Part A IASB Framework
Conceptual Framework
IASB Framework
Conceptual framework
Regulatory framework
1. The Conceptual Framework-1
1. Needs for conceptual framework
Advantages
① A consistent conceptual base should lead to standardized consistent
accounting practices.
② The development of standards is less subject to political pressure.
③ Avoids a haphazard and fire-fighting approach to setting standards.
④ Some standards may concentrate on profit or loss whereas some
may concentrate on the valuation of net assets (statement of
financial position).
Disadvantages
① Different users have different needs. The needs of all users cannot
be considered. Different purposes or uses may require different
conceptual bases.
2. Scope of conceptual framework
The Conceptual Framework deals with:
•
The objective of financial reporting
•
The qualitative characteristics of useful financial information
•
Elements of financial statements
•
Recognition
•
Measurement
•
Presentation and disclosure
2.1 Objective of financial reporting
The objective of general purpose financial reporting is to provide financial
information (rather than non-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 the entity.
Shareholders
Creditors/lenders
2.2 Qualitative characteristics
Fundamental qualitative characteristics:
基本特征Useful or not
1.
2.
Relevance
✓ Materiality-- Information is material if omitting it or misstating it
could influence decisions
Faithful representation
✓ Complete--all information necessary;
✓ Neutral --without bias;
✓ Free from error --no errors or omissions in the description of the
phenomenon and no errors made in the process;
✓ (Economic) Substance over (legal) form；
✓ Measurement uncertainty--reasonable estimates;
2.2 Qualitative characteristics
Enhancing qualitative characteristics:
锦上添花
1.
Comparability with other entities & same entity for another period
✓ Consistency—same accounting methods for the same items
2.
Verifiability
➢ different knowledgeable and independent observers could reach
consensus
Timeliness
➢ the older the information is the less useful it is.
3.
4.
Understandability
➢ present information clearly and concisely.
➢ NOT mean excluding information about inherently complex
phenomena.
2.2 Qualitative characteristics
Fundamental
(useful or not)
Qualitative
characteristics
1. Relevance;
2. Faithful representation;
1. Comparability;
Enhancing
(锦上添花)
2. Verifiability;
3. Timeliness;
4. Understandability;
2.3 Accounting concepts & assumptions
Underlying assumption——Going concern
✓ continuing in operation for the foreseeable future (>12months)
2019.1.1
2019.12.31
2020.12.31
i.e. $1000购入PPE
判断未来一年内公司是否因为某些原因会倒闭
➢ Going concern (否)
➢ Break-up basis (是)
2.3 Accounting concepts & assumptions
Accruals basis
✓ The effects of transactions and other events are recognised
when they occur (and not as cash or its equivalent is received
or paid);
1. The Conceptual Framework - 2
2.4 Element of financial statements
Statement of profit or loss
Income
Expenses
=
Profits
Statement of financial position
Asset
=
Equity
+
Liability
2.4 Element of financial statements
≠ owned
Asset
✓
Liability
✓
A resource controlled by an entity as a result of past
events and from which future economic benefits are
expected to flow to the entity.
 Workforce
 Leased property
现时义务
A present obligation of the entity arising from past events,
the settlement of which is expected to result in an
outflow from the entity of resources embodying
economic benefits.
 Loan note
 Redeemable preference shares
Equity
✓
The residual interest in the assets of the entity after
deducting all its liabilities.
2.4 Element of financial statements
Income
✓
Increases in assets, or decreases in liabilities, that result
in increases in equity, other than those relating to
contributions from holders of equity claims.
PPE
Carrying value=$100
Sales proceeds=$120
Dr Cash
Cr PPE
Cr Income
Remove liability $1000 Dr Liability
Cr Income
Issue 1000shares
Nominal value =$0.1
Issuing price=$1
120
100
20
1000
1000
Dr Cash
1000
Cr Share capital
100
Cr Share premium 900
2.4 Element of financial statements
Expenses
✓
Decreases in assets, or increases in liabilities, that result
in decreases in equity, other than those relating to
distributions to holders of equity claims.
