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IAS 4 Framework
Preview
This module looks at:
The
IASC
Framework
for
Preparation
and
Presentation
Financial Statements.
the
of
Objective
To explain the IASC Framework for the
Preparation and Presentation of
Financial Statements.
authoritative and
is not an IAS.
it does not override IAS.
Scope
The Framework deals with:
The objective and elements of general purpose financial
statements;
The qualitative characteristics that determine the
usefulness of information;
The definition, recognition and measurement of the
elements of financial statements; and
Concepts of capital and capital maintenance.
5. Elements
8. Techniques of
measurement
12. Compliance
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Continued-Building Blocks
Block 1: Financial Reporting delineates the
boundaries of financial reporting and the
scope of the Framework.
Continued-Building Blocks
Block 2: Reporting Enterprise concerned
with establishing the criterion for the
determination of those enterprises that
should prepare general-purpose financial
statements.
Reporting enterprise an enterprise for which
there are users who rely on the generalpurpose financial statements as their major
source of information about the enterprise.
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Continued-Building Blocks
Block 3: Objective specifies:
The broad objective that general-purpose
financial statements should seek to serve.
The users of general-purpose financial
statements and
Their information needs.
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Continued-Building Blocks
The IASC Framework specifies the objective
of financial statements as the provision of
information about an enterprises:
financial position,
performance and
changes in financial position.
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Continued-Building Blocks
It identifies the users of general-purpose financial
statements as including:
investors,
employees,
lenders,
suppliers and trade creditors,
customers,
governments and their agencies and
the public.
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Continued-Building Blocks
IAS places emphasis on cash flows.
Financial statements provide information on:
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Continued-Building Blocks
Block 4: Qualitative Characteristics
identifies qualitative characteristics that
financial information should possess if it is
to achieve the objective of general-purpose
financial statements.
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Continued-Building Blocks
Blocks 5 and 6: Elements Definition and
Recognition
Blocks 5 and 6 of the Framework deal with
the elements of financial statements (assets,
liabilities, equity, income and expenses).
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Accrual basis
Going concern
The financial statements are prepared on the accrual
basis of accounting, i.e., the effects of
transactions and other events are recognized
when they occur.
The financial statements are prepared on the
assumption that an enterprise is a going concern
and will continue to be so.
19
Qualitative Characteristics of
Financial Statements
Reliability
Information is reliable when it is free from
material error and bias and can be depended
upon by users to represent faithfully that
which it either purports to represent.
Faithful Representation
To be reliable, information must represent
faithfully the transactions and other events
it either purports to represent.
21
Continued-Reliability
Substance Over Form
If information is to be both relevant and reliable,
it is necessary that the substance rather than the
form of transactions or events be reported.
Neutrality
To be reliable, information must be neutral, that
is, free from bias.
22
Continued-Reliability
Prudence
Prudence is the inclusion of a degree of caution
in the exercise of judgment when making
estimates under conditions of uncertainty.
Completeness
To be reliable, the information in financial
statements must be complete within the bounds
of materiality and cost.
23
Understandability
Information included in financial
statements should be readily
understandable by users
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Comparability
To enable users to compare the financial position,
performance and changes in financial position of
different enterprises or of a single enterprise over
time, the measurement and display of the
financial effect of like transactions and other
events should be carried out in a consistent way:
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Liabilities
Liabilities are present obligations of the
enterprise arising from past events.
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Continued-Elements of...
Assets and liabilities: recognition criteria
Items are to be recognized as assets or liabilities (or as
income and expenses) if:
Continued-Elements of...
Equity
Equity the residual interest in the assets of the enterprise
after deducting all its liabilities.
Income
Income increases in economic benefits in the form of
increases of assets or decreases of liabilities that result in
an increase in equity, other than those relating to
contributions from equity participants.
Revenue
Revenue arises in the course of the ordinary activities of
an enterprise, including sales, fees, interest, dividends,
royalties and rent.
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Continued-Elements of...
Expenses
Expenses decreases in economic benefits
in the form of decreases in assets or
increases in liabilities that result in a
decrease in equity, other than those
relating to distributions to equity
participants.
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Continued-Elements of...
Gains represent other items that meet the
definition of income and may, or may not,
arise in the course of the ordinary activities of
an enterprise (e.g. gains on the disposal of
non-current assets).
Continued-Elements of...
Losses represent other items that meet the
definition of expenses and may, or may not,
arise in the course of the ordinary activities of
the enterprise.
Income and expenses: recognition criteria the
same as for the recognition of assets and
liabilities.
Income is recognized when an increase in future economic
benefits has arisen.
Expenses are recognized when a decrease in future
economic benefits has arisen.
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33
Continued-Recognition
An item meeting the definition of an element
but failing to meet the above recognition
criteria may:
historical cost;
current cost;
realizable (selling) value; and
present value.
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* THE END *
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