IFRS Foundation: An independent, not-for-profit organization that develops and approves International Financial Reporting Standards.
- Monitoring Board: Provides oversight and links to public authorities
- Trustees: 22 members responsible for governance and funding
- International Accounting Standards Board (IASB): Independent standard-setting body
- IFRS Interpretations Committee: Addresses emerging accounting issues
Standard-Setting Process: Transparent and inclusive process for developing IFRS Standards.
| Stage | Description | Duration |
|---|---|---|
| Research Program | Identify and review financial reporting issues | Ongoing |
| Discussion Paper | Preliminary views for public comment | 6+ months |
| Exposure Draft | Proposed standard for public comment | 4-6 months |
| Final Standard | Issued after considering all comments | Effective date set |
Conceptual Framework: is a statement of generally accepted theoretical principles which form the frame of reference for financial reporting.
Conceptual framework sets out the objectives and principles of general purpose of financial reporting.
Conceptual framework provides the basis for IASB development of a new accounting standards and evaluation of those already existed.
Help preparers of financial reporting to develop consistent accounting policies for areas which are not covered by IFRS (Eg, Cryptocurrency)
1. Objective of Financial Reporting
2. Qualitative Characteristics
3. Elements of Financial Statements
4. Recognition & Measurement
5. Presentation & Disclosure
Primary Objective: To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity.
- Decision-usefulness: Focus on economic decision-making
- Stewardship: Information about management's performance
- Primary Users: Existing and potential investors, lenders, creditors
- General Purpose FS: Meet needs of multiple user groups
| Fundamental | Enhancing |
|---|---|
| Relevant | • Comparability |
| Faithfully represents | • Verifiability |
| • Timeliness | |
| • Understandability |
Reporting Entity: An entity that is required, or chooses, to prepare financial statements.
| Entity Type | Characteristics | Examples |
|---|---|---|
| Single Entity | Legal entity preparing separate financial statements | Corporation, partnership |
| Consolidated Group | Parent and subsidiaries as single economic entity | Holding company with subsidiaries |
| Combined Entities | Entities under common control | Sister companies |
Relevance: Information that is capable of making a difference in decisions made by users.
Faithful Representation: Information that is complete, neutral, and free from error.
| Characteristic | Components | Application |
|---|---|---|
| Relevance | Predictive value, Confirmatory value, Materiality | Information influencing decisions |
| Faithful Representation | Complete, Neutral, Free from error | Accurate depiction of economic phenomena |
Enhancing Characteristics: Improve the usefulness of information that is relevant and faithfully represented.
| Characteristic | Definition | Importance |
|---|---|---|
| Comparability | Similarities and differences can be discerned and evaluated | Enables trend analysis and benchmarking |
| Verifiability | Different knowledgeable and independent observers could reach consensus | Enhances credibility and reliability |
| Timeliness | Available to decision-makers in time to influence decisions | Information loses relevance with delay |
| Understandability | Clear and concise presentation for users with reasonable knowledge | Assumes users have business knowledge |
• Assets, Liabilities, Equity
Statement of Financial Performance:
• Income, Expenses
Other Statements:
• Contributions from owners, Distributions to owners
Asset: A present economic resource controlled by the entity as a result of past events that has the potential to produce economic benefits.
Liability: A present obligation of the entity to transfer an economic resource as a result of past events.
Equity: The residual interest in the assets of the entity after deducting all its liabilities.
Recognition Criteria: An item is recognized when it meets the definition of an element and provides relevant information that is faithfully represented.
| Measurement Basis | Description | Application |
|---|---|---|
| Historical Cost | Value at original transaction date | Most non-financial assets |
| Fair Value | Price in orderly transaction between market participants | Financial instruments, investment property |
| Value in Use | Present value of future cash flows | Impairment testing |
| Current Value | Value at measurement date | Various applications |
Capital Maintenance: Concepts that determine how profit is measured by comparing capital at beginning and end of period.
| Concept | Basis | Profit Measurement |
|---|---|---|
| Financial Capital Maintenance | Monetary units | Profit = Change in net assets in money terms |
| Physical Capital Maintenance | Operating capability | Profit = Change in net assets in physical terms |
- Required: 144 jurisdictions require IFRS for all public companies
- Permitted: 12 jurisdictions permit IFRS
- Major Adopters: EU, UK, Canada, Australia, Brazil, South Africa
- US Status: Permitted for foreign issuers, convergence projects ongoing
- Emerging Markets: Widespread adoption with local modifications
Conceptual Framework for Financial Reporting
Question: What is the Conceptual Framework and how does it relate to individual IFRS Standards?
Overview
The Conceptual Framework is the foundation and the basic rulebook for financial reporting. It provides the foundations for IFRS Standards but is not a standard itself.
What's in the Conceptual Framework?
- The main goal of financial reports
- What makes financial information useful (like relevance and faithful representation)
- Basic definitions (e.g., what is an "asset" or a "liability").
- How to measure values in financial statements
Purpose and Relationship with IFRS Standards
Primary Purpose:
For Rule-Makers (IASB): It's a guide to create new IFRS rules and update old ones, making sure they are all consistent
- For Companies (Preparers): If there is no specific IFRS rule for a transaction, the Framework helps them create their own accounting policy that fits with the overall concepts
- For Everyone (Users): It helps people understand and interpret the IFRS rules correctly
- Important Note: If a specific IFRS Standard has a different rule, that specific rule always wins over the general Conceptual Framework