Matching Principle * Expenses are incurred in conformity with the three applications of the Matching Principle * Derecognition * occurs when item no longer meet the definition of asset or liability. * NOTE: Derecognition is NOT appropriate if the entity retains substantial control of a transferred asset. 6. Measurement * is the process of determining the monetary amounts at which the elements of the financial statements are to be recognize and carried in the statement of financial position. * Measurement Bases J 1. Historical Cost > based on the transaction price at the time of recognition of the element * Historical cost of asset: consideration paid plus transaction cost * Historical cost of liab: consideration received to incur liab minus transaction cost 2. Current Value > measures the element updated to reflect the conditions at the measurement date hitpshwuu.remnate,comwi61488928920c940034bdb84b/ZgGxONHaPKKAIBaDe srsvt0r, 159 aM ‘AUD NOTES (January 10, 2022) * Include the following 1. Fair Value > price that would be received to sell an asset or paid to transfer a liab in an orderly transaction between market participants 2. Value in use > present value of the cash flows/ other economic benefits that entity expects to derive from the use of an asset from its ultimate disposal. Fulfillment value is present value of cash or other economic resource resources that entity expects to be obliged to transfer as it fulfills a liability. * NOTE: this type of value does not include transaction cost in acquiring asset or incurring liab 3. Current cost of an asset > is the cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus transaction costs that would be incurred on that date. Current cost of liabs is consideration that would be received for an equivalent liability at the measurement date minus transaction costs that would be incurred on that date. * NOTE: Historical and Current cost are ENTRY values while value in sue, fulfillment value, and fair value are EXIT values. 7. Presentation and Disclosure * Effective communication requires: 4 1. focusing on presentation and disclosure objectives and principles than on rules 2. classifying information by grouping similar items and separating dissimilar items 3, Aggregating information in a manner that is not obscured either by excessive detail or by excessive summarization. 8. Concepts of Capital and Capital Maintenance hitpshwuu.remnate,comwi61488928920c940034bdb84b/ZgGxONHaPKKAIBaDe ersvt0r, 159 aM ‘AUD NOTES (January 10, 2022) Capital Maintenance Approach / Net Assets Approach <> net income only happens only after the capital used from the beginning of the period is maintained. * If the capital now is lower than the capital in the beginning of the period, na net loss na man gud yun. Financial Capital Concept + net assets at the end of the period exceeded the net assets at the beginning of the period, AFTER excluding distributions to and contributions by owners during the same period * Adopted by most entities Physical Capital Concept > net income occurs when physical productive capital of the entity at the end of the period exceeds the physical productive capital at the beginning of the period, AFTER excluding distributions to and contributions by owners during the same period. * Not adopted by most entities hitpshwuu.remnate.comwi6148892892ec940034bdb84b/ZgGxINHaPKKAIBaDe Ww