Conceptual principles of financial reporting

Covaliov Georgeta,

auditor, CIPA

Conceptual Framework for Financial Reporting

The objective of financial reportingis to present information about financial position, performance, and changes in financial position.

Users: investors, creditors, employees, suppliers, government authorities, and the public.

Underlying Assumptions

  1. Accrual Accounting—transactions are recognized when they occur, not when paid.
  2. Going Concern—the entity continues to operate for the foreseeable future.

Qualitative Characteristics of Information

Category Characteristic
Principal Relevance, Materiality, Fair Presentation, Substance over Form, Prudence
Enhancing Comparability, Verifiability, Timeliness, Understandability
Limitation Benefit-Cost Balance

Elements of Financial Statements

Category Definition
Assets Controllable resources that generate future benefits
Liabilities Current debt requiring outflow resources
Equity Asset-Liability Difference
Revenue Increase in Benefits (Asset Growth / Decrease in Liabilities)
Expenses Decrease in Benefits (Asset Outflow / Increase in Liabilities)

Recognition of Elements

An element is recognized if:

  • an inflow/outflow of economic benefits is probable;
  • the amount can be reliably measured.

Valuation of Elements

Valuation Basis Brief Description Example
Historical Cost At Cost FA under IAS 16
Fair Value Arm-to-Arm Price IFRS Financial Assets 9
Value in Use Present Value of Future Inflows IAS 36
Redemption Value Present Value of Future Payments IAS 37
Current Value Asset Replacement Cost at the Reporting Date —