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ConceptualFrameworkforFinancialReporting2010

ConceptualFrameworkforFinancialReporting2010
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HistoryoftheFramework
April1989
July1989
April2001
September2010

FrameworkforthePrepa
ra
tionandPre
sen
ta
tionofFinancialState
ments(the
Framework)wasapprovedbytheIASCBoard
Frameworkwaspublished
FrameworkadoptedbytheIASB.
ConceptualFrameworkforFinancialReporting2010(theIFRSFramework)approved
bytheIASB

RelatedIn
ter
pre
ta
tions
None

Amend
mentsundercon
sid
er
a
tionbytheIASB
IASBProjectonConceptualFramework.

PurposeandstatusoftheFramework
TheIFRSFrameworkdescribesthebasicconceptsthatunderlietheprepa
ra
tionandpre
sen
ta
tionof
financialstate
mentsforexternalusers.TheIFRSFrameworkservesasaguidetotheBoardinde
vel
o p
ing
futureIFRSsandasaguidetoresolvingaccountingissuesthatarenotaddresseddirectlyinan
InternationalAccountingStandardorInternationalFinancialReportingStandardorIn
ter
p re
ta
tion.
IntheabsenceofaStandardoranIn
ter
p re
ta
tionthatspecif
i
callyappliestoatrans
a c
tion,man
a ge
ment
mustuseitsjudgementinde
vel
o p
ingandapplyinganaccountingpolicythatresultsinin
for
ma
tionthatis
relevantandreliable.Inmakingthatjudgement,IAS8.11requiresman
a ge
menttoconsiderthede
f
i
n
i

tions,recog
n i
tioncriteria,andmea
sure
mentconceptsforassets,li
a
b il
i
ties,income,andexpensesinthe
IFRSFramework.Thiselevationoftheim
p or
tanceofthe[IFRS]Frameworkwasaddedinthe2003
revisionstoIAS8.

TheIFRSFramework
Scope
TheIFRSFrameworkaddresses:
theobjectiveoffinancialreporting
thequal
i
ta
tivechar
a c
ter
is
ticsofusefulfinancialin
for
ma
tion
thereportingentity
thede
f
i
n
i
tion,recog
n i
tionandmea
sure
mentoftheelementsfromwhichfinancialstate
mentsare
con
structed
conceptsofcapitalandcapitalmain
te
n ance
[IFRSFramework,Scope]
Chapter1:TheObjectiveofgeneralpurposefinancialreporting
Theprimaryusersofgeneralpurposefinancialreportingarepresentandpotentialinvestors,lendersand
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ConceptualFrameworkforFinancialReporting2010

othercreditors,whousethatin
for
ma
tiontomakedecisionsaboutbuying,sellingorholdingequityordebt
in
stru
mentsandprovidingorsettlingloansorotherformsofcredit.[FOB2]
Theprimaryusersneedin
for
ma
tionabouttheresourcesoftheentitynotonlytoassessanentity's
prospectsforfuturenetcashinflowsbutalsohowef
fec
tivelyandef
fi
cientlyman
a ge
menthasdis
charged
theirre
spon
si
b il
i
tiestousetheentity'sexistingresources(i.e.,stew
a rd
ship).[FOB4]
TheIFRSFrameworknotesthatgeneralpurposefinancialreportscannotprovideallthein
for
ma
tionthat
usersmayneedtomakeeconomicdecisions.Theywillneedtoconsiderpertinentin
for
ma
tionfromother
sourcesaswell.[FOB6]
TheIFRSFrameworknotesthatotherparties,includingpru
d en
tialandmarketreg
u
la
tors,mayfindgeneral
purposefinancialreportsuseful.However,theBoardcon
sid
e redthattheob
jec
tivesofgeneralpurpose
financialreportingandtheob
jec
tivesoffinancialreg
u
la
tionmaynotbecon
sis
tent.Hence,reg
u
la
torsare
notcon
sid
e redaprimaryuserandgeneralpurposefinancialreportsarenotprimarilydirectedtoreg
u
la
tors
orotherparties.[FOB10andFBC1.20BC1.23]
In
for
ma
tionaboutareportingentity'seconomicresources,claims,andchangesinresourcesand
claims
Economicresourcesandclaims
In
for
ma
tionaboutthenatureandamountsofareportingentity'seconomicresourcesandclaimsassists
userstoassessthatentity'sfinancialstrengthsandweak
n essestoassessliquidityandsolvency,andits
needandabilitytoobtainfinancing.In
for
ma
tionabouttheclaimsandpaymentre
q uire
mentsassistsusers
topredicthowfuturecashflowswillbedis
trib
u tedamongthosewithaclaimonthereportingentity.[F
OB13]
Areportingentity'seconomicresourcesandclaimsarereportedinthestatementoffinancialposition.[See
IAS1.5480A]
Changesineconomicresourcesandclaims
Changesinareportingentity'seconomicresourcesandclaimsresultfromthatentity'sper
for
manceand
fromothereventsortrans
a c
tionssuchasissuingdebtorequityin
stru
ments.Usersneedtobeabletodis

