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THE CONCEPTUAL FRAMEWORK: ACCOUNTING POLICIES AND CONVENTIONS

INTERNATIONAL FINANCIAL REPORTING STANDARDS

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Accrual basisof accounting, Going concern

Faithful representation, Substance over

form, Neutrality

Prudence, Completeness,Comparability

Understandability, Relevance, Materiality, Reliability

General Framework The Preface and Framework set out:

the objectives of the IFRS and financial disclosures

the basic accounting principles and rules

INTERNATIONAL FINANCIAL REPORTING STANDARDS

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CONCEPTUAL FRAMEWORK

The objectives of the financial statements The objectives of the financial statements are to

provide information on the company’s financial position, performance and changes in financial position, which are useful to a wide range of users for making economic decisions.

The board of directors and/or another governing body is responsible for the preparation and presentation of the financial statements.

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Underlying Assumptions Accrual basis:

Transactions are recorded and reported in the financial statements of the periods to which they relate.

Going concern: The enterprise will continue in operation for the

foreseeable future.

CONCEPTUAL FRAMEWORK

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Qualitative characteristics of the financial statements

Understandability: The information should be understandable by users who

have a basic knowledge of accounting and economics. Relevance:

The information may influence the economic decisions of users. It helps them to evaluate past, present or future events.

Materiality: The relevance of information is affected by its nature and

materiality. The materiality depends more on the size of an item rather than being a qualitative characteristic that information must have if it is to be useful.

CONCEPTUAL FRAMEWORK

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Qualitative characteristics of the financial statements: reliability

Reliability: reliable information is free from material error and bias. It ensures the following:

Faithful representation of the economic reality; Substance over form: information represents the

economic reality and not only the legal form; Neutrality: it is free from bias; Prudence: inclusion of a degree of caution when making

estimates and judgements; Completeness; Comparability: users should be able to compare. The

presentation should be comprehensive and uniform.

CONCEPTUAL FRAMEWORK

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Constraints on providing relevant and reliable information:

Timeliness: information is provided on a timely basis; Balance between benefit and cost: the benefits

derived from information should exceed the cost of providing it.

CONCEPTUAL FRAMEWORK

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The elements of the financial statements The elements directly related to the measurement

of financial position are assets, liabilities and equity.

The elements directly related to the measurement of performance are income and expenses. The statement of changes in financial position reflects income statement elements and changes in balance sheet elements.

CONCEPTUAL FRAMEWORK

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The elements of the financial statements : assets, liabilities, equity

Elements related to the measurement of financial position:

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.

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 exceeding economic benefits.

Equity is assets less liabilities.

CONCEPTUAL FRAMEWORK

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The elements of the financial statements: income and expenses

Elements related to the measurement of performance: Income is increases in economic benefits during the

accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.

Expenses are decreases in economic benefits during the accounting period, in the form of outflows or depreciations of assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

CONCEPTUAL FRAMEWORK

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Recognition of the elements of the financial statements

To be recognised, an element must meet these two conditions:

It is probable that any future economic benefit associated with the item will flow to or from the enterprise

The item has a cost or value that can be measured with reliability.

CONCEPTUAL FRAMEWORK