Importance of IASB Conceptual Framework for Financial Reporting

This presentation discusses the importance of the IASB Conceptual Framework for Financial Reporting in providing a true and fair view of financial statements, aiding decision making, and assessing management efficiency. It explores the main purposes of the framework, including performance evaluation, financial position disclosure, financing and investing activities, and compliance. References are provided for further reading.

Intermediate Financial
Accounting
Date : 28/03/2019

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Date : 28/03/2019

Table of Contents
Sl. No. Topics Covered Pg. No.
1 Introduction
2 Main Purpose - Performance of the entity
3 Main Purpose – Financial Position
4 Main Purpose – Financing and Investing activities of entity
5 Main Purpose – Compliance activities
6 References

Introduction & Background
• There is immense need of IASB Conceptual Framework for
Financial Reporting – due to complexities involved in the
businesses are much higher than earlier.
• It is also required for giving true and fair view of financial
statements to the investors (Belton, 2017).
• All this information is required for decision making purposes.
• It also highlights entity’s future prospects in relation to future
net inflows of cash (Gassen & Schwedler, 2010).
• It also assesses the efficiency and effectiveness of the
management (Fukukawa & Mock, 2011).

Main Purpose - Performance of the entity
• Measurable in both financial as well as non-financial terms.
• Financial/Measurable aspects:
 Revenue during the period and the corresponding expenditure
(Lessambo, 2018).
 Assets and liabilities status as on date along with the changes.
• Non financial aspects:
 Disclosures on Corporate Social responsibility (Vergoossen &
Amsterdam, 1993).
 The remuneration details (Alexander, 2016).
 Estimates and assumptions and the operational details of entity

Main Purpose – Financial Position
• Disclosures w.r.t. financial position is very critical for the entity.
• Some of the critical disclosures include
 Control over its financial structure.
 Details of Resources of the company.
 Liquidity and solvency aspects of the company.
 Equity and debt of the company – thereby sourcing of the
funds (Kew & Stredwick, 2017).
 Estimates and assumptions of the management of the
company (Meroño-Cerdán, Lopez-Nicolas, & Molina-Castillo, 2017).

Main Purpose – Financing and Investing
activities of entity
• Disclosures w.r.t. procurement of funds (financing) and applicable of funds
(investing) (Information Needs of users of New Zealand Capital Markets
Entity Reports., n.d.).
• It also shows the return on resources invested by the company
(Bumgarner & Vasarhelyi, 2018).
• The stakeholders get to know if there is any idle funds.
• They also get to know if the funds are invested in the areas for which the
same was procured (Ehalaiye, Laswad, Botica Redmayne, Stent, & Cai,
2018).

Main Purpose – Compliance activities
• The entity is required to disclose if it has made proper
allocation of resource and has complied with all the rules and
regulations in this regard or else it can be assumed by
investors that the same is followed (Goldmann, 2016).
• Paragraph 1.2 of the NZ Conceptual framework requires four
types of information:
Economic resources with the entity (Bartlett & Chandler,
1997)
Claims on the entity resulting from past performance
Financial performance reflected by accrual accounting
Financial performance reflected by past cash flows

References
• Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4),
411-431.
• Bartlett, S., & Chandler, R. (1997). The corporate report and the private shareholder: Lee and
Tweedie twenty years on. British Accounting Review, 29, 245-261.
• Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance (Vol. 2).
London: Macat International ltd.
• Bumgarner, N., & Vasarhelyi, M. (2018). Continuous auditing—a new view. Continuous Auditing:
Theory and Application, 20(1), 7-51.
• Ehalaiye, D., Laswad, F., Botica Redmayne, N., Stent, W., & Cai, L. (2018). Are Financial reports
useful? The views of New Zealand Public vs Private Users. Australian Accounting Review.
• Fukukawa, H., & Mock, T. (2011). Audit risk assessments using belief versus probability. Auditing: A
Journal of Practice & Theory, 30(1), 75-99.
• Gassen, J., & Schwedler, K. (2010). The decision usefulness of financial accounting measurement
concepts: evidence from an online survey of profesional investors and their advisors. European
Accounting Review, 19(3), 495-509.
• Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish
Business. Financial Environment and Business Development, 4(3), 103-112.

References
• Information Needs of users of New Zealand Capital Markets Entity Reports. (n.d.).
Retrieved from https://www.xrb.govt.nz/information-hub/current-research-reports/
• Kew, J., & Stredwick, J. (2017). Business Environment: Managing in a Strategic
Context (2nd ed.). London: Chartered Institute of Personnel and Development.
• Lessambo, F. (2018). Audit Risks: Identification and Procedures. Auditing,
Assurance Services, and Forensics, 3(1), 183-202.
• Meroño-Cerdán, A., Lopez-Nicolas, C., & Molina-Castillo, F. (2017). Risk aversion,
innovation and performance in family firms. Economics of Innovation and new
technology, 1-15.
• Vergoossen, R., & Amsterdam, V. (1993). The use of perceived importance of
annual reports by investment analysts in the Netherlands. European Accounting
Review, 2, 219-244.

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