tin
g uishbetweenbothofthesechanges.[FOB15]
Financialper
for
mancereflectedbyaccrualaccounting
In
for
ma
tionaboutareportingentity'sfinancialper
for
manceduringaperiod,rep
re
sent
ingchangesin
economicresourcesandclaimsotherthanthoseobtaineddirectlyfrominvestorsandcreditors,isusefulin
assessingtheentity'spastandfutureabilitytogeneratenetcashinflows.Suchin
for
ma
tionmayalso
indicatetheextenttowhichgeneraleconomiceventshavechangedtheentity'sabilitytogeneratefuture
cashinflows.[FOB18OB19]
Thechangesinanentity'seconomicresourcesandclaimsarepresentedinthestatementofcom
p re
h en

siveincome.[SeeIAS1.81105]
Financialper
for
mancereflectedbypastcashflows
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ConceptualFrameworkforFinancialReporting2010

In
for
ma
tionaboutareportingentity'scashflowsduringthereportingperiodalsoassistsuserstoassess
theentity'sabilitytogeneratefuturenetcashinflows.Thisin
for
ma
tionindicateshowtheentityobtains
andspendscash,includingin
for
ma
tionaboutitsborrowingandrepaymentofdebt,cashdividendsto
share
h old
e rs,etc.[FOB20]
Thechangesintheentity'scashflowsarepresentedinthestatementofcashflows.[SeeIAS7]
Changesineconomicresourcesandclaimsnotresultingfromfinancialper
for
mance
In
for
ma
tionaboutchangesinanentity'seconomicresourcesandclaimsresultingfromeventsandtrans

ac
tionsotherthanfinancialper
for
mance,suchastheissueofequityin
stru
mentsordis
tri
b
u
tionsofcash
orotherassetstoshare
h old
e rsisnecessarytocompletethepictureofthetotalchangeintheentity's
economicresourcesandclaims.[FOB21]
Thechangesinanentity'seconomicresourcesandclaimsnotresultingfromfinancialper
for
manceis
presentedinthestatementofchangesinequity.[SeeIAS1.106110]
Chapter2:TheReportingentity
ThechapterontheReportingEntitywillbere
con
sid
e redaspartoftheIASB'scom
p re
h en
siveprojecton
theframework.
Chapter3:Qual
i
ta
tivechar
a c
ter
is
ticsofusefulfinancialin
for
ma
tion
Thequal
i
ta
tivechar
a c
ter
is
ticsofusefulfinancialreportingidentifythetypesofin
for
ma
tionarelikelytobe
mostusefultousersinmakingdecisionsaboutthereportingentityonthebasisofin
for
ma
tioninits
financialreport.Thequal
i
ta
tivechar
a c
ter
is
ticsapplyequallytofinancialin
for
ma
tioningeneralpurpose
financialreportsaswellastofinancialin
for
ma
tionprovidedinotherways.[FQC1,QC3]
Financialin
for
ma
tionisusefulwhenitisrelevantandrep
re
sentsfaith
fullywhatitpurportstorepresent.
Theuse
ful
n essoffinancialin
for
ma
tionisenhancedifitiscom
p a
ra
b le,ver
i
fi
a ble,timelyandun
d er
stand

able.[FQC4]
Fun
da
men
talqual
i
ta
tivechar
a c
ter
is
tics
Relevanceandfaithfulrep
re
sen
ta
tionarethefun
d a
men
talqual
i
ta
tivechar
a c
ter
is
ticsofusefulfinancialin

