Syllabus A1
Memory test (Syllabus A1) 14 / 14
Test yourself on these notes:
Syllabus A1. Conceptual Framework
Conceptual Framework (CF)
- CF is a bunch of principles
- assists in preparation of IFRS
- assists auditors in forming an opinion whether FSs comply with IFRS
- IFRS rules beat CF principles when in conflict
- if there is no IFRS, then use CF
A principles-based system (CF is based on Principles)
- consists of principles
- more flexible
- requires judgement
A rules-based accounting system
- consists of rules
- less flexible
- more comparable and consistent
- very descriptive
FUNDAMENTAL CHARACTERISTICS (without them = USELESS)
1) Faithful Representation
- Substance over form
- Represents economic phenomena
Examples:
- Sell + buy back = LOAN
- Convertible Loans is always split between Equity + Debt
- No 0% finance - So interest is always taken out of the inflated cost price
- Redeemable Preference Shares - shown as debt - never equity
- Factored Receivables WITH recourse ("FULL recourse") - There are still receivables until the debtor has paid
- Factored Receivables WITHOUT recourse - These are no longer debtors - the receivable is de-recognised
2) Relevance
- Info should be predictive or confirmatory e.g. Discontinued column
ENHANCING CHARACTERISTICS (without them = LESS USEFUL)
1) Comparable
- Good for Trend analysis
- Change in A/C Policy means changing the comparatives too
2) Timely
- In time for decisions
3) Verifiable
- This allows independent observers to agree that a transaction is faithfully represented
4) Understandable
Understandability is enhanced when the information is:
1. classified
2. characterised
3. presented clearly and concisely
Complex information is included though where relevant and necessary