Framework for the preparation and presentation of financial statements essay

An accounting system has three distinct components:

Framework for the preparation and presentation of financial statements essay

The Objective of general purpose financial reporting The primary users of general purpose financial reporting are present and potential investors, lenders and other creditors, who use that information to make decisions about buying, selling or holding equity or debt instruments and providing or settling loans or other forms of credit.

They will need to consider pertinent information from other sources as well. However, the Board considered that the objectives of general purpose financial reporting and the objectives of financial regulation may not be consistent.

Hence, regulators are not considered a primary user and general purpose financial reports are not primarily directed to regulators or other parties.

Conceptual Framework for Financial Reporting

Information about the claims and payment requirements assists users to predict how future cash flows will be distributed among those with a claim on the reporting entity. Users need to be able to distinguish between both of these changes.

Such information may also indicate the extent to which general economic events have changed the entity's ability to generate future cash inflows.

This information indicates how the entity obtains and spends cash, including information about its borrowing and repayment of debt, cash dividends to shareholders, etc.

Qualitative characteristics of useful financial information The qualitative characteristics of useful financial reporting identify the types of information are likely to be most useful to users in making decisions about the reporting entity on the basis of information in its financial report.

What are 'Financial Statements'

The qualitative characteristics apply equally to financial information in general purpose financial reports as well as to financial information provided in other ways.

The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both.

The predictive value and confirmatory value of financial information are interrelated. This fundamental characteristic seeks to maximise the underlying characteristics of completeness, neutrality and freedom from error. Comparability enables users to identify and understand similarities in, and differences among, items.

Related Interpretations

Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation. While some phenomena are inherently complex and cannot be made easy to understand, to exclude such information would make financial reports incomplete and potentially misleading.

Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information with diligence.

However, enhancing qualitative characteristics either individually or collectively render information useful if that information is irrelevant or not represented faithfully.

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Reporting such information imposes costs and those costs should be justified by the benefits of reporting that information. The IASB assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting entities.

The IASB will consider whether different sizes of entities and other factors justify different reporting requirements in certain situations. As the project to revise the Framework progresses, relevant paragraphs in Chapter 4 will be deleted and replaced by new Chapters in the IFRS Framework.

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.

These broad classes are termed the elements of financial statements. The elements directly related to financial position balance sheet are:The International Accounting Standards Board (IASB) has set certain concepts and theories through which presentation and preparation of financial statements must be done for external users.

Framework for the preparation and presentation of financial statements essay

The role of this framework is to provide guidance on the objectives of financial statements . b) Discuss how an entity must record the value of employees in the general purpose financial reports according to AASB The Framework for the Preparation and Presentation of Financial Statements (Conceptual Framework/CF).

It is interesting that whilst the ASB states that it drew heavily on the International Accounting Standards Committee's "Framework for the Preparation and Presentation of Financial Statements" in creating its framework, differences do exist.

Framework for the Preparation and Presentation of Financial Statements (AASB Framework) to incorporate Chapters 1 and 3 of the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting, as issued in September In anticipation of further revisions to the IASB conceptual framework, the.

result in non-current classification of the financial liabilities even if executed before the financial statements are issued.

Each framework requires prominent presentation of an income statement as a primary statement.

Framework for the preparation and presentation of financial statements essay

Format. Accounting Framework & Financial Statement. You may like. Q Summarize the IASBs Framework for the Preparation and Presentation of Financial Statements. Q A business has the following balances in its financial records: Income tax ; Selling & administration expenses ; Revenue ; .

Conceptual framework