Statements: requires them to present fairly (representing faithfully the effects of transactions) the financial position and performance of an entity. Departures from FIRS only allowed: extremely rare cases where compliance misleading 2 Purpose and use of financial statements Else to make economic decisions such as: Decide when to Buy, hold or sell and equity Assess stewardship (management is accountable for safe-keeping tooth entity s resources and for their proper, efficient and profitable use) or accountability of management; ability to provide other benefits to employees; security tort mounts lent to entity Deterring taxation policies; distributable profits and dividends Prepare and use national income statistics Regulate activities of entities General purpose Users: present and potential investors, employees, lenders, suppliers and other trade payable, customers, governments and their agencies, the public Objective: provide information about the reporting entity ; s financial position and financial performance that is useful to a wide range of users in making economic decisions.
Financial position covers: Economic resources controls; its financial structure; its liquidity and solvency; TTS capacity to adapt to changes It helps Help assessing: Ability to generate cash in future how future cash flows will be distributed among those with an interest in, or claims on, the entity requirements for future finance ability to meet financial commitments Statement of financial position For Financial performance: profit earned is used; info is useful in Assessing potential changes in entity ‘ s economic resources; predicting the entity’ s capacity to generate cash, forming judgment about effectiveness of resource employment Statement of comprehensive income and/or income statement C
Statement tot changes in equity Changes in financial position: investing, financing and operating activities in statement of cash flows; info is factual in nature = more reliable 3 Bases of accounting Accrual basis: transactions are recognized when they occur Sales: venue risks and rewards of ownership pass from seller to buyer Expenses: in period when the goods or services are consumed Consumption Of Nan-current assets: over the period during Which they are used Going concern basis: will continue in operation for the foreseeable future Measurement Of receivables: no time limit over Which management Will chase low payers Non-current assets: can be utilized throughout their planned life Cash basis: not used in the preparation Of company statement Of financial position as not allowed: only cash impact off transaction is recorded [Hex.
P. II Comparison accrual vs.. Cash basis] Break-up basis: alternative method of accounting when intention or need to sell off the assets of the business: All assets and liabilities would be classified as current rather than non-current Assets would be valued on the basis of the recoverable amount on sale. 4 The SAAB Conceptual Framework Before: SAAB Framework for the Preparation and Presentation tot Financial
Statements purposes of the Conceptual Framework: Assist the board in development of future Fires, in promoting harmonistic of regulations; national standard-setting bodies in developing national standards, preparers of financial statements in applying Fires, auditors in forming an opinion; users financial statements in interpreting Conceptual framework an FIRS; if conflict: FIRS prevails. Chapter 1: objective of general purpose financial reporting: users need information about economic resources of the entity, the claims against the entity and changes in the entity s economic resources ND claims; on accrual basis Chapter 3: qualitative characteristics Of useful financial information Deft. : Relevance: Relevant financial information is capable of making a difference in the decisions made by users.
Can be Of predictive value, confirmatory value or both Is affected by information’s nature and its materiality Deft. : Materiality: Information is material if omitting it or misstating it could influence decisions. Deft. : Faithful representation: A perfectly faithful representation should be complete (all info necessary included), neutral (without bias) and free from error (no errors or omissions) Faithful representation only Seibel if it is accounted for according to its substance and economic reality e. G. Leases or group financial statements Deft. : Substance over form: transactions are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. [HEX p. 4 Sale and purchase agreement] Comparability: enables users to identify and understand similarities in, and differences among, items Consistency: use of the same methods tort the same items Verifiability: information faithfully represents the economic phenomena it purports to represent. Timeliness: info become less useful if there is delay; balance between timeliness and the provision of reliable into. Understandability: statements prepared for users vivo have a reasonable knowledge of business and economic activities Chapter 4: The elements of financial statements Asset Deft. : Asset: 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 Deft. : future economic benefit: the potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity.
Potential may be a productive one r in the form Of convertibility into cash or capability to reduce cash outflow.. Existence of asset, in terms of control, not reliant on physical form or legal ownership Liabilities Deft. : Liability: a present obligation of the entity arising from past events, the settlement of which is expected to lead to the outflow from the entity of resources embodying economic benefits. Deft. : Obligation: a duty or responsibility to act or perform in a certain way. May be legally enforceable or arising from normal business practice. Equity Deft. : Equity: The residual amount found by deducting all of the entity’ s liabilities room all of the entity ‘ s assets = net assets Liability? ] Performance [IQ p. 8 Asset or Deft. : Income: Increases in economic benefits in the forlorn of asset increases/ liability decreases definition of income includes revenue, gains and unrealized gains Deft. : Gains: Increases in economic benefits = revenue. Deft. : Expenses: Decreases in economic benefits in the form of asset decreases/ liability increases Definition of expenses includes losses, arising from disposal of non-current assets, unrealized losses Deft. : Losses: decrease in economic benefits = expenses Profit is used as measure of performance, depends directly on measurement f income and expenses Chapter 4: Recognition of the elements Of financial statements Deft. Recognition: process of incorporating in the statement of financial position, income statement or statement Of comprehensive income an item that meets the definition of an element and satisfies the following criteria: probable (more likely than not) that future economic benefit flow to or from the entity AND cost or value can be measure with reliability Regards must be given to materiality If fails to meet the criteria: may merit disclosure in the notes (0 CASSIA Chapter 4: Measurement of the elements of financial statements Measured as a monetary mount; 4 bases: Historical cost: time of acquisition, C] most common Current costs: as if acquired currently Realizable (settlement) value Realizable value: cash that could currently be obtained why selling an asset Settlement value: undistorted amount to be paid to sati” the liabilities in the normal course of business present value: a current estimate of the present discounted value of the future net cash flows in normal course of business Chapter 4: Concepts of capital and capital maintenance Deft. : Financial capital maintenance: under a financial concept of capital maintenance, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Concept measures capital as the equity in the statement of financial position.
Cite this Summary IFRS chapter
Summary IFRS chapter. (2018, Jun 30). Retrieved from https://graduateway.com/summary-ifrs-chapter/