CONCEPTUAL FRAMEWORK
& IFRS
STUDY UNIT 1
GG CH 1+2
OUTCOMES
• Name the objective of general-purpose financial
reporting
• Name and discuss the users of financial statements
and their needs for financial information
• Discuss the qualitative characteristics, underlying
assumption and concepts that are necessary for the
preparation and presentation of financial statements
• Discuss the elements of financial statements, as well as
the recognition, derecognition and measurement thereof
PILLARS OF ACCOUNTING
CONCEPTUAL FRAMEWORK
(NOT A STANDARD)
IAS 1
PRESENTATION OF FINANCIAL STATEMENTS
OTHER IAS STANDARDS (2–41)
IFRS STANDARDS
DIFFERENCE BETWEEN IAS & IFRS
1966
IAS begins
1967
(England,
Wales, America,
Canada)
Accounts
International
Study Group
publishes
documents
IASB adopts
IAS; adds
IFRS (IFRS
> IAS)
2001
IASC 
IASB
1973
Changed to
IASC
1973-2000
IAS 1-41
WHAT IS THE CONCEPTUAL
FRAMEWORK?
Basic concepts for preparing & presenting financial
statements for external users
Remember:
It’s only a framework.
It’s not a standard.
To oncoming
STANDARDS
CF deals with the following
1.
2.
3.
Objective of general- purpose
financial reporting
Qualitative characteristics of useful
financial information
Financial statements & the reporting
entity
6.
7.
4.
5.
Recognition and derecognition
8. Concepts of capital &
capital maintenance
1. Objective of general-purpose
financial reporting
Financial
information
Primary users:
Reporting
entity
•
•
•
Existing & potential
investors
Lenders
Other creditors
2. Qualitative characteristics
FUNDAMENTAL
ENHANCING
Relevance
Comparability
AND
Verifiability
Faithful
representation
Understandability
Timeliness
Fundamental characteristics
Relevance
Faithful representation
Completeness
Capable of making a difference
in a decision
Neutrality
Free from error
Enhancing characteristics
Comparability
Verifiability
Timeliness
Understandability
3a. Financial statements
Financial
performance
Financial
position
Other
SPLOCI
SFP
Notes
Cash flows
Accrual accounting
 Comply with definitions and
recognition criteria
 Recognise transactions when they
occur
3b. Reporting entity
Any entity who is required to or chooses to prepare
financial statements
Single entity
Portion of an
entity
More than one
entity
4. Elements of financial statements
Financial
performance
Financial position
5. Recognition of elements
2 requirements
Meet element
definition
Must result in
BOTH:
 Relevant information
 Faithful representation
5. Recognition of elements
Relevance is influenced by …
Existence
uncertainty
e.g. dispute
Outcome
uncertainty
e.g. plant crops
5. Recognition of elements
Faithful representation is influenced by …
Measurement
uncertainty
make estimates
Recognition
uncertainty
element may not be
recognised, but disclose
in notes
6. Derecognition of elements
Assets
Liabilities
when the entity loses
control of all or part of the
asset
when the entity no longer
has a present obligation
for all or part of the
liability
6. Measurement bases
Historical cost
Transaction price, i.e. price at
acquisition
Current value
Reflects conditions at
measurement date
 Fair value – market’s current expectations
 Value-in-use – entity’s current expectations
 Current cost – current replacement cost
7. Presentation & Disclosure
Requirements for effective communication
Focus on
objectives &
principles
Classification
 Group similar items
 Separate dissimilar
items
Aggregation
 Don’t obscure
information
8. Capital & Capital maintenance
Financial capital
Physical capital
= Net assets/equity
= Production capacity
Profit = Closing net assets
> Opening net assets
Profit = Closing production
capacity > Opening
production capacity
For more information, refer to your textbook
Work through all examples in your textbook
Homework:
Consult semester programme