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Leomar R. CabarlesReviewer, PRTCConceptual Framework(ToA.201)

Professional Review and Training Center

PRTC#1Conceptual Framework for Financial Reporting (2010 Framework or the IFRS Framework)

PRTC

PRTC#ContentsPurpose and Status of the FrameworkThe IFRS FrameworkObjective of general purpose financial reportingQualitative characteristics of useful financial informationThe reporting entityUnderlying assumptionDefinition, recognition and measurement of the elements from which financial statements are constructedConcepts of capital and capital maintenance2

PRTC

PRTC#Purpose of the FrameworkDescribes the basic concepts that underlie the preparation and presentation of FSs for external users

Serves as a guide to the Board in developing future IFRSs and as a guide to resolving accounting issues that are not addressed

Considered in making judgment in developing and applying an accounting policy that results in information that is relevant and reliable

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PRTC

PRTC#Purpose of the FrameworkThe purpose of the Framework is to:assist the FRSC in the development and review of PFRSs;assist the FRSC in promoting harmonization of PFRSs;assist preparers in applying PFRSs and in dealing with topics no dealt with existing PFRS;assist auditors in forming an opinion;assist users in interpreting the information contained in FSs prepared in conformity with PFRSs; andprovide those who are interested in the work of FRSC with information about its approach to the formulation of PFRSs.

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PRTC

PRTC#Status of the FrameworkNot PFRS and hence does not define standards for any particular measurement or disclosure issue.

In those cases where there is a conflict, the requirements of the PFRS prevail over those of the Framework.5

PRTC

PRTC#Users and Information NeedsInvestors Capital and investment

Lenders Loans and interest payments

Suppliers and other trade creditors Amounts owing to them will be paid when due

Employees Stability and profitability of employers

Customers Continuance of an entity

Governments and their agencies allocation of resources, activities of entities and taxation

The public Trends, recent developments and the range of its activities6

PRTC

PRTC#Objective of General Purpose Financial ReportingThe primary users of general purpose financial reporting are present and potential investors, lenders and other creditors.

Regulators are not considered primary user

Provides information about a reporting entity's: economic resources and claims (SFP); and changes in resources and claims Financial performance (SCI and SCF)Not financial performance (SCE)

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PRTC

PRTC#The Reporting EntityTo be added8

PRTC

PRTC#Qualitative Characteristics of Useful Financial Information9Fundamental characteristics

Enhancing characteristics

Relevance

Faithful representationComparability

Verifiability

Timeliness

Understandability

Pervasive constraint

Cost

PRTC

PRTC#Fundamental Qualitative CharacteristicsRelevanceCapable of making a difference in the decisions made by users, i.e., predictive value, confirmatory value, or bothConsider materiality

Faithful representationFinancial information must not only be relevant, it must also represent faithfully the phenomena it purports to represent.seeks to maximize the underlying characteristics of completeness, neutrality and freedom from error

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PRTC

PRTC#Enhancing Qualitative CharacteristicsComparabilityInformation is useful if it can be compared with a similar information about other entities and with similar information about the same entity for another period or another date. Enables users to identify and understand similarities in, and differences among, items.

Verifiability Helps to assure users that information represents faithfully the economic phenomena it purports to representDifferent knowledgeable and independent observers could reach consensus11

PRTC

PRTC#Enhancing Qualitative CharacteristicsTimelinessMeans that information is available to decision-makers in time to be capable of influencing their decisions.

UnderstandabilityClassifying, characterizing and presenting clearly and concisely information. No exclusion of complex transactions, otherwise financial reports (FRs) will be incomplete and potentially misleading. Users assumed a reasonable knowledge of business and economic activities and, review and analyze the information with diligence. 12

PRTC

PRTC#Underlying AssumptionGoing concern only.

Thus, the financial statements presume that an entity will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required.13

PRTC

PRTC#The Elements of Financial StatementsBroad classes grouping of transactions and events according to their economic characteristics

Measurement of financial positionAssetsLiabilitiesEquity

Measurement of performanceIncomeExpenses14

PRTC

PRTC#Recognition of the Elements of FSsThe process of incorporating in the SFP or IS an item that meets the definition of an element and satisfies the criteria for recognition.failure to recognize items is not rectified by disclosure

An item that meets the definition of an element should be recognized if:it is probable that any future economic benefit associated with the item will flow to or from the entity; andthe item has a cost or value that can be measured with reliability.

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PRTC

PRTC#Measurement of the Elements of FSsThe process of determining the monetary amounts at which the elements of the FSs are to be recognized and carried in the SFP and SCI (involves the selection of the basis of measurement.)

They include the following:Historical costCurrent costRealizable (Settlement) valuePresent value

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PRTC

PRTC#Concepts of Capital and Capital MaintenanceConcepts of capitalFinancial concept of capitalInvested money or invested purchasing power, capital is synonymous with the net assets or equity of the entityMost adopted

Physical concept of capitalProductive capacity of the entity based on, for example, units of output per day

Selection depends on needs of users

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PRTC

PRTC#Concepts of Capital and Capital MaintenanceConcepts of Capital Maintenance and the Determination of Profit

Financial capital maintenance. A profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period, can be measured in either nominal monetary units or units of constant purchasing power.

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PRTC

PRTC#Concepts of Capital and Capital MaintenancePhysical capital maintenance. A profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.

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PRTC

PRTC# D C C A C

STQ Answers

PRTC#20Objectives (text, p. 2) continued on next slide. B C A A C

STQ Answers

PRTC#21Objectives (text, p. 2) continued on next slide. B C B C A

STQ Answers

PRTC#22Objectives (text, p. 2) continued on next slide. A C C B B

STQ Answers

PRTC#23Objectives (text, p. 2) continued on next slide. B A C B D

STQ Answers

PRTC#24Objectives (text, p. 2) continued on next slide. C D D D C

STQ Answers

PRTC#25Objectives (text, p. 2) continued on next slide. end of ToA.201

PRTC#