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CFAS - CW (Conceptual Framework)

The objective of financial reporting is to provide useful financial information for decision-making by primary users. Key qualitative characteristics of useful financial information include relevance, faithful representation, comparability, understandability, verifiability, and timeliness. Financial statements represent the reporting entity's elements such as assets, liabilities, equity, income, and expenses, while recognition and de-recognition processes determine how items are included or removed from financial statements.

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5 views3 pages

CFAS - CW (Conceptual Framework)

The objective of financial reporting is to provide useful financial information for decision-making by primary users. Key qualitative characteristics of useful financial information include relevance, faithful representation, comparability, understandability, verifiability, and timeliness. Financial statements represent the reporting entity's elements such as assets, liabilities, equity, income, and expenses, while recognition and de-recognition processes determine how items are included or removed from financial statements.

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sandraaanicoleee
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© © All Rights Reserved
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MAGNAYE, SANDRA NICOLE P.

BSA231C

CLASSWORK

What is objective of financial reporting?

- is to provide financial information about the reporting entity that is useful to primary users in making
decisions.

Qualitative Characteristics of useful financial information:

a. Fundamental Attributes – characteristics that make information useful to users.

I. Relevance – is the capacity to influence decisions.

1. Materiality – misstatement or obscuring of information could reasonably influence


decisions.

2. Predictive Value – predictions about future outcomes.

3. Confirmatory Value – confirming the previous predictions.

II. Faithful Representation – a true and complete depiction of economic phenomena that it
purports to represent.

1. Completeness – all information must be complete or disclosed necessary for users to


understand.

2. Neutrality – information is selected and presented without bias.

3. Free from error – no errors in the description and in the process by which the
information is selected and applied.

b. Enhancing Attributes – characteristics that enhance the usefulness of the information.

I. Comparability and Consistency – comparability helps the users identifies similarities and
differences between different sets of information while consistency is the uniform application of
methods for the same items.

II. Understandability – when information is presented in a clear and concise manner.

III. Verifiability – when users could reach a general agreement as to what the information
purports to represents, can be direct and indirect.

IV. Timeliness – if it is available to users in time to be able to influence their decisions.

Explain the financial statements and reporting entity.

- the objective of the general purpose financial statements is to provide financial information about the
reporting entity’s elements (assets, liabilities, equity, income, and expenses) on the other hand,
reporting entity is the one required, or chooses, to prepare financial statements, and is not necessarily a
legal entity.
Elements of Financial Statements:

a. Assets – present economic resource controlled by the entity as a result of past events.

b. Liabilities – present obligation of the entity to transfer an economic resource as a result of past
events.

c. Equity – is the residual interest in the assets of an entity after deducting all of its liabilities.

d. Income – increases in assets, decreases in liabilities, that result in increases in equity.

e. Expenses – decreases in assets, increases in liabilities, that result in decreases in equity.

Differentiate the Recognition and De-recognition of Account

- recognition is the process of including in the statement of financial position or financial performance of
an item that meets the definition of one of the financial statement elements that involves the recording
of an item in account title and monetary unit while de-recognition is the opposite of recognition where it
is the removal of the previously recognized assets and liabilities from the entity’s statement of financial
position.

a. recognition criteria of an account – a) when meets the definition of financial statement’s elements;
and b) recognized if it would provide useful information that is relevant and faithfully represented.

b. measurement uncertainty and how does it affect recognition of an account? – measurement


uncertainty does not necessarily mean irrelevance even it usually requires estimation, though it still
affects the faithful representation.

Different Measurement Basis:

a. Historical Cost – initial recognition

I. Historical Cost of an asset – is the consideration paid to acquire the assets plus transaction
costs.

II. Historical Cost of a liability – is the consideration received to incur the liability minus
transaction costs.

b. Current Value – measures reflect changes in the values at measurement date.

I. Fair Value – price that would be received to sell an asset, or paid to transfer a liability, in an
orderly transaction between market participants at the measurement date.

II. Value in use and Fulfilment Value – value in use is the present value of the cash flows, or
other economic benefits, that an entity expects to derive from the use of an asset and from its
ultimate disposal while fulfilment value present value of the cash, or other economic resources,
that an entity expects to be obliged to transfer as it fulfils a liability.

III. Current Cost – the update of similar costs.

Presentation and Disclosure

– presentation and disclosure objectives are specified in the standards.


Differentiate financial concept and physical concept

– financial concept is when capital is regarded as the invested money or purchasing power, on the other
hand physical concept is when capital is regarded as the entity’s productive capacity.

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