Conceptual

Framework for
Financial Reporting –
March 2018
Summary
Tala, Marla B.
Conceptual Framework for Financial
Reporting – March 2018
▪ The International Accounting Standards Board (the IASB or the Board) issued the revised
Conceptual Framework for Financial Reporting (the revised Conceptual Framework) on 29 March
2018.
▪ The purposes of this Framework are to aid the Board in developing the IFRS Standards
(Standards), to aid the preparers of the financial reports in developing consistent accounting
policies in any event that no Standards can bee applied or allows them to choose the accounting
policies and for other parties to have a better understanding and interpretation of the Standards.
▪ The revised Framework is effective immediately for the Board and the IFRS Interpretations
Committee while it will be effective on annual periods beginning on or after 1 January 2020 for
preparers who develop an accounting policy based in the Conceptual Framework.
 https://www.ifrs.org/about-us/who-we-are/#history
2018
Revised Conceptual Framework for
Financial Reporting issued, setting out
the fundamental concepts of financial
International Financial Reporting Standards (IFRS) are a set of reporting that underpin IFRS
international accounting standards stating how particular types of Standards. The revised Conceptual
transactions and other events should be reported in financial statements. Framework replaces the 2010
IFRS are issued by the International Accounting Standards Board (IASB), Conceptual Framework.
and they specify exactly how accountants must maintain and report their
accounts. IFRS were established in order to have a common accounting
language, so business and accounts can be understood from company to
2010
company and country to country. The Board and FASB complete the
first phase of their joint project to
develop an improved conceptual
framework
1989
1973 IASC publishes the Framework for the
Preparation and Presentation of
Financial Statements—the first
Professional accounting bodies of
international 'conceptual framework'.
Australia, Canada, France, Germany,
Japan, Mexico, Netherlands, United
Kingdom/Ireland and the United
States form International Accounting
Standards Committee (IASC) and
2009
2003
agree to adopt International
Accounting Standards for cross- The Board issues the IFRS for SMEs®

1998
border listings Standard

The Board issues first Standard—IFRS

G7 calls on IASC to finalise, by early 1 First-time Adoption of International
1999, a proposal for a full range of Financial Reporting Standards
internationally agreed accounting
standards in order to strengthen the
international financial system
Why Revise it? What’s the Change?
▪ The Conceptual Framework was issued in 1989 and partly revised in 2010. It was useful, but it
needed more clarity and aptness. During the revision, the Board wanted a balance between
providing high-level concepts and providing enough detail for the Framework to avoid confusion
among the users.
▪ The revised Conceptual Framework introduced concepts on measurement, presentation and
disclosure, and derecognition. It also updated the definitions of an asset and liability as well as
the criteria for recognition. In assessing the usefulness of financial information, the Board brought
clarity to the definitions of prudence, stewardship, measure uncertainty and substance over form.
Chapter 1 – The objective of financial
reporting
▪ The objective of financial reporting is to provide financial information that is useful to users in
making decisions relating to providing resources to the entity. With that in mind, we must know
who the users of the financial reports are and how these decisions are made.

