The Conceptual Framework for Financial Reporting 2010 states the objective of ge

Question

The Conceptual Framework for Financial Reporting 2010 states the objective of general purpose financial reporting as “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. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit.”

- Briefly explain the underlying principles of the Conceptual Framework 2010 in producing a set of financial statements useful for user decision-making.

- Identify and describe any two (2) proposals for amendment as contained in the Exposure Draft Conceptual Framework for Financial Reporting ED/2015/3. Discuss the deliberations in these proposals, and their basis for conclusions.

need at least 600 words

The Conceptual Framework for Financial Reporting 2010 states the objective of general purpose financial reporting as “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. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit.”

- Briefly explain the underlying principles of the Conceptual Framework 2010 in producing a set of financial statements useful for user decision-making.

- Identify and describe any two (2) proposals for amendment as contained in the Exposure Draft Conceptual Framework for Financial Reporting ED/2015/3. Discuss the deliberations in these proposals, and their basis for conclusions.

need at least 600 words

Explanation / Answer

Underlying Principles of th eConceptual Framework 2010 in producing a set of financial statements useful for user decision-making.

1. Information Quality vs Information Transparency:- These two represent different characteristics of accounting information. Information transparency does not involve any business secrets. It just involves about the practices of the entity i.e. fair practices should have been used in the entity. However Information Quality is hard to define. It does not mean that more information more transparency and more quality. It just mean that the stakeholders of the financial statements get proper information about the entity and true and fair disclosures should be made.

2. Timing vs Timeliness of Information :- Timing is a key and essential factor of the financial statements. Timing decides the value of the information provided. However timeliness means essential information should be disclosed and provided at the predefined timig.

3. Permanent vs Transitory Performance Measures :- The accounting policies, prnciples and estimateds should be selected by considering the view abouts the use of the financial statements by the different stakeholders. All Users of the financial statements have their different opinion about their need of their earing figure that measures value not change in value. According to this, the ideal set of accounting rules would be one that makes the price-earnings ratio as constant as possible.

4. Value vs Price :- The concept of value and price is different. Every firm and security has a value, but we do not know the exact value of it. We only know its estimate. We can think of either value or price as the present value of a distribution of possible future cash flow streams. Information with investors decide the present value. Information provided by the accounting rules decides the present value which becomes price of the subject matter. Every accounting rule define a different value. Entities future cash flows are uncertain, both in amount and timing.

Two proposals for amendment as contained in the Exposure Draft are

1. The elements of financial statements :- It mainly focus on the definitions of the asset , liabilities, equity, income and expenses. The definitions are quoted below:

2. Presentation and disclosure:- This contains what information should be included in financial information and in how it should be presented and disclosed. The statmenent of "Statement of Comprehensive Income" should now be named as Statement of Financial Performance. ED does not specify whether this statement consist of single statement or two statements, it only provides that total and subtotal of profit should be provided. As a matter of fact ED does not define profit or loss, thus the question still remains pending what goes into profit and what goes into loss or other comprehensive income.

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