Chapter 1 - Conceptual Framework Differences b w IFRS ASPE PDF

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AF710 - Advance Accounting Chapter 1 - Conceptual and Case Analysis Framework for Financial Reporting September 11, 2018 What is Conceptual Framework for Financial Reporting ➢ Financial Accounting = providing general purpose financial information to external users. ➢ Users usually have limited financial resources to invest in an entity - highest ROI with the lowest risk. ➢ Financial Statements: Income Statement | Balance Sheet | Changes in Shareholders Equity | Cashflow Statement ➢ Financial Statements assist/help users to make their resource allocation decisions and to assess the stewardship of management ➢ Prepare F/S in accordance with GAAP -- provide information that is relevant, reliable, understandable, and comparable. ➢ GAAP isn’t the only way to prepare F/S -- F/S can be prepared accordingly to what information is needed ➢ Information Asymmetry - management has more information accessible to them compared to the information that is provided for other stakeholders(i.e investors and suppliers) - management relies less on the F/S compared to other stakeholders ➢ Private Companies = CPA Canada Handbook (option of ASPE or IFRS) | Private Companies = GAAP of the Securities Commissions (Must IFRS) ➢ Not in the handbook? Adopt accounting practice consistent with the spirit of the standards and consistent with F/S concepts - The Conceptual Framework for Financial Reporting, which ➢ Financial Statement Concepts = principles and assumptions underlying preparation of F/S = important parts of GAAP ⇒ provide the framework for the development and issuance of other fnancial accounting standards. Consist of (1) objective of Financial Reporting, (2) qualitative characteristics of useful information, (3) underlying assumptions, (4) defnition, recognition, measurement of elements of F/S Professional Judgement ➢ Judgement = the ability to make decisions when the answer is not clear-but. ➢ Professional Judgement = the ability to make decisions for issues encountered by professionals in carrying out their day-to-day responsibilities. ○ Skilled developed over many years of studying and learning from one’s experiences) ○ Involves choices between meaningful alternatives and the ability to understand the consequences of one’s actions. ➢ With regards to preparing F/S, judgment is applied in three main areas: 1) Accounting policies - when and which standards/method to use. The method adopted for a particular firm must be appropriate for that company on the basis of its existing situation 2) Accounting estimates - determining the measurement of life or goodwill. Data is gathered and an assessment is made 3) Disclosure notes - what and how to disclose in the F/S. ➢ Accountants must select reporting method that represents faithful events and what really exists using generally accepted conceptual framework - accounting treatment that reflects the real situation ➢ High ethical standards = reliable judgment = choosing the (1) appropriate accounting policies, (2) the best estimates possible, and (3) honest and forthright statements in the notes = fairly presented F/S (position and performance of the firm) >>CREDIBILITY...