[ACYFAR1] Unit 1: Accounting Standards Process, Conceptual Framework, and Financial Statements

Financial statements

Financial statements

serve as a communication tool for stakeholders

Comprehensive income

most closely associated to all changes in equity during a period except those resulting from investments by and distributions to owners

Condensed interim financial statements

IFRS 18 did not apply to its structure and content

Management-defined performance measure 

a subtotal of income and expenses that an entity uses in public communications outside financial statements

Management-defined performance measure 

a subtotal of income and expenses that an entity uses to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole

Management-defined performance measure 

a subtotal of income and expenses that operating profit or loss and income and expenses from all investments accounted for using the equity method

Statement of Cash Flows

not covered by IFRS 18

Current liability

if the entity expects to settle the liability in its normal operating cycle.

Current liability

if the entity holds the liability primarily for the purpose of trading.

Current liability

if the liability is due to be settled within twelve months after the reporting period.

Current asset

if the entity expects to realize the asset within twelve months after the reporting period

Current asset

if the entity holds the asset primarily for the purpose of trading

Current asset

if the entity expects to realize the asset, or intends to sell or consume it, in its normal operating cycle

Operating cycle

time between the acquisition of assets for processing and the realization in cash and cash equivalents

Financial statements

a structured representation of the financial position and financial performance of an entity

Financial statements

also show the results of the management’s stewardship of the resources entrusted to it

Operating profit or loss
Profit or loss before financing and income taxes
Profit or loss

Totals and subtotals in the statement of profit or loss

Financing category

income and expenses arising from changes in interest rates, but only if the entity identifies such income and expenses for the purpose of applying other requirements in IFRS Accounting Standards

Operating
Investing
Financing
Income taxes
Discontinued operations

Income and expense classifications

Investing category

income and expenses from investments in associates, joint ventures, and consolidated subsidiaries

Financial statements

for obtaining an understandable overview of the entity’s recognized assets, liabilities, equity, income, expenses, and cash flows

Statement of Profit or Loss
Statement of Financial Position
Statement of Changes in Equity
Statement of Cash Flows
Notes
Comparative information

Complete set of financial statements

IFRS 18

shall be applied in presenting and disclosing information in financial statements prepared in accordance with IFRS Accounting Standards

IFRS 18

sets out requirements for the presentation and disclosure of information in general purpose financial statements (financial statements) to help ensure they provide relevant information that faithfully represents an entity’s assets, liabilities, equity, income, and expenses

Capital maintenance

only inflows of assets in excess of amounts needed to maintain capital may be regarded as profit and therefore as a return on capital

Capital maintenance

a prerequisite for distinguishing between an entity’s return on capital and its return of capital

Capital maintenance

provides the linkage between the concepts of capital and the concepts of profit because it provides the point of reference by which profit is measured

Capital maintenance

concerned with how an entity defines the capital that it seeks to maintain.

Financial capital maintenance

profit is earned only if the financial (or money) amount of the net assets at the end of the period exceeds the financial (or money) amount of net assets at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period

Financial capital maintenance

can be measured in either nominal monetary units or units of constant purchasing power

Physical capital maintenance 

profit is earned only if the physical productive capacity (or operating capability) of the entity (or the resources or funds needed to achieve that capacity) at the end of the period exceeds the physical productive capacity at the beginning of the period, after excluding any distributions to, and contributions from, owners during the period.

Financial capital maintenance

should be adopted if the users of financial statements are primarily concerned with the maintenance of nominal invested capital or the purchasing power of invested capital

Physical capital maintenance

should be used if the main concern of users is with the operating capability of the entity

Financial capital maintenance

capital concept adopted by most entities in preparing their financial statements

Financial capital maintenance

capital is synonymous with the net assets or equity of the entity

Physical capital maintenance

capital is regarded as the productive capacity of the entity based on, for example, units of output per day

Financial capital maintenance
Physical capital maintenance

Two capital concepts included in the scope of the Conceptual Framework for Financial Reporting

Aggregation

conceals some of that detail, hence, a balance needs to be found so that relevant information is not obscured either by a large amount of insignificant detail or by excessive aggregation

Classification

applied to income and expenses resulting from the unit of account selected for an asset or liability; or components of such income and expenses if those components have different characteristics and are identified separately

Classification

applied to the unit of account selected for an asset or liability

Current cost

reflects prices in the market in which the entity would acquire the asset or would incur the liability

Historical cost
Current cost

Entry values

Current Cost

consideration that would be received for an equivalent liability at the measurement date minus the transaction costs that would be incurred at that date

Current Cost

cost of an equivalent asset at the measurement date, comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date

Value in use and Fulfilment value

cannot be observed directly and are determined using cash-flow-based measurement techniques

Value in use and Fulfilment value

include the present value of any transaction costs an entity expects to incur on the ultimate disposal of the asset or on fulfilling the liability

Value in use and Fulfilment value

based on future cash flows

Fair value

does not reflect the transaction costs that would be incurred on the ultimate disposal of the asset or on transferring or settling the liability

Fair value

not increased by the transaction costs incurred when acquiring the asset and is not decreased by the transaction costs incurred when the liability is incurred or taken on

Fair value

not derived, even in part, from the price of the transaction or other event that gave rise to the asset or liability

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

Fair value
Value in use
Fulfillment value

Exit values

Historical cost

one way to apply this measurement basis to financial assets and financial liabilities is to measure them at amortized cost

Historical cost

does not reflect changes in values, except to the extent that those changes relate to impairment of an asset or a liability becoming onerous.