for
ma
tion.[FQC5]
Relevance
Relevantfinancialin
for
ma
tioniscapableofmakingadif
fer
e nceinthedecisionsmadebyusers.Financial
in
for
ma
tioniscapableofmakingadif
fer
e nceindecisionsifithaspre
d ic
tivevalue,con
fir
ma
toryvalue,or
both.Thepre
d ic
tivevalueandcon
fir
ma
toryvalueoffinancialin
for
ma
tionarein
ter
re
lated.[FQC6QC10]
Ma
te
ri
a l
ityisanen
tityspe
cificaspectofrelevancebasedonthenatureormagnitude(orboth)ofthe
itemstowhichthein
for
ma
tionrelatesinthecontextofanin
d i
vid
u alentity'sfinancialreport.[FQC11]
Faithfulrep
re
sen
ta
tion
Generalpurposefinancialreportsrepresenteconomicphenomenainwordsandnumbers,Tobeuseful,
financialin
for
ma
tionmustnotonlyberelevant,itmustalsorepresentfaith
fullythephenomenaitpurports
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torepresent.Thisfun
d a
men
talchar
a c
ter
is
ticseekstomaximisetheun
d er
ly
ingchar
a c
ter
is
ticsofcom
p lete

ness,neu
tral
ityandfreedomfromerror.[FQC12]In
for
ma
tionmustbebothrelevantandfaith
fullyrep
re

sentedifitistobeuseful.[FQC17]
Enhancingqual
i
ta
tivechar
a c
ter
is
tics
Com
p a
ra
b il
ity,ver
i
fi
a
b il
ity,time
li
n essandun
d er
stand
a bil
ityarequal
i
ta
tivechar
a c
ter
is
ticsthatenhancethe
use
ful
n essofin
for
ma
tionthatisrelevantandfaith
fullyrep
re
sented.[FQC19]
Com
p a
ra
b il
ity
In
for
ma
tionaboutareportingentityismoreusefulifitcanbecomparedwithasimilarin
for
ma
tionabout
otherentitiesandwithsimilarin
for
ma
tionaboutthesameentityforanotherperiodoranotherdate.Com

