CF 2 Conceptual Framework

Conceptual
Framework
TOPIC 2
Purpose of Conceptual Framework
a. Assist the International Accounting Standards
Board (IASB) in developing Standards that are
based on consistent concepts;
b. Assist preparers in developing consistent
accounting policies when no Standard applies to a
particular transaction or when a Standard allows
a choice of accounting policy; and
c. Assist all parties in understanding and
interpreting the Standards.
Purpose of Conceptual Framework
The conceptual framework provides the

foundation for the development of Standards
that:
a. Promote transparency
b. Strengthen accountability
c. Contribute to economic efficiency
Status of Conceptual Framework
The conceptual framework is not a Standard. If

there is a conflict between a Standard and the
Conceptual Framework, the requirements of
the Standard will prevail.
Status of Conceptual Framework
If there is a conflict between a Standard and the
Conceptual Framework, the requirements of the
Standard will prevail.
The authoritative status of the conceptual
framework is depicted in the hierarchy of guidance
shown below:
1. Philippine Financial Reporting Standards
(PFRSs)
2. Judgment
Scope of Conceptual Framework
The conceptual framework is concerned with

general purpose financial reporting. General
purpose financial reporting involves the
preparation of general purpose financial
statements.
Objective of Financial Reporting
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 about
providing resources to the entity.
Primary Users
The objective of financial reporting refers to

the following, so called the primary users:
a. Existing and potential investors; and
b. Lenders and other creditors
Primary Users
The conceptual framework is concerned with

general purpose financial reporting. General
purpose financial reporting deals with
providing information that caters to the
common needs of primary users. Therefore,
general purpose financial reports do not and
cannot provide all the information needs of
primary users.
Primary Users
General purpose financial reports do not

directly show the value of the reporting entity,
but they provide information that helps users
in estimating the value of an entity.
Qualitative Characteristics
The conceptual framework classifies the

qualitative characteristics into the following:
1. Fundamental qualitative characteristics –
these are the characteristics that make
information useful to users. They consist of
the following:
a. Relevance
b. Faithful representation
Qualitative Characteristics
2. Enhancing qualitative characteristics –

these are the characteristics that enhance
the usefulness of information, they consist
of the following:
a. Comparability
b. Verifiability
c. Timeliness
d. Understandability
Cost Constraint
Cost is a pervasive constraint on the entity’s

ability to provide useful financial information.
Providing information entails cost and this can

only be justified by the benefits expected to be
derived from using the information. An optimum
balance between costs and benefits is desirable
such that costs do not outweigh the benefits.
Reporting Period
Financial statements are prepared for a specified
period of time and provide information on assets,
liabilities and equity that existed at the end of the
reporting period, or during the reporting period, and
income and expenses for the reporting period.
To help users of financial statements in evaluating

changes and trends, financial statements presents
comparative information for at least one preceding
reporting period.
Going Concern Assumption
Financial statements are normally prepared on the
assumption that the reporting entity is a going
concern, meaning the entity has neither the intention
nor the need to end its operations in the foreseeable
future.
Otherwise, the entity’s financial statements are

prepared on another basis – net realizable values,
liquidation values.
Elements of Financial Statements
1. Assets
2. Liabilities
3. Equity
4. Income
5. Expenses
Recognition
Recognition is the process of including in the

statement of financial position or the
statement(s) of financial performance an item
that meets the definition of one of the elements
of financial statements. This involves recording
the item in words and in monetary amount and
including the amount in the totals of either of
those statements.
Recognition
Recognition links the elements of the

statement of financial position and the
statement(s) of financial performance. The
statements are linked because the recognition
of one element requires the recognition or
derecognition of another element(s).
Derecognition
Derecognition is the opposite of recognition. It is

the removal of a previously recognized asset or
liability from the entity’s statement of financial
position.
Derecognition occurs when the item no longer

meet the definition of an asset or liability.
Derecognition is not appropriate if the entity
retains substantial control of a transferred asset.
End of Topic 2

CF 2 Conceptual Framework

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CF 2 Conceptual Framework

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Conceptual

The conceptual framework provides the

The conceptual framework is not a Standard. If

The conceptual framework is concerned with

The objective of general purpose financial

The objective of financial reporting refers to

The conceptual framework is concerned with

General purpose financial reports do not

The conceptual framework classifies the

2. Enhancing qualitative characteristics –

Cost is a pervasive constraint on the entity’s

Providing information entails cost and this can

To help users of financial statements in evaluating

Otherwise, the entity’s financial statements are

Recognition is the process of including in the

Recognition links the elements of the

Derecognition is the opposite of recognition. It is

Derecognition occurs when the item no longer

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