Historical cost

provide monetary information about assets, liabilities and related income and expenses, using information derived, at least in part, from the price of the transaction or other event that gave rise to them.

Historical Cost
Current Value

Two-measurement basis under the Conceptual Framework for Financial Reporting

Transferred component

all assets and liabilities that have expired or have been consumed, collected, fulfilled or transferred

Derecognition

occurs when that item no longer meets the definition of an asset or of a liability

Recognition

its faithful representation may be affected by measurement uncertainty or other factors

Recognition

appropriate if it provides not only relevant information, but also a faithful representation of that asset or liability and of any resulting income, expenses, or changes in equity. 

Recognition

may not always provide relevant information due to existence uncertainty or low probability of an inflow or outflow of economic benefits

Recognition

even if an item meeting the definition of an asset or liability is not recognized, an entity may need to provide information about that item in the notes

Recognition

an asset or liability is recognized only if recognition of that asset or liability and of any resulting income, expenses or changes in equity provides users of financial statements with information that is useful

Recognition

links the elements, the statement of financial position and the statement(s) of financial performance

Equity claim

may be established by contract, legislation, or similar means, and include, to the extent that they do not meet the definition of a liability:

Equity claim

claims against the entity that do not meet the definition of a liability

Executory contract

stops being this to the extent that either party fulfills its obligations under the contract

Executory contract

establishes a combined right and obligation to exchange economic resources

Unit of account

In selecting, it is important to consider whether the benefits of the information provided to users of financial statements by selecting the ones that are likely to justify the costs of providing and using that information.

Unit of account

if an entity transfers part of an asset or part of a liability, this may change at that time, so that the transferred component and the retained component is separated

Unit of account

selected for an asset or liability when considering how recognition criteria and measurement concepts will apply to that asset or liability and to the related income and expenses

Obligation

can exist even if a transfer of economic resources cannot be enforced until some point in the future

Transfer of economic resource

for potential for it to exist, it is only necessary that the obligation already exists and that, in at least one circumstance, it would require the entity to transfer an economic resource

Obligation

must have the potential to require the entity to transfer an economic resource to another party (or parties) to satisfy the transfer of economic resource criteria

Constructive obligation

obligation arising from an entity’s customary practices, published policies or specific statements if the entity has no practical ability to act in a manner inconsistent with those practices, policies or statements

Obligation

many are established by contract, legislation or similar means and are legally enforceable by the party (or parties) to whom they are owed

Obligation

if one party transfers an economic resource, it follows that another party (or parties) has a right to receive that economic resource

Obligation

a duty or responsibility that an entity has no practical ability to avoid

Obligation

always owed to another party (or parties) and the other party (or parties) could be a person or another entity, a group of people or other entities, or society at large

Control

includes the present ability to prevent other parties from directing the use of the economic resource and from obtaining the economic benefits that may flow from it

Control

usually arises from an ability to enforce legal rights

Asset

has a close association with incurring expenditure, but the two do not necessarily coincide.

Economic resource

for it to have the potential to produce economic benefits, it is only necessary that the right already exists and that, in at least one circumstance, it would produce for the entity economic benefits beyond those available to all other parties

Reporting entity

can be a single entity or a portion of an entity or can comprise more than one entity

Reporting entity

not necessarily a legal entity

Financial Statements

provides comparative information for at least one preceding reporting period

Financial Statements

its objective is to provide financial information about the reporting entity’s assets, liabilities, equity, income, and expenses that is useful to its users

Financial Statements

include information about transactions and other events that have occurred after the end of the reporting period if providing that information is necessary to meet the objective of financial statements

Going concern

financial statements are normally prepared with this assumption

Cost

must be justified by the benefits of reporting that information

Cost

a pervasive constraint on the information that can be provided by financial reporting

Consistency

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.

Comparability

like things must look alike and different things must look different.

Understandability

financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information diligently

Neutrality

supported by the exercise of prudence

Neutrality

information is not slanted, weighted, emphasized, de-emphasised or otherwise manipulated to increase the probability that financial information will be received favourably or unfavourably by users

Free from error

means there are 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

Neutrality

without bias in the selection or presentation of financial information

Faithful representation

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

Faithful representation

does not mean accurate in all respect