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  3. University Of Cape Town (UCT)
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  5. Financial Accounting (ACC1006F)

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Summary The Conceptual Framework - Financial Accounting

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  • Grado
  • Financial Accounting (ACC1006F)
  • Institución
  • University Of Cape Town (UCT)
  • Book
  • Financial Accounting

Comprehensive notes, with a summary, and definitions list for first year Financial Accounting at UCT. The notes are on the conceptual framework (chapter 4 in the textbook "Financial Accounting an Introduction"). These notes are more than sufficient to do well. They include a compilation of lecture ...

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Información del documento

  • No
  • Chapter 4
  • 8 de junio de 2020
  • 24
  • 2019/2020
  • Resumen

Temas

  • financial accounting
  • acc1006f
  • accounting
  • financial accounting 1
  • acc1106f
  • uct accounting
  • first year accounts
  • conceptual framework
  • financial a
  • college of financial accounting
  • uct
  • university of cape town

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Conceptual Framework

Financial Accounting Standards

 Regulations
o Authority prescribes how businesses may do something
 GAAP (Generally Accepted Accounting Practise)
o Regulations that applies to the preparation of financial statements
 IFRS (International Financial Reporting Standards)
o Standards used by SA’s biggest businesses
 IASB (International Accounting Standards Board)
o They set the standards used by SA’s companies

Extra

International harmonization: the process of making accounting standards globally
applicable

Objectives of financial reporting

 To provide financial info that is useful to users in making decisions relating to
providing resources to the entity
 To provide financial info about assets, liabilities, equity, income & expenses
o That is useful in assessing the prospects of future net cash inflows and
management stewardship of the entity’s resources

Primary users of Financial Statements

1. Existing investors
2. Potential investors
3. Lenders (banks)
4. Creditors

Qualitative characteristics of useful financial information

1. Fundamental characteristics
 Relevance
o Predictive value: Information can be used to make predictions (ie: it has a
predictive value)

, o Confirmatory value: Information provides feedback about previous
evaluations
o Information is capable of making a difference to the user’s decision
 Faithful representation
o Complete (all necessary information is included)
o Neutral (Information has no bias; it is neutral)
o Free from error (accurate)
o Reveals the substance, rather than merely the legal form



2. Enhancing characteristics
 Comparability
 Verifiability
 Timeliness
 Understandability

Fundamental characteristics



PREDICTIVE
VALUE
RELEVANCE
CONFIRMATOR
Y VALUE

 Relevance
o Capable of making a difference to user’s decisions
 Predictive value: can be used to predict future outcomes
 Confirmatory value: provides feedback about previous evaluations
 Materiality: information is material if omitting/mis-formatting it could influence a user’s
decision (threshold is entity specific)

Faithful representation

, COMPLETE


FAITHFUL
REPRESENTATIO NEUTRAL
N

FREE FROM
ERROR


 Faithful representation: reveals the substance, rather than merely the legal form of the
economic phenomenon
o Complete: includes all information necessary for understanding
o Neutral: without bias; not weighted, manipulated, emphasized or de-
emphasized etc
o Free from error: description and process are without error, not necessarily
perfectly accurate

Prudence: concept that says assets and income must not be overstated, and liabilities and
expenses must not be understated

 Supports neutrality

Enhancing Characteristics

 Comparability
o Across time for one entity & across different entities
o Not uniformly
o Consistency helps
 Verifiability
o Different, knowledgeable, independent observers would reach the consensus
(the same decision)
o Can be direct or indirect
 Timeliness
o Info provided in time to influence decisions
 Understandability
o Present information clearly and concisely

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