Transcript LO1 - McGraw-Hill Ryerson

Learning Objectives
After studying the material in this chapter, you will be able to
do the following:
LO1
Understand the objectives of general purpose financial reporting
and the qualitative characteristics of useful financial information
as described in the IFRS conceptual framework
LO2
Recognize the basic accounting assumptions that are fundamental
to contemporary accounting
LO3
Identify components that make up a set of general purpose
financial statements, understand the information each statement
provides, and prepare simple examples of them
Copyright © 2013 McGraw-Hill Ryerson Limited
1 1
LO 1
IFRS Conceptual Framework
• The IASB has developed a conceptual framework
that provides a basis for preparing and presenting
financial statements
• Purpose is to provide a structure for creating new
accounting standards and to assist preparers of
financial statements when there are no standards
for guidance
• We will look at:
▫ The objective of general purpose financial reporting
▫ The qualitative characteristics of useful financial
reporting
Copyright © 2013 McGraw-Hill Ryerson Limited
22
LO1
Objective of General Purpose Reporting
• Objective is to provide useful information about an entity to
existing and potential equity investors, lenders, and other
creditors.
• Helps these stakeholders to assess future net cash flows and
make decisions about providing resources to the entity.
• Focus of IFRS narrow by necessity – isn’t tailored for all
stakeholders and uses.
Copyright © 2013 McGraw-Hill Ryerson Limited
33
LO1
Qualitative Characteristics
IFRS identifies two levels of qualitative characteristics of useful
financial information:
1) Fundamental Qualitative Characteristics
-Required for information to be useful
-Include Relevance and Faithful Representation
2) Enhancing Qualitative Characteristics
-Enhance usefulness of accounting information
-Include Comparability, Verifiability, Understandability
& Timeliness
Copyright © 2013 McGraw-Hill Ryerson Limited
44
LO1
Fundamental Qualitative Characteristics
1. Relevance
▫ Information is relevant if it influences stakeholder
decisions
2. Faithful Representation
▫ Financial statements must capture the economic
activity of an entity. Information must be:
 Complete
 Neutral – freedom from bias
 Free from error – no significant errors or omissions
Copyright © 2013 McGraw-Hill Ryerson Limited
5 5
LO1
Enhancing Qualitative Characteristics
1. Comparability
 Provides users with information that is readily comparable
2. Verifiability
 Independent and knowledgeable observers should find
similar results when measuring an attribute
3. Understandability
 Accounting information is prepared for stakeholders with
‘reasonable understanding of business’
4. Timeliness
 Helps users make informed decisions
Copyright © 2013 McGraw-Hill Ryerson Limited
66