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Cfas Exercise 2 Essay

The document describes key concepts in accounting including: 1. The usefulness of a conceptual framework in developing accounting standards and policies. 2. The objective of financial reporting is to provide useful information to investors and creditors for decision making. 3. The qualitative characteristics of accounting information including relevance, faithful representation, comparability, verifiability, timeliness, and understandability. It also enumerates the four basic financial statements, their components, and purposes. Finally, it differentiates recognition, which is incorporating an item that meets the definition of an element, and derecognition, which is removing an item from the statement of financial position.

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Daisy Ann Cariaga Saccuan
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39 views2 pages

Cfas Exercise 2 Essay

The document describes key concepts in accounting including: 1. The usefulness of a conceptual framework in developing accounting standards and policies. 2. The objective of financial reporting is to provide useful information to investors and creditors for decision making. 3. The qualitative characteristics of accounting information including relevance, faithful representation, comparability, verifiability, timeliness, and understandability. It also enumerates the four basic financial statements, their components, and purposes. Finally, it differentiates recognition, which is incorporating an item that meets the definition of an element, and derecognition, which is removing an item from the statement of financial position.

Uploaded by

Daisy Ann Cariaga Saccuan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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EXERCISE 1

NAME : DAISY- AN C. SACCUAN COURSE: BSMA 1-1

1. Describe the usefulness of a conceptual framework.

The primary purpose of the Conceptual Framework was to assist the IASB in the


development of future IFRSs and in its review of existing IFRSs. The Conceptual
Framework may also assist preparers of financial statements in developing accounting
policies for transactions or events not covered by existing standards. Accounting needs
a conceptual framework to build on and relate to an established body of concepts and
objectives, provide a framework for solving new and emerging practical problems,
increase financial statement users understanding of and confidence in financial
reporting, and enhance comparability among companies' financial statements.

2. Explain the objectives of financial reporting.

The objective of general purpose financing reporting is to provide financial information


about the reporting entity that is useful to existing and potential investors, lenders and
other creditors in making decisions about providing resources to the entity. This entity is
the foundation of the conceptual framework. All the the other aspects of the Conceptual
Framework revolve around this objective.

3. Enumerate and describe the qualitative characteristics of accounting information.

FUNDAMENTAL QUALITATIVE CHARACTERICTICS


Relevance – information that must be capable of making a difference in a decision.
Information can make a difference when it has predictive value, confirmatory value, or
both.
Faithful representation – means that the numbers and descriptions match what really
existed or happened. To be a faithful representation, information must be complete,
neutral, and free of material error

ENHANCING QUALITATIVE CHARACTERICTICS

1. Comparability – Information about a reporting entity is more useful if it can be


compared with similar information about other entities and with similar information about
the same entity for another period or another date.
2. Verifiability – It means that different knowledgeable and independent observers
could reach consensus, although not necessarily complete agreement, that a particular
depiction is a faithful representation.
3. Timeliness – Means that information is available to decision-makers in time to be
capable of influencing their decisions.
4. Understandability – Classifying, characterizing and presenting information clearly
and concisely makes it understandable.
4. Enumerate and describe the complete set of financial statements.

Statement of Financial Position or Balance Sheet – shows the financial condition/position of a


business as of a given period. It consists of the assets, liabilities, and capial.

Income Statement or Statement of Comprehensive Income – The income statement shos the
result of operations for a given period. It consists of the revenue, cost, and expenses.

Statement of Changes in Owner’s Equity or Statement of Owner’s equity – shows the changes
in capital or owner’s equity as a result of additional investment or withdrawals by the owner,
plus or minus the net income or net loss or the year.

Statement of Cash flows – summarizes the cash receipts and cash disbursement for the
accounting period. It summarizes the cash activities of the business by classifying cash inflows
(receipts) and cash outflows (payments) into operating, investing, and financing activities. It
shows the net increase and decrease of cash in a given period of the cash balance at the end of
the period. This allows management to assess the business ability to generaye cash and project
future cash flows.

5. Differentiate recognition and derecognition.

Recognition – the process of incorporating in the balance sheet or income statement an item
that meets the definition of an element and satisfies the recognition criteria.

Derecognition – the removal of all or part of a recognized asset or liability from an entity’s
statement of financial position. It normally occurs when that item no longer meets the definition
of an asset or a liability.

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