[FUNACC] (P3) Chapter 2 | Accounting Principles and Reporting Standards

Faithful Representation

This fundamental characteristic seeks to maximise the underlying characteristics of completeness, neutrality and freedom from error.

Completeness.

includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.

Neutrality.

Free from bias. Is not slanted, weighted, emphasized, de-emphasized or otherwise manipulated to increase the probability that financial information will be received favorably or unfavorably by users.

prudence

Neutrality is supported by the exercise of _______, which is the exercise of caution when making judgements under conditions of uncertainty; means that assets and income are not overstated and liabilities and expenses are not understated.

Freedom from Error.

No errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process.

old Framework (2010)

In the ___________, substance over form, prudence or conservatism and verifiability are aspects of reliability (now faithful representation).

Understandability

Classifying, characterising and presenting information clearly and concisely makes it understandable.

Cost

is a pervasive constraint on the information that can be provided by general purpose financial reporting.

IASB

The ____ assesses costs and benefits in relation to financial reporting generally, and not solely in relation to individual reporting entities. The ____ will consider whether different sizes of entities and other factors justify different reporting requirements in certain situations.

assumption

This _______ underlies the depreciation of assets over their useful lives. If an entity expects to liquidate in the near future, its assets are valued at their worth at liquidation rather than original cost.

going concern

The financial statements are normally prepared on the assumption that an enterprise is a ________ and will continue in operation for the foreseeable future. Hence, it is assumed that the enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

going concern assumption

The framework states that the _________________ is an underlying assumption. 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

assets, liabilities and equity.

The elements directly related to the measurement of financial position in the balance sheet are: (3)

income and expenses.

The elements directly related to the measurement of performance in the income statement are _____ and ______.

recognition

Per 2018 Conceptual Framework, ________ is the process of capturing for inclusion in the statement of financial position or the statements) of financial performance an item that meets the definition of an asset, a liability, equity, income or expenses.

Derecognition

is the removal of all or part of a recognized asset or liability from an entity's statement of financial position.

measurement basis

Elements recognized in financial statements are quantified in monetary terms. This requires the selection of a ______. A _______ is an identified feature-for example, historical cost, fair value, value in use and fulfilment value or current cost-of an item being measured.

• Historical Cost Measurement Basis

• Current Value Measurement Basis

two categories of measurement basis were identified: (2)

Comparability

enables users to identify and understand similarities in, and differences among, items. Unlike the other qualitative characteristics, ________ does not relate to a single item. A comparison requires at least two items.

Completeness, Neutrality, Freedom from Error

To be a perfectly faithful representation, a depiction should have these characteristics?: (3)

Consistency,

refers to the use of the same methods for the same items, either from period to period within a reporting entity or in a single period across entities.

Verifiability

helps to assure users that information represents faithfully the economic phenomena it purports to represent.

Timeliness

means that information is available to decision-makers in time to be capable of influencing their decisions.

Historical Cost

_________ measures provide information about elements that is derived from the historical price of the transaction or event that gave rise to the item being considered for measurement; so, for an asset, this would be the cost incurred in acquiring/creating the asset.

Current Value

measures provide monetary information about elements, using information updated to reflect conditions at the measurement date. Measurement bases may include fair value, value in use for assets, fulfilment value for liabilities and current cost.

financial concept of capital

Under a _______________, such as invested money or invested purchasing power, capital is synonymous with the net assets or equity of the enterprise.

physical concept of capital

Under a ____________, such as operating capability, capital is regarded as the productive capacity of the enterprise based on, for example, units of output per day.