Learning Unit 1
SECTION 1: INTRODUCTION
What is the Conceptual Framework?
The Conceptual Framework (CF) is a document issued by the IASB that explains the basic principles and
logic underlying accounting and financial reporting. It is not an accounting standard itself.
Think of it as:
IFRS Standards = the rules
Conceptual Framework = the reasoning behind the rules
When you do not understand an IFRS requirement, you can go back to the Conceptual Framework to
understand the logic behind it.
Status of the Conceptual Framework
The Conceptual Framework:
Is NOT an IFRS
Forms the basis of IFRSs
Helps IASB develop IFRSs
Helps preparers create accounting policies when no IFRS exists
Helps everyone understand and interpret IFRSs
Most important:
The Conceptual Framework can NEVER override an IFRS.
If an IFRS and the CF conflict:
➡ Use the IFRS.
SECTION 2: OBJECTIVE AND CONCEPTS
The Conceptual Framework contains two major ideas:
1. Objective of General-Purpose Financial Reporting
The primary purpose of financial reporting is:
To provide useful financial information about an entity.
2. Other Concepts
The CF also explains:
What assets are
, What liabilities are
What equity is
What income is
What expenses are
When items should be recognised
How they should be measured
How they should be presented
These concepts help achieve the overall objective of providing useful information.
Core Concepts in the Conceptual Framework
The CF covers:
1. Objective of general-purpose financial reporting
2. Qualitative characteristics
3. Financial statements and reporting entity
4. Elements of financial statements
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Capital and capital maintenance
SECTION 5.1 – OVERVIEW OF GENERAL-PURPOSE FINANCIAL STATEMENTS
What are Financial Statements?
Financial statements are a specific form of general-purpose financial report.
They provide information about:
Assets
Liabilities
Equity
Income
Expenses
Purpose
,The purpose is to provide information that helps users:
Assess future cash inflows
Can the business generate money in the future?
Assess stewardship
How well has management looked after the company's resources?
SECTION 5.2 – FINANCIAL STATEMENTS VS FINANCIAL REPORTS
Students often confuse these.
Financial Report
A financial report is the broader document.
It may contain:
Financial statements
Notes
Management commentary
Other useful information
Financial Statements
Financial statements are only one part of the financial report.
They focus specifically on:
Assets
Liabilities
Equity
Income
Expenses
SECTION 5.3 – OBJECTIVE OF FINANCIAL STATEMENTS
The objective of financial statements is:
To provide financial information about:
Assets
Liabilities
, Equity
Income
Expenses
that is useful to users when assessing:
1. Future net cash inflows
2. Management's stewardship of resources
SECTION 5.4 – STRUCTURE OF FINANCIAL STATEMENTS
A complete set of financial statements contains:
1. Statement of Financial Position
Shows:
Assets
Resources controlled by the entity
Liabilities
Claims against the entity
Equity
Residual interest after liabilities are deducted
Formula:
Assets − Liabilities = Equity
Layout
Statement of Financial Position
Assets
Non-current assets xxx
Current assets xxx
SECTION 1: INTRODUCTION
What is the Conceptual Framework?
The Conceptual Framework (CF) is a document issued by the IASB that explains the basic principles and
logic underlying accounting and financial reporting. It is not an accounting standard itself.
Think of it as:
IFRS Standards = the rules
Conceptual Framework = the reasoning behind the rules
When you do not understand an IFRS requirement, you can go back to the Conceptual Framework to
understand the logic behind it.
Status of the Conceptual Framework
The Conceptual Framework:
Is NOT an IFRS
Forms the basis of IFRSs
Helps IASB develop IFRSs
Helps preparers create accounting policies when no IFRS exists
Helps everyone understand and interpret IFRSs
Most important:
The Conceptual Framework can NEVER override an IFRS.
If an IFRS and the CF conflict:
➡ Use the IFRS.
SECTION 2: OBJECTIVE AND CONCEPTS
The Conceptual Framework contains two major ideas:
1. Objective of General-Purpose Financial Reporting
The primary purpose of financial reporting is:
To provide useful financial information about an entity.
2. Other Concepts
The CF also explains:
What assets are
, What liabilities are
What equity is
What income is
What expenses are
When items should be recognised
How they should be measured
How they should be presented
These concepts help achieve the overall objective of providing useful information.
Core Concepts in the Conceptual Framework
The CF covers:
1. Objective of general-purpose financial reporting
2. Qualitative characteristics
3. Financial statements and reporting entity
4. Elements of financial statements
5. Recognition and derecognition
6. Measurement
7. Presentation and disclosure
8. Capital and capital maintenance
SECTION 5.1 – OVERVIEW OF GENERAL-PURPOSE FINANCIAL STATEMENTS
What are Financial Statements?
Financial statements are a specific form of general-purpose financial report.
They provide information about:
Assets
Liabilities
Equity
Income
Expenses
Purpose
,The purpose is to provide information that helps users:
Assess future cash inflows
Can the business generate money in the future?
Assess stewardship
How well has management looked after the company's resources?
SECTION 5.2 – FINANCIAL STATEMENTS VS FINANCIAL REPORTS
Students often confuse these.
Financial Report
A financial report is the broader document.
It may contain:
Financial statements
Notes
Management commentary
Other useful information
Financial Statements
Financial statements are only one part of the financial report.
They focus specifically on:
Assets
Liabilities
Equity
Income
Expenses
SECTION 5.3 – OBJECTIVE OF FINANCIAL STATEMENTS
The objective of financial statements is:
To provide financial information about:
Assets
Liabilities
, Equity
Income
Expenses
that is useful to users when assessing:
1. Future net cash inflows
2. Management's stewardship of resources
SECTION 5.4 – STRUCTURE OF FINANCIAL STATEMENTS
A complete set of financial statements contains:
1. Statement of Financial Position
Shows:
Assets
Resources controlled by the entity
Liabilities
Claims against the entity
Equity
Residual interest after liabilities are deducted
Formula:
Assets − Liabilities = Equity
Layout
Statement of Financial Position
Assets
Non-current assets xxx
Current assets xxx
