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FINANICIAL REPORTING

IASB and the

Conceptual
Framework

Le Viet, PhD

IFRS INTRODUCTION
❑ IASC (International Accounting Standard Committee) formed in 1973
© IASC issued IAS (International Accounting Standards)
© SIC (Standard Interpretation Committee) issued SIC interpretations now: most
are superseded)
❑ IASC later reorganized to become IASB in 2001
© IASB issues IFRS (International Financial Reporting Standards)
to replace some expired IAS or to issues new standards
© IFRIC issues IFRIC interpretations (to replace most of SIC)
❑ In the US, FASB issued US GAAP (rule-based)
❑ In Vietnam, MoF: issued VAS, from 2000 to 2005 based on old IAS (including both valid
IAS and expired IAS)
IFRS principle-based
Conceptual framework + ~40 standards (16 new IFRSs+24 old valid IAS)
+ (interpretation)

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International Accounting Standards Board IASB

-Setting Structure
NOTE: numbers of members are not fixed

LO 3 Copyright ©2020 John Wiley & Sons, Inc. 3

Standard setting process

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The Conceptual Framework

It is not an accounting standard

(used in case there is no specific standard for particular accounting objects)

Conceptual
Framework
establishes the
concepts that underlie
It is a guidance to the preparation and
financial reporting.
presentation of financial statements

It does not override any accounting

standards

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Main contents

The Conceptual Framework (2018) comprises eight chapters, as follows:

Chapter 1, The Objective of General Purpose Financial Statements.

Chapter 2, Qualitative Characteristics of Useful Financial Information.
Chapter 3, Financial Statements and the Reporting Entity.
Chapter 4, The Elements of Financial Statements.
Chapter 5, Recognition and Derecognition.
Chapter 6, Measurement.
Chapter 7, Presentation and Disclosure.
Chapter 8, Concepts of Capital and Capital Maintenance

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CF chapter 1: Basic objective

To provide financial information about the reporting entity that is useful to present and
potential equity investors, lenders, and other creditors in making decisions about providing
resources to the entity.
• Provided by issuing general-purpose financial statements.
• Assumption is that users need reasonable knowledge of business and financial accounting
matters to understand the information.

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CF chapter 2: Qualitative characteristics of

accounting information
Qualitative Characteristics of Accounting Information
IASB identified the Qualitative Characteristics of accounting information that
distinguish better (more useful) information from inferior (less useful) information for
decision-making purposes.

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CF chapter 2: Qualitative characteristics of

accounting information
Accounting Qualities

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CF chapter 2: Qualitative characteristics of

accounting information
Fundamental qualitative characteristics

To be relevant,
accounting
information must be
capable of making a
difference in a
decision.

Financial information has Relevant Information is material if

predictive value if it has information also omitting it or misstating it
value as an input to predictive helps users could influence decisions
processes used by investors confirm or that users make on the
to form their own expectations correct prior basis of the reported
about the future. expectations. financial information.

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CF chapter 2: Qualitative characteristics of

accounting information

Materiality Brief Exercise

Determine whether you would classify these transactions as material.

• Blair Co. has reported a positive trend in earnings over the last 3 years. In the current
year, it reduces its bad debt expense to ensure another positive earnings year. The Material
impact of this adjustment is equal to 3% of net income.
• Hindi SE has a gain of €3.1 million on the sale of plant assets and a €3.3 million loss Material
on the sale of investments. It decides to net the gain and loss because the net effect
is considered immaterial. Hindi SE’s income for the current year was €10 million.
• Damon SpA expenses all capital equipment under €2,500 on the basis that it is
immaterial. The company has followed this practice for a number of years. Likely not material

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CF chapter 2: Qualitative characteristics of

accounting information
Fundamental qualitative characteristics

Faithful representation means

that the numbers and descriptions
match what really existed or
happened. Also considered as
substance over form

Completeness means Neutrality means that An information item

that all the information a company cannot that is free from error
that is necessary for select information to will be a more accurate
faithful representation is favor one set of (faithful) representation
provided. interested parties over of a financial item.
another. Also explained
by Prudence.
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CF chapter 2: Qualitative characteristics of

accounting information
Enhancing qualitative characteristics

Information that is measured and reported occurs when means having the quality of
in a similar manner for different companies. independent information available to information that lets
Another type of comparability is measurers, using the decision-makers before reasonably
consistency, Through such application, same methods, it loses its capacity to informed users see
the company shows consistent use of obtain similar results. influence decisions. its significance.
accounting standards.
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Practice exercises
Identify which qualitative characteristic of accounting information is best described in each of
the following items. (Do not use relevance and faithful representation.)
a. The annual reports of Best Buy Co. (USA) are audited by certified public accountants.
b. Motorola (USA) and Nokia (FIN) both use the FIFO cost flow assumption.
c. Starbucks Corporation (USA) has used straight-line depreciation since it began
operations.
d. Heineken Holdings (NLD) issues its quarterly reports immediately after each quarter
ends.

