FINANCIAL REPORTING 3
CONCEPTUAL FRAMEWORK
The Foundation of IFRS Accounting Standards
Replaces 2010 Framework · Effective 1 January 2020 · Level 3 Accounting
📖 WHAT'S INSIDE THESE NOTES
Section Topic
SECTION 1 Objective & Status — What is the Framework
and who is it for?
SECTION 2 Qualitative Characteristics — What makes
financial information useful?
SECTION 3 Financial Statements & The Reporting Entity
— Boundaries of reporting
SECTION 4 The Elements — Definitions of Assets,
Liabilities, Equity, Income, Expenses
SECTION 5 Recognition & Derecognition — When to
include or remove items
SECTION 6 Measurement Bases — Historical Cost vs.
Current Value
SECTION 7 Presentation & Disclosure — Effective
communication
SECTION 8 Quick Revision Cheat Sheet & Exam Tips
, SECTION 1: OBJECTIVE & STATUS
1.1 What is the Conceptual Framework?
The Conceptual Framework is NOT an IFRS Standard and does not override any specific
standard. Instead, it is the underlying foundation that guides the IASB in developing standards
and helps preparers develop consistent accounting policies when no standard applies to a
specific transaction.
1.2 Objective of General Purpose Financial Reporting
The foundation of the Framework is its objective: To provide financial information about
the reporting entity that is useful to existing and potential investors, lenders, and other
creditors in making decisions relating to providing resources to the entity.
📌 PRIMARY USERS
Who they are: Investors, lenders, and other creditors (existing and potential).
Who they are NOT: Management, regulators, or the general public (these groups may use
financial statements, but the reports are not primarily targeted at them).
What they need to assess:
1. The prospects for future net cash inflows to the entity.
2. Management's stewardship of the entity's economic resources.
SECTION 2: QUALITATIVE CHARACTERISTICS
2.1 Fundamental Qualitative Characteristics
For financial information to be useful, it must possess both fundamental characteristics. If it lacks
either, the information is useless.
Characteristic Definition & Key Aspects
1. RELEVANCE Information is relevant if it is capable of
making a difference in the decisions made by
users. It must have Predictive value (can be
used as an input to predict future outcomes),
Confirmatory value (provides feedback about
previous evaluations), or both. Materiality is
an entity-specific aspect of relevance.
2. FAITHFUL REPRESENTATION Information must faithfully represent the
economic phenomena it purports to represent.
To be perfectly faithful, it should be: Complete
(includes all info necessary for a user to
understand the phenomenon), Neutral
(without bias in the selection or presentation),
and Free from error (no errors in the
description or process used).
CONCEPTUAL FRAMEWORK
The Foundation of IFRS Accounting Standards
Replaces 2010 Framework · Effective 1 January 2020 · Level 3 Accounting
📖 WHAT'S INSIDE THESE NOTES
Section Topic
SECTION 1 Objective & Status — What is the Framework
and who is it for?
SECTION 2 Qualitative Characteristics — What makes
financial information useful?
SECTION 3 Financial Statements & The Reporting Entity
— Boundaries of reporting
SECTION 4 The Elements — Definitions of Assets,
Liabilities, Equity, Income, Expenses
SECTION 5 Recognition & Derecognition — When to
include or remove items
SECTION 6 Measurement Bases — Historical Cost vs.
Current Value
SECTION 7 Presentation & Disclosure — Effective
communication
SECTION 8 Quick Revision Cheat Sheet & Exam Tips
, SECTION 1: OBJECTIVE & STATUS
1.1 What is the Conceptual Framework?
The Conceptual Framework is NOT an IFRS Standard and does not override any specific
standard. Instead, it is the underlying foundation that guides the IASB in developing standards
and helps preparers develop consistent accounting policies when no standard applies to a
specific transaction.
1.2 Objective of General Purpose Financial Reporting
The foundation of the Framework is its objective: To provide financial information about
the reporting entity that is useful to existing and potential investors, lenders, and other
creditors in making decisions relating to providing resources to the entity.
📌 PRIMARY USERS
Who they are: Investors, lenders, and other creditors (existing and potential).
Who they are NOT: Management, regulators, or the general public (these groups may use
financial statements, but the reports are not primarily targeted at them).
What they need to assess:
1. The prospects for future net cash inflows to the entity.
2. Management's stewardship of the entity's economic resources.
SECTION 2: QUALITATIVE CHARACTERISTICS
2.1 Fundamental Qualitative Characteristics
For financial information to be useful, it must possess both fundamental characteristics. If it lacks
either, the information is useless.
Characteristic Definition & Key Aspects
1. RELEVANCE Information is relevant if it is capable of
making a difference in the decisions made by
users. It must have Predictive value (can be
used as an input to predict future outcomes),
Confirmatory value (provides feedback about
previous evaluations), or both. Materiality is
an entity-specific aspect of relevance.
2. FAITHFUL REPRESENTATION Information must faithfully represent the
economic phenomena it purports to represent.
To be perfectly faithful, it should be: Complete
(includes all info necessary for a user to
understand the phenomenon), Neutral
(without bias in the selection or presentation),
and Free from error (no errors in the
description or process used).