pa
ra
b il
ityenablesuserstoidentifyandun
d er
standsim
i
lar
i
tiesin,anddif
fer
e ncesamong,items.[FQC20
QC21]
Ver
i
fi
a
b il
ity
Ver
i
fi
a
b il
ityhelpstoassureusersthatin
for
ma
tionrep
re
sentsfaith
fullytheeconomicphenomenait
purportstorepresent.Ver
i
fi
a
b il
itymeansthatdifferentknowl
e dge
a bleandin
d e
p en
d entobserverscould
reachconsensus,althoughnotnec
e s
sar
ilycompleteagreement,thatapar
tic
u
lardepictionisafaithful
rep
re
sen
ta
tion.[FQC26]
Time
li
n ess
Time
li
n essmeansthatin
for
ma
tionisavailabletode
ci
sionmak
e rsintimetobecapableofin
flu
e nc
ingtheir
decisions.[FQC29]
Un
d er
stand
a bil
ity
Clas
si
fy
ing,char
a c
ter
is
ingandpre
sent
ingin
for
ma
tionclearlyandconciselymakesitun
d er
stand
a ble.
Whilesomephenomenaarein
h er
e ntlycomplexandcannotbemadeeasytoun
d er
stand,toexcludesuch
in
for
ma
tionwouldmakefinancialreportsin
com
p leteandpo
ten
tiallymis
lead
ing.Financialreportsare
preparedforuserswhohavearea
son
a bleknowledgeofbusinessandeconomicac
tiv
i
tiesandwho
reviewandanalysethein
for
ma
tionwithdiligence.[FQC30QC32]
Applyingtheenhancingqual
i
ta
tivechar
a c
ter
is
tics
Enhancingqual
i
ta
tivechar
a c
ter
is
ticsshouldbemaximisedtotheextentnecessary.However,enhancing
qual
i
ta
tivechar
a c
ter
is
tics(eitherin
d i
vid
u
a llyorcol
lec
tively)renderin
for
ma
tionusefulifthatin
for
ma
tionis
ir
rel
e
vantornotrep
re
sentedfaith
fully.[FQC33]
Thecostcon
s traintonusefulfinancialreporting
Costisapervasivecon
straintonthein
for
ma
tionthatcanbeprovidedbygeneralpurposefinancial
reporting.Reportingsuchin
for
ma
tionimposescostsandthosecostsshouldbejustifiedbythebenefitsof
reportingthatin
for
ma
tion.TheIASBassessescostsandbenefitsinrelationtofinancialreporting
generally,andnotsolelyinrelationtoin
d i
vid
u alreportingentities.TheIASBwillconsiderwhetherdifferent
sizesofentitiesandotherfactorsjustifydifferentreportingre
q uire
mentsincertainsit
u
a
tions.[FQC35
QC39]
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Chapter4:TheFramework:theremainingtext
Chapter4containstheremainingtextoftheFrameworkapprovedin1989.Astheprojecttorevisethe
Frameworkpro
g resses,relevantpara
g raphsinChapter4willbedeletedandreplacedbynewChaptersin
theIFRSFramework.Untilitisreplaced,aparagraphinChapter4hasthesamelevelofauthoritywithin
IFRSsasthoseinChapters13.
Un
der
ly
ingas
s ump
tion
TheIFRSFrameworkstatesthatthegoingconcernas
sump
tionisanun
d er
ly
ingas
sump
tion.Thus,the
financialstate
mentspresumethatanentitywillcontinueinoperationin
d ef
i
n itelyor,ifthatpre
sump
tionis
notvalid,dis
clo
sureandadifferentbasisofreportingarerequired.[F4.1]
Theelementsoffinancialstate
ments
Financialstate
mentsportraythefinancialeffectsoftrans
a c
tionsandothereventsbygroupingtheminto
broadclassesaccordingtotheireconomicchar
a c
ter
is
tics.Thesebroadclassesaretermedtheelements
offinancialstate
ments.
Theelementsdirectlyrelatedtofinancialposition(balancesheet)are:[F4.4]
Assets
Li
a
b il
i
ties
Equity
Theelementsdirectlyrelatedtoper
for
mance(incomestatement)are:[F4.25]
Income
Expenses
Thecashflowstatementreflectsbothincomestatementelementsandsomechangesinbalancesheet
elements.
De
f
i
n
i
tionsoftheelementsrelatingtofinancialposition
Asset.Anassetisaresourcecon
trolledbytheentityasaresultofpasteventsandfromwhich
futureeconomicbenefitsareexpectedtoflowtotheentity.[F4.4(a)]
Liability.Aliabilityisapresentoblig
a
tionoftheentityarisingfrompastevents,theset
tle
mentof
whichisexpectedtoresultinanoutflowfromtheentityofresourcesembodyingeconomic
benefits.[F4.4(b)]
Equity.Equityistheresidualinterestintheassetsoftheentityafterdeductingallitsli
a
b il
i
ties.[F
4.4(c)]
De
f
i
n
i
tionsoftheelementsrelatingtoper
for
mance
Income.Incomeisincreasesineconomicbenefitsduringtheaccountingperiodintheformof
inflowsoren
h ance
mentsofassetsordecreasesofli
a
b il
i
tiesthatresultinincreasesinequity,
otherthanthoserelatingtocon
tri
b u
tionsfromequitypar
tic
i
p ants.[F4.25(a)]
Expense.Expensesaredecreasesineconomicbenefitsduringtheaccountingperiodintheform
ofoutflowsorde
p le
tionsofassetsorin
cur
rencesofli
a
b il
i
tiesthatresultindecreasesinequity,
otherthanthoserelatingtodis
tri
b
u
tionstoequitypar
tic
i
p ants.[F4.25(b)]
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Thede
f
i
n
i
tionofincomeen
com
p assesbothrevenueandgains.Revenuearisesinthecourseofthe
ordinaryac
tiv
i
tiesofanentityandisreferredtobyavarietyofdifferentnamesincludingsales,fees,
interest,dividends,royaltiesandrent.Gainsrepresentotheritemsthatmeetthede
f
i
n
i
tionofincomeand
may,ormaynot,ariseinthecourseoftheordinaryac
tiv
i
tiesofanentity.Gainsrepresentincreasesin
economicbenefitsandassucharenodifferentinnaturefromrevenue.Hence,theyarenotregardedas
con
sti
tut
ingaseparateelementintheIFRSFramework.[F4.29andF4.30]
Thede
f
i
n
i
tionofexpensesen
com
p asseslossesaswellasthoseexpensesthatariseinthecourseofthe
ordinaryac
tiv
i
tiesoftheentity.Expensesthatariseinthecourseoftheordinaryac
tiv
i
tiesoftheentity
include,forexample,costofsales,wagesandde
p re
ci
a
tion.Theyusuallytaketheformofanoutflowor
depletionofassetssuchascashandcashequiv
a
lents,inventory,property,plantandequipment.Losses
representotheritemsthatmeetthede
f
i
n
i
tionofexpensesandmay,ormaynot,ariseinthecourseofthe
ordinaryac
tiv
i
tiesoftheentity.Lossesrepresentdecreasesineconomicbenefitsandassuchtheyareno
differentinnaturefromotherexpenses.Hence,theyarenotregardedasaseparateelementinthis
Framework.[F4.33andF4.34]
Recog
ni
tionoftheelementsoffinancialstate
ments
Recog
n i
tionistheprocessofin
cor
p o
rat
inginthebalancesheetorincomestatementanitemthatmeets
thede
f
i
n
i
tionofanelementandsatisfiesthefollowingcriteriaforrecog
n i
tion:[F4.37andF4.38]
Itisprobablethatanyfutureeconomicbenefitas
so
ci
a tedwiththeitemwillflowtoorfromthe
entityand
Theitem'scostorvaluecanbemeasuredwithre
li
a
b il
ity.
Basedonthesegeneralcriteria:
Anassetisrecog
n isedinthebalancesheetwhenitisprobablethatthefutureeconomicbenefits
willflowtotheentityandtheassethasacostorvaluethatcanbemeasuredreliably.[F4.44]
Aliabilityisrecog
n isedinthebalancesheetwhenitisprobablethatanoutflowofresources
embodyingeconomicbenefitswillresultfromtheset
tle
mentofapresentoblig
a
tionandthe
amountatwhichtheset
tle
mentwilltakeplacecanbemeasuredreliably.[F4.46]
Incomeisrecog
n isedintheincomestatementwhenanincreaseinfutureeconomicbenefits
relatedtoanincreaseinanassetoradecreaseofaliabilityhasarisenthatcanbemeasured
reliably.Thismeans,ineffect,thatrecog
n i
tionofincomeoccurssi
mul
ta
n e
o uslywiththerecog
n i

