CHAPTER 2
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THE REGULATORY FRAMEWORK
27
1
A
The IFRS Foundation has no powers of enforcement.
2 The
IFRS
Interpretations Committee issues
IFRIC interpretations which aid users' interpretation of
IFRSs.
3
44: 28 IASs and 16 IFRSs.
4
B
IFRSs to be used for consolidated financial statements
5 True
Now try ...
Attempt the questions below from the Practice Question Bank
Qs 6 – 7
ANSWERS TO QUICK QUIZ
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PART A: THE CONTEXT AND PURPOSE OF FINANCIAL REPORTING
28
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PART B: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
30
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31
C H A P T E R
TOPIC LIST
SYLLABUS
REFERENCE
1 Background
B1(a)
2 The
IASB's
Conceptual framework
B1(a),(b)
3 The qualitative characteristics
of financial information
B1(a),(b)
4 Other
accounting
concepts
B1(b)
The qualitative
characteristics of
financial information
The purpose of this chapter is to encourage you to think more
deeply about the assumptions on which financial statements
are prepared.
This chapter deals with the accounting conventions which lie
behind accounts preparation and which you will meet in Part
C of this Interactive Text, in the chapters on bookkeeping.
In Part D, you will see how conventions and assumptions are
put into practice. You will also deal with certain items which
are the subject of accounting standards.
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PART B: THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
32
Study Guide
Intellectual level
B The qualitative characteristics of financial information
1 The qualitative characteristics of financial information
(a) Define, understand and apply qualitative characteristics:
(i) Relevance
(ii) Faithful
representation
(iii) Comparability
(iv) Verifiability
(v) Timeliness
(vi) Understandability
K
(b) Define, understand and apply accounting concepts:
(i) Materiality
(ii)
Substance over form
(iii) Going
concern
(iv)
Business entity concept
(v) Accruals
(vi) Prudence
(vii) Consistency
.
K
1
Background
In preparing financial statements, accountants follow certain fundamental assumptions.
Accounting practice has developed gradually over time. Many of its procedures are operated
automatically by people who have never questioned whether alternative methods exist which have equal
validity. However, the procedures in common use imply the acceptance of certain concepts which are by
no means self-evident; nor are they the only possible concepts which could be used to build up an
accounting framework.
Our next step is to look at some of the more important concepts which are taken for granted in preparing
accounts. In this chapter we shall single out the important assumptions and concepts for discussion.
EXAM FOCUS POINT
Always read the question carefully before answering. Make sure that you understand the requirement
and have picked out the main points of the question. This may sound obvious but the ACCA examining
team regularly comments that students have failed to read the question.
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CHAPTER 3
//
THE QUALITATIVE CHARACTERISTICS OF FINANCIAL INFORMATION
33
2
The IASB's Conceptual Framework
The IASB's
Conceptual Framework is the basis on which IFRSs are formulated.
The main assumption for financial statements is going concern.
2.1 Introduction to the Conceptual Framework
The Conceptual Framework for Financial Reporting 2018 ('Conceptual Framework') is a set of
principles which underpin the foundations of financial accounting. It is a conceptual framework on
which all IFRSs are based and hence determines how financial statements are prepared and the
information they contain. The Conceptual Framework is not an accounting standard in itself.
The Conceptual Framework is currently as follows.
Chapter 1: The objective of general purpose financial reporting
Chapter 2: Qualitative characteristics of useful financial information
Chapter 3: Financial statements and the reporting entity
Chapter 4: The elements of financial statements
Chapter 5: Recognition and derecognition
Chapter 6: Measurement
Chapter 7: Presentation and disclosure
Chapter 8: Concepts of capital and capital maintenance
(Conceptual Framework for Financial Reporting 2018)
We are only concerned with Chapter 2 and parts of Chapter 4 for the FFA/FA syllabus.
2.2 Going concern assumption
The Conceptual Framework sets out one important assumption for financial statements, the going
concern concept.
2.2.1 Going concern
'
Going concern
. The financial statements are normally prepared on the assumption that an entity is a
going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the
entity has neither the intention nor the need to enter into liquidation or to cease trading. If such an
intention or need exists, the financial statements may have to be prepared on a different basis. If so, the
financial statements describe the basis used.'
(Conceptual Framework for Financial Reporting 2018, para. 3.9)
This concept assumes that, when preparing a normal set of accounts, the business will continue to
operate in approximately the same manner for the foreseeable future (at least the next 12 months). In
particular, the entity will not go into liquidation or scale down its operations in a material way.
The main significance of the going concern concept is that the assets should not be valued at their
'break-up' value (the amount they would sell for if they were sold off piecemeal and the business were
broken up).
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