IFRS Standard: Conceptual Framework for Financial Reporting 2018

The Conceptual Framework for Financial Reporting (Conceptual Framework) describes the objective of, and the concepts for, general purpose financial reporting.

1 THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING

Introduction

1.1 The objective of general purpose financial reporting forms the foundation of the Conceptual Framework. Other aspects of the Conceptual Framework—the qualitative characteristics of, and the cost constraint on, useful financial information, a reporting entity concept, elements of financial statements, recognition and derecognition, measurement, presentation and disclosure—flow logically from the objective.

Objective, usefulness and limitations of general purpose financial reporting

1.2 The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity. Those decisions involve decisions about:

  1. buying, selling or holding equity and debt instruments;
  2. providing or
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2 QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION

Introduction

2.1 The qualitative characteristics of useful financial information discussed in this chapter identify the types of information that are likely to be most useful to the existing and potential investors, lenders and other creditors for making decisions about the reporting entity on the basis of information in its financial report (financial information).

2.2 Financial reports provide information about the reporting entity’s economic resources, claims against the reporting entity and the effects of transactions and other events and conditions that change those resources and claims. (This information is referred to in the Conceptual Framework as information about the economic phenomena.) Some financial reports also include explanatory material about management’s expectations and strategies for the reporting entity, and other types of Read more

3 FINANCIAL STATEMENTS AND THE REPORTING ENTITY

Financial statements

3.1 Chapters 1 and 2 discuss information provided in general purpose financial reports and Chapters 3–8 discuss information provided in general purpose financial statements, which are a particular form of general purpose financial reports. Financial statements provide information about economic resources of the reporting entity, claims against the entity, and changes in those resources and claims, that meet the definitions of the elements of financial statements (see Table 4.1).

Objective and scope of financial statements

3.2 The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful to users of financial statements in assessing the prospects for future net cash inflows to Read more

4 THE ELEMENTS OF FINANCIAL STATEMENTS

Introduction

4.1 The elements of financial statements defined in the Conceptual Framework are:

  1. assets, liabilities and equity, which relate to a reporting entity’s financial position; and
  2. income and expenses, which relate to a reporting entity’s financial performance.

4.2 Those elements are linked to the economic resources, claims and changes in economic resources and claims discussed in Chapter 1, and are defined in Table 4.1.

Table 4.1The elements of financial statements

Definition of an asset

4.3 An asset is a present economic resource controlled by the entity as a result of past events.

4.4 An economic resource is a right that has the potential to produce economic benefits.

4.5 This section discusses three aspects Read more

5 RECOGNITION AND DERECOGNITION

The recognition process

5.1 Recognition is the process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the elements of financial statements—an asset, a liability, equity, income or expenses. Recognition involves depicting the item in one of those statements—either alone or in aggregation with other items—in words and by a monetary amount, and including that amount in one or more totals in that statement. The amount at which an asset, a liability or equity is recognised in the statement of financial position is referred to as its ‘carrying amount’.

5.2 The statement of financial position and statement(s) of financial performance Read more

6 MEASUREMENT

Introduction

6.1 Elements recognised in financial statements are quantified in monetary terms. This requires the selection of a measurement basis. A measurement basis is an identified feature—for example, historical cost, fair value or fulfilment value—of an item being measured. Applying a measurement basis to an asset or liability creates a measure for that asset or liability and for related income and expenses.

6.2 Consideration of the qualitative characteristics of useful financial information and of the cost constraint is likely to result in the selection of different measurement bases for different assets, liabilities, income and expenses.

6.3 A Standard may need to describe how to implement the measurement basis selected in that Standard. That description could include:Read more

7 PRESENTATION AND DISCLOSURE

Presentation and disclosure as communication tools

7.1 A reporting entity communicates information about its assets, liabilities, equity, income and expenses by presenting and disclosing information in its financial statements.

7.2 Effective communication of information in financial statements makes that information more relevant and contributes to a faithful representation of an entity’s assets, liabilities, equity, income and expenses. It also enhances the understandability and comparability of information in financial statements. Effective communication of information in financial statements requires:

  1. focusing on presentation and disclosure objectives and principles rather than focusing on rules;
  2. classifying information in a manner that groups similar items and separates dissimilar items; and
  3. aggregating information in such a way that it is not obscured either by unnecessary detail
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8 CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE

Concepts of capital

8.1 A financial concept of capital is adopted by most entities in preparing their financial statements. Under a financial concept of capital, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the entity. Under a physical concept of capital, such as operating capability, capital is regarded as the productive capacity of the entity based on, for example, units of output per day.

8.2 The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements. Thus, a financial concept of capital should be adopted if the users of financial statements are primarily concerned with the Read more