Financial Reporting: Conceptual Framework and Qualitative Aspects

This report provides a comprehensive overview of financial reporting, focusing on the IASB conceptual framework and qualitative characteristics. It critically assesses assumptions and concepts under fundamental and enhancing qualitative characteristics, such as relevance, faithful representation, ti...Read More

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Critically assessing assumptions and concept under fundamental and enhancing qualitative
characteristics..............................................................................................................................1
TASK 2............................................................................................................................................2
2. Illustrating examples that concepts and assumptions may be applied to financial statements
to give quality information for stakeholders...............................................................................2
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Financial reporting refers to the disclosure of monetary results and performance of an
organization. This in turn provides both internal and external stakeholders with suitable as well
as enough information for decision making purpose. Hence, financial reports are highly
significant which assists in evaluating company’s performance over the time frame. In this, the
present report will provide deeper insight about IASB conceptual framework and qualitative
characteristics pertaining to financial reporting. Further, report will also shed light on
accounting concepts and principles considered in the preparation of financial statements.
TASK 1
1. Critically assessing assumptions and concept under fundamental and enhancing qualitative
characteristics
The conceptual framework was issued by IASB for purpose of financial statement's
preparation and presentation. It helps in setting different concept that structre financial
statements for users and without status of accounting standard and case of statement of principles
via UK's accounting standards (Giner and et.al., 2016). This leads to asses for standards of IFRS
with context of future development and to review existing IAS and promotes procedure of
accounting standards, regulations harmonisation with reference to financial statements to reduce
number of accounting treatment alternatives. The main objective of financial reporting is to offer
important information to users of financial reports, disclose economic resources and obligations
of entity and give information about cash flow along with timing and uncertainty of cash flow.
The fundamental concept as bridge accounting with help of recognition, measurement
and financial statement presentation. This specify item that accomplish criteria of major
components of income statement and balance sheet i.e. assets, liabilities, income and expenses.
Recognition is interconnected to relevance and faithful representation about element. With
context to measurement, it engage to allocate monetary amount to component where financial
statements are recognised and reported (Kaya and Koch, 2015). The varietal measurement are
acknowledged through framework at various degrees to vary combination of financial statements
such as net realisable value, current cost, present value and historical cost.
The relevance and faithful representation are qualitative characteristics as faithful
representation seeks for raising numerous features of completeness, freedom through error and
neutrality. This is known as reflection of economic phenomena substance instead of legal
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representation. The relevancy of financial information enables to form variation in user's
decision making process. Henceforth, information should be gain each feature of faithful
representation and relevant with its uses.
On basis of enhancing qualitative characteristics, there is presence of timeliness,
verifiability, comparability and understandability. The information is very essential on basis of
reporting entity might be compared with similar information related to other business for other
duration and date. The users are allowed for getting understanding and identifying variations and
similarities. Timeliness is all about information availability to decision makers in time with
capability to impact decisions (Principles and Fundamental Concepts of Basic accounting,
2019). Verifiability assure users that information reflects faithfully the economic phenomena as
it reflects multiple knowledgable and independent observes for attaining consensus.
Understandability leads to classify, characterising and reflecting information in concise and clear
manner.
TASK 2
2. Illustrating examples that concepts and assumptions may be applied to financial statements to
give quality information for stakeholders
This is probable that future economic advantage associated with item would flow to or
from the entity along with cost of value of item must be directly measured with reference to
reliability is known as recognition. For instance, patents and intellectual property are controlled
via business units and accounts payable as current obligation will give result in outflow of
resources and embodying to economic advantages. In the same series, measurement in financial
reporting where finance leases emerged on initial basis and gained failure to show accurately and
new form of economic business (Ball, Li and Shivakumar, 2015). This had directly led towards
reporting requirements which produces measurements with offering economic incentives for
changing lease structure as it has left standard setters with perspective of decision that they must
amend measurements need to reflect this form of economic entity. The financial statement
disclosure as analysis and disaggregation of transactions and balances consists in statements like
lease obligations, financial instruments and plant and equipment.
Assumption Illustration
Economic entities It shows that transaction of business and owner's personal transactions
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are legally separated (Flower, 2018). For eg. Z has business of retail
business of stationery products, so electricity cost and its advertising is
comprised in business transactions but travel expense for tour is not
accounted in books of account related to business.
Going concern The business unit would be operating in foreseeable future as would
not be forced for asset liquidation and halt operations. For eg.
Depreciation calculation with reference to expected economic life of
fixed asset rather than current market value.
Monetary unit Each transaction must be accounted in monetary unit for example,
customer satisfaction could not be measured in monetary unit but sales
raised by 15% could be accounted (Francis and et.al 2015).
Periodicity The accounting period associated with business must be measured,
reported and accounted, Business activity could be categorised into
different intervals such as months, quarters and years.
Accrual basis This assumption accounts expenses and revenue when incured with its
requirement of implying estimates in particular areas (Accounting
Concepts and Principles, 2019). For instance, business should report
its bad debts when they incur not with intuition before 2 to 3 months.
CONCLUSION
By summing up this report, it has been concluded that financial reports must be accurate,
relevant and comparable. It can be summarized from the report that compliance with IASB and
IFRS facilitates standardization in final accounts. Besides this, it can be inferred that accounting
concepts and principles assist in both recognition as well as measurement of accounting
transactions.
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REFERENCES
Books and Journals
Ball, R., Li, X. and Shivakumar, L., 2015. Contractibility and transparency of financial statement
information prepared under IFRS: Evidence from debt contracts around IFRS
adoption. Journal of Accounting Research. 53(5). pp.915-963.
Flower, J., 2018. Global financial reporting. Macmillan International Higher Education.
Francis, B. and et.al., 2015. Gender differences in financial reporting decision making: Evidence
from accounting conservatism. Contemporary Accounting Research. 32(3). pp.1285-1318.
Giner, B. and et.al., 2016. On the ‘Review of Structure and Effectiveness of the IFRS
Foundation’: the EAA’s Financial Reporting Standards Committee’s View. Accounting in
Europe. 13(2). pp.285-294.
Kaya, D. and Koch, M., 2015. Countries’ adoption of the International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical
evidence. Accounting and Business Research. 45(1). pp.93-120.
Online
Accounting Concepts and Principles. 2019. [Online]. Available through:
<https://www.mbacrystalball.com/blog/accounting/>.
Principles and Fundamental Concepts of Basic accounting. 2019. [Online]. Available through:
<https://www.edupristine.com/blog/basic-accounting>.
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