tionofincreasesinassetsordecreasesinli
a
b il
i
ties(forexample,thenetincreaseinassets
arisingonasaleofgoodsorservicesorthedecreaseinli
a
b il
i
tiesarisingfromthewaiverofadebt
payable).[F4.47]
Expensesarerecog
n isedwhenadecreaseinfutureeconomicbenefitsrelatedtoadecreasein
anassetoranincreaseofaliabilityhasarisenthatcanbemeasuredreliably.Thismeans,in
effect,thatrecog
n i
tionofexpensesoccurssi
mul
ta
n e
o uslywiththerecog
n i
tionofanincreaseinli

a
b il
i
tiesoradecreaseinassets(forexample,theaccrualofemployeeen
ti
tle
mentsorthede
p re
ci

a
tionofequipment).[F4.49]
Mea
s ure
mentoftheelementsoffinancialstate
ments
Mea
sure
mentinvolvesassigningmonetaryamountsatwhichtheelementsofthefinancialstate
mentsare
toberecog
n isedandreported.[F4.54]
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TheIFRSFrameworkac
knowl
e dgesthatavarietyofmea
sure
mentbasesareusedtodaytodifferent
degreesandinvaryingcom
b i
n a
tionsinfinancialstate
ments,including:[F4.55]
His
tor
i
calcost
Currentcost
Netre
a l
is
a ble(set
tle
ment)value
Presentvalue(dis
counted)
His
tor
i
calcostisthemea
sure
mentbasismostcommonlyusedtoday,butitisusuallycombinedwithother
mea
sure
mentbases.[F.4.56]TheIFRSFrameworkdoesnotincludeconceptsorprin
ci
p lesforselecting
whichmea
sure
mentbasisshouldbeusedforpar
tic
u
larelementsoffinancialstate
mentsorinpar
tic
u
lar
cir
cum
stances.In
d i
vid
u alstandardsandin
ter
p re
ta
tionsdoprovidethisguidance,however.
52

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