▪ The users of the financial reporters are an entity’s existing and potential investors, lenders and
other creditors. These users need the information on the financial reports to assess the
probability for future net cash inflow to the entity and whether the management’s stewardship of
the entity’s economic resources is effective and efficient or not.
Chapter 2 – Qualitative characteristics of
useful financial information
▪ Relevance denotes that the information should be able to make a difference to the decisions
made by the users.
▪ Faithful representation means that the information provided matches the actual scenario. It
should be, to the maximum extent possible, complete, neutral and free from error. It should be
stripped away by any biases and should only state facts. Faithful representation is affected by the
level of measurement uncertainty.
▪ There are four qualitative characteristics that can enhance the usefulness of financial information.
These are comparability, verifiability, timelines and understandability. Said characteristics can
enhance the usefulness of financial information but they cannot turn a non-useful information
into a useful one.
▪ In providing a useful information, one must always bear in mind that the benefit of the
information must always outweigh the cost of providing it.
Chapter 3 – Financial statements and the
reporting entity
▪ Financial statement is a particular form of financial reports that provide information about the
reporting entity’s assets, liabilities, equity, income and expenses. It can be consolidated,
unconsolidated or combined.
▪ It is prepared by a reporting entity – an entity that is not necessarily a legal entity and may be
comprised of more than one entity that is required or chooses to prepare financial statements.
Chapter 4 – The elements of financial
statements
▪ The main change on the definition of what an asset is, would be specifying it as an economic
resource rather than an ultimate inflow of economic benefits. Another clarification in the
definition would be changing the term ‘expected flow’ to ‘potential to produce economic
benefits’. This is because low probability of economic benefits might affect recognition decisions
and the measurement of the asset.
▪ The main change on the definition is applied if a duty or responsibility arises from the entity’s
customary practices, published policies or specific statements—the entity has an obligation if it
has no practical ability to act in a manner inconsistent with those practices, policies or
statements; or if a duty or responsibility is conditional on a particular future action that the entity
itself may take—the entity has an obligation if it has no practical ability to avoid taking that
action.
Chapter 5 – Recognition and
derecognition
▪ Recognition – The revision for the criteria on recognizing the assets, liabilities, income and
expenses are made in alignment to the qualitative characteristics of a useful information. In order
for an element to be recognized appropriately, it should meet the qualifications of being both
relevant and faithfully represented.
▪ Derecognition – The guidance on derecognition is new to the Conceptual Framework. In
derecognizing an element, it should be bared in mind that it should be faithfully represented, and
appropriate presentation and disclosure is performed.
Chapter 6 – Measurement
▪ Historical cost measurement bases
➢ Historical cost of assets is reduced if they become impaired and historical cost of liabilities is increased if they
become onerous. Historical cost of both asset and liability changes over time to depict the amortised cost of said
elements.
▪ Current value measurement bases
➢ The measurement bases may include fair value, value in use (for assets), fulfilment value (for liabilities), and current
cost.

▪ Selection of Measurement basis

➢ Relevance and faithful representation should be factored in. Also, it is considered that the cost constraints together
with other factors will likely result to a different choice for different assets, liabilities, income and expenses.
Chapter 7 – Presentation and disclosure
▪ The Statement of Profit and Loss
▪ The statement of profit or loss is the primary source of information about an entity’s financial performance for the
reporting period. In principle, all items classified as an income or expense should be included in the statement of
profit or loss.
▪ Other Comprehensive Income
▪ In exceptional circumstances, the Board may decide to exclude from the statement of profit or loss income or
expenses arising from a change in current value of an asset or liability and include those income and expenses in
other comprehensive income. In doing so it would result in the statement of profit or loss providing more relevant
information or a more faithful representation.
▪ Recycling
▪ As a default, income and expenses included in other comprehensive income in one period are recycled to the
statement of profit or loss in a future period when doing so results in the statement of profit or loss providing more
relevant information or a more faithful representation. Although the board may decide for the income and expenses
included in other comprehensive income not be subsequently recycled. The main purpose is providing the most
relevant and faithfully represented financial statements.
Amendments to References to the Conceptual
Framework in IFRS Standards—a separate
accompanying document
▪ Some Standards include explicit references to previous versions of the Conceptual Framework.
These amendments update those references, so they refer to the revised version. The
amendments are effective for annual periods beginning on or after 1 January 2020, with earlier
application permitted. These should be applied retrospectively unless retrospective application
would be impracticable or involve undue cost or effort.
Exemptions
▪ IFRS 3 Business Combinations – Since unintended consequences may result in following the
revised Conceptual Framework, the Board plans to assess how the IFRS 3 can be updated without
undue cost or effort.
▪ Regulatory account balances – To avoid revising the accounting policies more than once in such a
short period of time, those accounting policies for regulatory account balances that applied IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors are required to use the former
version of the Conceptual Framework.