odilia

f8 tips june 2009.

going concern.
inventory
purchase and payables
corporate governance
internal audit.


study this chapter thoroughly.
all the best!

framework is crucial in every sittings. Below are the detail info. of framework. All the best!


THE FRAMEWORK FOR THE
PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS


PURPOSE AND STATUS OF THE FRAMEWORK
The IASB's Framework for the Preparation and Presentation of Financial Statements describes the basic concepts by which financial statements are prepared. The Framework serves as a guide to the Board in developing accounting standards and as a guide to resolving accounting issues that are not addressed directly in an International Accounting Standard or International Financial Reporting Standard or Interpretation.
In the absence of a Standard or an Interpretation that specifically applies to a transaction, management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8.
THE IASB FRAMEWORK

The Framework:
• Defines the objective of financial statements;
• Identifies the qualitative characteristics that make information in financial statements useful; and
• Defines the basic elements of financial statements and the concepts for recognising and measuring them in financial statements. [Framework, paragraph 1, hereafter abbreviated F.1]
General Purpose Financial Statements
The Framework addresses general purpose financial statements that a business enterprise (including a state-owned business enterprise) prepares and presents at least annually to meet the common information needs of a wide range of users external to the enterprise. Therefore, the Framework does not necessarily apply to special purpose financial reports such as reports to tax authorities, reports to governmental regulatory authorities, prospectuses prepared in connection with securities offerings, and reports prepared in connection with business combinations.
Users and their Information Needs
The principal classes of users of financial statements are present and potential investors, employees, lenders, suppliers and other trade creditors, customers, governments and their agencies and the general public. All of these categories of users rely on financial statements to help them in decision making. [F.9]
The Framework also concludes that because investors are providers of risk capital to the enterprise, financial statements that meet their needs will also meet most of the general financial information needs of other users. Common to all of these user groups is their interest in the ability of an enterprise to generate cash and cash equivalents and of the timing and certainty of those future cash flows. [F.10]
The Framework notes that financial statements cannot provide all the information that users may need to make economic decisions. For one thing, financial statements show the financial effects of past events and transactions, whereas the decisions that most users of financial statements have to make relate to the future. Further, financial statements provide only a limited amount of the non-financial information needed by users of financial statements.
While all of the information needs of these user groups cannot be met by financial statements, there are information needs that are common to all users, and general purpose financial statements focus on meeting these needs.




Definitions of the elements relating to financial position
• Asset. An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. [F.49(a)]
• Liability. A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. [F.49(b)]
Framework. [F.78]
Recognition of the Elements of Financial Statements
Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the following criteria for recognition: [F.82-83]
• It is probable that any future economic benefit associated with the item will flow to or from the enterprise; and
• The item's cost or value can be measured with reliability.
Based on these general criteria:
• An asset is recognised in the balance sheet when it is probable that the future economic benefits will flow to the enterprise and the asset has a cost or value that can be measured reliably. [F.89]
• A liability is recognised in the balance sheet when it is probable that an outflow of resources embodying economic benefits will result from the settlement of a present obligation and the amount at which the settlement will take place can be measured reliably. [F.91]
• Income is recognised in the income statement when an increase in future economic benefits related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably. This means, in effect, that recognition of income occurs simultaneously with the recognition of increases in assets or decreases in liabilities (for example, the net increase in assets arising on a sale of goods or services or the decrease in liabilities arising from the waiver of a debt payable). [F.92]
• Expenses are recognised when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. This means, in effect, that recognition of expenses occurs simultaneously with the recognition of an increase in liabilities or a decrease in assets (for example, the accrual of employee entitlements or the depreciation of equipment). [F.94]
Measurement of the Elements of Financial Statements
Measurement involves assigning monetary amounts at which the elements of the financial statements are to be recognised and reported. [F.99]
The Framework acknowledges that a variety of measurement bases are used today to different degrees and in varying combinations in financial statements, including: [F.100]
• Historical cost
• Current cost
• Net realisable (settlement) value
• Present value (discounted)
Historical cost is the measurement basis most commonly used today, but it is usually combined with other measurement bases. The Framework does not include concepts or principles for selecting which measurement basis should be used for particular elements of financial statements or in particular circumstances. The qualitative characteristics do provide some guidance, however. [F.101]