Conceptual Framework for Financial Reporting
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ANGELRIEH SUPERTICIOSOConceptual Framework for Financial Reporting
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ANGELRIEH SUPERTICIOSOFAR08.
01b
Brian Christian S. Villaluz, CPA, MBA
Faculty Member, De La Salle University
Lecturer & CPA Reviewer, various schools and universities
Lead Author, FAR and AT Reviewer
YouTube Content Creator, Accounting Lessons with BCV
Status of the Conceptual Framework
u The Conceptual Framework is not a Standard. Nothing in the Conceptual
Framework overrides any Standard or any requirement in a Standard.
u Revisions of the Conceptual Framework will not automatically lead to changes
to the Standards.
Objective of General-Purpose Financial
Reporting
u The objective of general-purpose financial reporting is to provide financial
information about the reporting entity that is useful to existing and potential
investors, lenders and other creditors in making decisions relating to
providing resources to the entity.
u This forms the foundation of the Conceptual Framework.
Users of General-Purpose Financial
Reports
Primary Users Other Users
u Existing and potential investors u Management
u Lenders and other creditors u Other parties (i.e., regulators,
public)
Qualitative Characteristics of Useful
Financial Information
Fundamental QC Enhancing QC
u Relevance u Verifiability
u Predictive value u Comparability
u Confirmatory value u Understandability
u Faithful representation u Timeliness
u Complete
u Neutral
u Free from error
Objective of Financial Statements
u The objective of financial statements is to provide financial information
about the reporting entity’s assets, liabilities, equity, income and expenses
that is useful to users of financial statements in assessing the prospects for
future net cash inflows to the reporting entity and in assessing management’s
stewardship of the entity’s economic resources.
Measurement Bases
Historical cost Current value
u Fair value
u Value in use
u Fulfilment value
Capital and Capital Maintenance
Concepts
Financial Physical
u This concept is adopted by most entities in u Under this concept, such as operating capability,
preparing their financial statements. Under a capital is regarded as the productive capacity of
financial concept of capital, such as invested the entity based on, for example, units of output
money or invested purchasing power, capital is per day.
synonymous with the net assets or equity of the
entity. u Under this concept a profit is earned only if the
physical productive capacity (or operating
u Under this concept a profit is earned only if the capability) of the entity (or the resources or
financial (or money) amount of the net assets at funds needed to achieve that capacity) at the
the end of the period exceeds the financial (or end of the period exceeds the physical
money) amount of net assets at the beginning of productive capacity at the beginning of the
the period, after excluding any distributions to, period, after excluding any distributions to, and
and contributions from, owners during the contributions from, owners during the period.
period. Financial capital maintenance can be
measured in either nominal monetary units or u Requires the adoption of the current cost basis
units of constant purchasing power. of measurement.
u Does not require the use of a particular basis of
measurement
