IFRS Conceptual Framework: Key Terms (Vocabulary Flashcards)

A comprehensive set of vocabulary flashcards covering the IFRS Conceptual Framework topics and key terms.

Conceptual Framework

A set of interrelated concepts used to develop IFRS Standards; it is not a Standard and does not override Standards.

Purpose of Conceptual Framework

To help the Board develop consistent Standards, assist preparers with accounting policies where no Standard applies, and aid all parties in understanding and interpreting Standards.

Hierarchy of guidance

Guidance for preparers: 1) PFRS/PAS, 2) Judgement with factors: other PFRS, Conceptual Framework, other bodies’ pronouncements, other literature; departures explained in Basis for Conclusions.

Revisions of the Conceptual Framework

The Framework may be revised over time; revisions do not automatically change IFRS Standards.

Objective of general purpose financial reporting

To provide information useful to investors, lenders, and other creditors for making resource-allocation decisions.

Fundamental qualitative characteristics

Faithful Representation and Relevance.

Enhancing qualitative characteristics

Verifiability, Comparability, Understandability, Timeliness (VCUT).

Relevance

Info that can make a difference in decisions, having predictive value, confirmatory value, or both.

Predictive value

Information used to predict future outcomes.

Confirmatory value

Information that helps users confirm prior assessments or predictions.

Materiality

Entity-specific relevance; omitting or misstating could influence decisions.

Faithful Representation

Information faithfully represents the economic phenomena; sometimes requires substance over form.

Substance over Form

Economic substance takes precedence over legal form for faithful representation.

Completeness

Including all information necessary to understand the phenomenon.

Neutrality

Presentation free from bias; not slanted or manipulated.

Free from error

No errors in description or process; estimates can be faithful when described and applied properly.

Prudence

Caution in judgments to prevent overstatement of assets/income or understatement of liabilities/expenses.

Verifiability

Different knowledgeable observers could reach consensus that a depiction is faithful; can be direct or indirect.

Timeliness

Information available in time to influence decisions; older info is less useful, but trends can remain timely.

Understandability

Clear classification and presentation; complex phenomena may require explanation but should not be misleading.

Cost constraint

The benefits of providing information must justify the costs of providing and using it.

Reporting entity

Entity required or chooses to prepare financial statements; may be single, consolidated, unconsolidated, or combined; not necessarily a legal entity.

Going concern

Assumption that the entity will continue operations for the foreseeable future.

Perspective adopted in financial statements

Information is presented from the perspective of the reporting entity as a whole.

Elements of financial statements

Asset, Liability, Equity, Income, Expenses.

Asset

A present economic resource controlled by the entity as a result of past events; has the potential to produce economic benefits.

Liability

A present obligation to transfer an economic resource as a result of past events.

Equity

Residual interest in the assets after deducting liabilities; claims that do not meet the definition of a liability.

Income

Increases in assets or decreases in liabilities that increase equity, excluding contributions from owners.

Expenses

Decreases in assets or increases in liabilities that decrease equity, excluding distributions to owners.

Rights

Potential to produce economic benefits; may include rights to cash, goods/services, favorable exchange terms, or benefits from others’ obligations.

Economic benefits

Potential to generate cash flows or other advantages from owning or controlling an economic resource.

Control

Present ability to direct the use of an economic resource and obtain its benefits; may exist without physical possession.

How rights obtained

Rights typically established by contract, legislation, or similar means.

Examples of assets

Cash and cash equivalents, accounts receivable, inventory, investments, PPE, vehicles, furniture, patents.

Value in Use

Present value of the cash flows or benefits from using an asset.

Fulfilment Value

Present value of the cash or resources expected to be transferred to fulfil a liability.

Fair value

Price to sell an asset or transfer a liability in an orderly market at the measurement date; based on market participant perspectives.

Current Value

Monetary information updated to reflect conditions at the measurement date; exit values rather than entry values.

Current Cost

Replacement cost at the measurement date; entry value rather than exit value.

Historical Cost

Amount paid or cost to acquire a resource, plus/minus adjustments; generally not updated for market changes unless impairment.

Recognition

Process of including an item in the financial statements when it meets the definition of an element; carrying amount is the recognized amount.

Derecognition

Removal of an asset or liability from the financial statements when it no longer meets the definition.

Matching Principle

Income and related expenses are recognized together to reflect their linkage.

Recognition criteria

Items must meet the definition of an asset, liability, or equity, be useful (relevant and faithfully represented), and have a reliably measurable cost.

Existence uncertainty

Uncertainty about ownership or existence of assets or liabilities.

Measurement uncertainty

Uncertainty about the amount recognized or disclosed.

Offsetting

Netting assets and liabilities into a single net amount; generally inappropriate.

Aggregation

Grouping items with shared characteristics for presentation; different levels may be used in statements and notes.

Concepts of Capital

Financial capital (net assets/equity) vs physical capital (productive capacity); choice affects profit goals.

Capital Maintenance

Financial or physical concept of profit; affects how profit is measured depending on capital concept.