The Conceptual Framework – Changes, Implications and Perceived Benefits

CPA Financial Reporting
The Conceptual Framework – Changes, Implications and Perceived Benefits
Lecturer:
Group members:
March 2019

CPA Financial Reporting
Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................4
Objective of GPFR.....................................................................................................................4
The rationale for changes in the Conceptual Framework..................................................5
Qualitative Characteristics.........................................................................................................5
Relevance...........................................................................................................................5
Faithful representation.......................................................................................................6
Nature of Changes in Conceptual Framework...........................................................................6
Financial Reporting....................................................................................................................6
Objective and scope of financial statements......................................................................6
Elements of Financial Statement................................................................................................7
Asset...................................................................................................................................7
Liability..............................................................................................................................7
Equity.................................................................................................................................8
Income................................................................................................................................8
Expense..............................................................................................................................8
Recognition of the elements of financial statements..........................................................9
Measurement....................................................................................................................10
Presentation and Disclosure.....................................................................................................11
Classification....................................................................................................................10
The Implications of the Changes on Reported Profit and Loss.......................................10
Benefits for Users of Financial Statements......................................................................10
Conclusion................................................................................................................................15
Reference..................................................................................................................................16
1

CPA Financial Reporting
Introduction
Recently the International Accounting Standards Board (IASB) in 2018 prescribed the
revised Conceptual Framework for Financial Reporting'. The revised framework defined the
different elements of a balance sheet. The amendment guided with a new way of
measurement, presentation, recognition including the disclosure. The amendment covered
what had previously not been covered. The main purpose of the framework is to provide
assistance to IASB in order to revise the International Financial Reporting Standards as these
are based on the consistent concepts. The amendment would help in providing consistency in
the polices of accounting. This would provide assistance to the user of the financial report in
interpreting the right meaning of the standard, in case there is no application of the Standard
or other criteria that is applicable to a particular transaction. It is the duty of the management
to apply the applicable standard so that the information available becomes reliable as well as
relevant. The amendment of the Conceptual framework covers eight specific parts that will be
discussed in the later part of this essay.
2

CPA Financial Reporting
Discussion
Objective of GPFR
The prime objective of GPFR is still helpful to the capable investors and borrowers as
well as other creditors termed as users at the time of decision framing so that an entity can be
financed by means of holding the debt instrument or equity. The affect is seen in the
resources of the entity. The amendment in this area has enabled the user to assesses the
stewardship of the economic resources that are under the control of an entity. IASB pointed
out that the stewardship prevailed earlier too but due to the ambiguous relevance made it
ruled out from the objective. The base of assessment of users for their returns rely on the
timing, figure, uncertainty that prevails in regard to net cash flow of the entity in the
upcoming period.
The Rationale for the changes in the Conceptual Framework
The Board considers the Conceptual Framework as an instrument to assist it develop
Standards. Therefore, the Conceptual Framework contains concepts that aid the Board to
develop standards and discuss the factors the Board needs to deliberate on when making
judgements, especially when applying the concept does not lead to a single solution. The
Board posit the following as the main rationale for the recent revision of the Conceptual
Framework for financial reporting:
1. To assist the Board to develop IFRS Standards with consistent concepts, producing
financial information that is useful to investors, lenders and other creditors
2. To assist preparers of an entity’s financial reports to use consistent accounting policies
for transactions when no Standard applies.
3. To assist all stakeholders to understand and interpret Standards.
3