1 1 Copyright © 2013 McGraw-Hill Ryerson Limited After studying the material in this chapter, you will be able to do the following: LO1 Understand the objectives of general purpose financial reporting and the qualitative characteristics of useful financial information as described in the IFRS conceptual framework LO2 Recognize the basic accounting assumptions that are fundamental to contemporary accounting LO3 Identify components that make up a set of general purpose financial statements, understand the information each statement provides, and prepare simple examples of them Learning Objectives Copyright © 2013 McGraw-Hill Ryerson Limited 1

2 2 IFRS Conceptual Framework The IASB has developed a conceptual framework that provides a basis for preparing and presenting financial statements Purpose is to provide a structure for creating new accounting standards and to assist preparers of financial statements when there are no standards for guidance We will look at: ▫The objective of general purpose financial reporting ▫The qualitative characteristics of useful financial reporting LO 1 Copyright © 2013 McGraw-Hill Ryerson Limited 2

3 3 Objective is to provide useful information about an entity to existing and potential equity investors, lenders, and other creditors. Helps these stakeholders to assess future net cash flows and make decisions about providing resources to the entity. Focus of IFRS narrow by necessity – isn’t tailored for all stakeholders and uses. Objective of General Purpose Reporting LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 3

4 4 IFRS identifies two levels of qualitative characteristics of useful financial information: 1)Fundamental Qualitative Characteristics -Required for information to be useful -Include Relevance and Faithful Representation 2) Enhancing Qualitative Characteristics -Enhance usefulness of accounting information -Include Comparability, Verifiability, Understandability & Timeliness Qualitative Characteristics LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 4

5 5 Fundamental Qualitative Characteristics 1. Relevance ▫Information is relevant if it influences stakeholder decisions 2. Faithful Representation ▫Financial statements must capture the economic activity of an entity. Information must be:  Complete  Neutral – freedom from bias  Free from error – no significant errors or omissions LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 5

6 6 Enhancing Qualitative Characteristics 1.Comparability  Provides users with information that is readily comparable 2.Verifiability  Independent and knowledgeable observers should find similar results when measuring an attribute 3.Understandability  Accounting information is prepared for stakeholders with ‘reasonable understanding of business’ 4.Timeliness  Helps users make informed decisions LO1 Copyright © 2013 McGraw-Hill Ryerson Limited 6