PPE
Carrying value=$100
Sales proceeds=$80
Dr Cash
Dr Expense
Cr PPE
80
20
100
10% interest per year
Dr Expense
Cr Liability
Pay dividends
Dr Retained earnings
Cr Cash
1000*10%
1000*10%
1000
1000
2.5 Recognition of elements
An asset or liability is recognised only if recognition of that asset or
liability and of any resulting income, expenses or changes in equity
provides users of financial statements with information that is useful,
i.e. with:
a)
b)
relevant information about the asset or liability and about any
resulting income, expenses or changes in equity; and
a faithful representation of the asset or liability and of any
resulting income, expenses or changes in equity.
2.6 Measurement
•
•
Historical cost
20x1.1.1
bought a machine for $1000; Cost=$1000
useful life=10 years
20x1.12.31
used for 1year
Current value
① Fair value (≈ market price)
② Current cost (replacement cost) “一模一样”
20x1.12.31
③
Buy such a machine for $950
Value in use (discounted present value of future cash flows )
1 year later
? 100* (1+7%)
Now
$100
?
0
$100
01
$100
$700
2
2.6.1 Historical cost accounting
Advantages of Historical Cost Accounting(HCA)
① Can be verified based on the accounting documents kept;
② Less possibility for manipulation;
③ Reliable;
Disadvantages of HCA
① Out of date values (i.e. value of assets)
② Overstatement of profits (because the financial statements show
current revenues less out-of-date costs.)
2014/12 Q3
Drexler acquired an item of plant on 1 October 2012 at a cost of $500,000. It has
an expected life of five years (straight-line depreciation) and an estimated residual
value of 10% of its historical cost or current cost as appropriate.
As at 30 September 2014, the manufacturer of the plant still makes the same item
of plant and its current price is $600,000.
What is the correct carrying amount to be shown in the statement of financial
position of Drexler as at 30 September 2014 under historical cost and current
cost?
historical cost current cost
$
$
A 320,000
600,000
B 320,000
384,000
C 300,000
600,000
D 300,000
384,000
Historical cost
Cost
500−500∗10%
Accumulated depreciation
*2yrs
5𝑦𝑟𝑠
500
(180)
Specimen Q13
Which of the following criticims does NOT apply to historical cost
financial statements during a period of rising prices?
A. They are difficult to verify because transactions could have
happened many years ago
B. They contain mixed values; some items are at current values and
some are at out of date values
C. They understate assets and overstate profit
D. They overstate gearing(
position
𝑑𝑒𝑏𝑡
) in the statement of financial
𝑒𝑞𝑢𝑖𝑡𝑦
2.6.2 Current cost accounting
Current Cost Accounting
Methods
① Fair value;
② Current cost;
③ Value in use;
2.6.2 Current cost accounting
Advantages of Current Cost Accounting
① Relevant to the needs of information users in:
• predicting future performance and trends;
• helping to decide whether to hold or sell the assets;
Disadvantages of Current Cost Accounting
① Subjective judgement; (such as the discount factor used or the expection
of future cash flows)
② Low level of reliability and high level of randomness;
③ Mixed value bases; (some assets will be valued at current cost; but
others will be valued at the value in use or fair value)
2.7 Capital maintenance
Capital
✓ Financial concept of capital: refers to net assets or equity of an entity;
✓ Physical concept of capital: referz to the productive capacity of the
entity, for example, units of output per day;
A financial concept of capital as adopted by most entities.
Equity
Share capital
x
Share premium
x
Retained earnings
x
Revaluation surplus
x
x
2.7 Capital maintenance
Capital maintenance
A profit is made if the 'capital' has increased over the period, excluding any
distributions to or contributions from holders of equity claims during the
period;
✓ Financial capital maintenance: a profit is made if net assets increase;
✓ Physical capital maintenance: a profit is made if the physical productive
capacity increases;
Opening
Closing
Equity
Share capital
Share premium
Retained earnings
Revaluation surplus
100
120
Profit of 20
Thank You
感谢您选择高顿网校 本节结束！
http://www.gaodun.com