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CF chapter 2: Qualitative characteristics of

accounting information
Cost constraint
Companies must weigh the costs of providing the information against the benefits that can be
derived from using it.
◆ Rule-making bodies and governmental agencies use cost-benefit analysis before making
final their informational requirements.
◆ In order to justify requiring a particular measurement or disclosure, the benefits perceived
to be derived from it must exceed the costs perceived to be associated with it.

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CF Chapter 4: Basic elements of financial statements

A present economic resource controlled by the entity as a result of past events. An

Asset
economic resource is a right that has the potential to produce economic benefits.

Liability A present obligation of the entity to transfer an economic resource as a result of past
events. Obligation is a duty or responsibility that the entity has no practical ability to avoid.

Equity The residual interest in the assets after deducting liabilities.

Increases in economic benefits during the accounting period in form of inflows or

Income enhancements of assets or decreases of liabilities that result in increases in equity,
other than equity contributions.
Decreases in economic benefits during the accounting period in form of outflows or
Expenses
depletions of assets or incurrences of liabilities result in decreases in equity, other than
equity distributions to participants.
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CF Chapter 5: Recognition and Derecognition

Recognition How recognition links the elements of financial statement:

➢ Meets the definition of an element of financial

When?
statement
➢ Provides users of financial statements with
➢ relevant information and
➢ faithful representation

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CF Chapter 5: Recognition and Derecognition

Derecognition: Derecognition is the removal of all or part of a recognized asset

or liability from an entity’s statement of financial position.
➢ derecognition normally occurs when the entity loses control of all or part of
the recognized asset
➢ derecognition normally occurs when the entity no longer has a present
obligation for all or part of the recognized liability. 6
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CF Chapter 6: Measurement

Two measurement bases:

Historical cost base Current value base: fair value, value in use (for
asset)/fulfilment value (for liabilities), current cost

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Cơ sở đo lường theo giá trị hiện hành (Current value measurement base)

Giá hiện hành cung cấp thông tin được cập nhật để phản ánh các điều kiện tại thời
điểm đo lường. Cơ sở đo lường này bao gồm:
Giá trị hợp lý Là giá nhận được khi bán tài sản, hay phải trả khi thanh toán
(fair value) nợ, trong một giao dịch có trật tự giữa các bên tham gia thị
trường tại thời điểm đo lường.
Giá trị sử dụng (value in Phản ánh mong đợi hiện tại của một doanh nghiệp cụ thể về
use) – của tài sản hoặc Giá giá trị, thời gian và tính không chắc chắn của dòng tiền trong
trị thực hiện (fulfilment tương lai
value) của NPT
Giá hiện hành Là khoản Thanh toán để mua một tài sản tương tự
(current cost) Hoặc là khoản Nhận được nếu có một khoản nợ phải trả tương
tự

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CF Chapter 7: Presentation and disclosure

The CF says not much about presentation and disclosure, but Classification and Aggregation
• Classification is the sorting of assets, liabilities, equity, income or expenses on the basis of
shared characteristics for presentation and disclosure purposes. Aggregation is the adding
together of assets, liabilities, equity, income or expenses that have shared characteristics and
are included in the same classification.
• Classification of assets and liabilities: Offsetting occurs when an entity recognizes and
measures both an asset and liability as separate units of account, but groups them into a
single net amount in the statement of financial position.
• Classification of equity: Classify components of equity separately if some of those
components are subject to particular legal, regulatory or other requirements.

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CF Chapter 7: Presentation and disclosure

Classification and Aggregation
• Classification of income and expenses: components of such income and expenses if those
components have different characteristics and are identified separately.
• Classification of Profit or loss and other comprehensive income: In exceptional circumstances,
income or expenses arising from a change in current value of an asset or liability and include
those income and expenses in other comprehensive income

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Practice exercises
State whether or not you agree with the decisions made by Meadow plc. Support your answers with explanation
related to terms from Conceptual framework.

Meadow plc has hired you to review its accounting records prior to the closing of the revenue and
expense accounts as of December 31, the end of the current fiscal year. The following information
comes to your attention.
• 1. During the current year, Meadow plc changed its policy in regard to expensing purchases of
small tools. In the past, it had expensed these purchases because they amounted to less than 2%
of net income. Now, the president has decided that the company should follow a policy of
capitalization and subsequent depreciation. It is expected that purchases of small tools will not
fluctuate greatly from year to year.
• 2. The company constructed a warehouse at a cost of £1,000,000. It had been depreciating the
asset on a straight-line basis over 10 years. In the current year, the controller doubled
depreciation expense because the replacement cost of the warehouse had increased significantly.

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