Week 001

Financial Statements and

Conceptual Framework
for Financial Reporting
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Objectives
• Understand the nature, purpose and objective of
financial statements

• Identify and define each components of financial

statements

• Understand the responsibility and the accountability

of management in the financial statements

Source:
https://cdn.lynda.com/course/441605/441605-
636269220092757522-16x9.jpg
Date of access:
10/5/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Objectives
• Enumerate and explain the general features of the Insert for every slide at least one
financial statements photo related to the concept being
discussed in the slide. Dedicate this
• Define the elements of financial statements space for the image.

The format of the photo should be

• Clearly identify financial statement and distinguish “.jpg” or “.png”.
from other information
At the bottom of the photo, indicate
the complete details of the source
of the image. If it is from the
Source:
Internet, indicate the complete URL
https://cdn.lynda.com/course/441605/441605-
and date of access.
636269220092757522-16x9.jpg
Date of access:
10/5/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Course Outline
1.1. Definition of financial statements

1.2. General purpose of financial statements

1.3. Components of financial statements

1.4. Objectives of financial statements

1.5. Responsibility of financial statements

Source:
https://www.accountingweb.com/sites/default/files/st
yles/banner/public/financial_statement_ivsigns.jpg?i
1.6. Accountability of management tok=ylGeWfhT
Date of access:
10/5/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Course Outline
1.7. General features of financial statements

1.8. Identification of financial statements

Source:
https://www.accountingweb.com/sites/default/files/st
yles/banner/public/financial_statement_ivsigns.jpg?i
tok=ylGeWfhT
Date of access:
10/5/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Definition of Financial Statements

- are the means by which the information accumulated
and processed in financial accounting is periodically
communicated to the users.

- a structured representation of the financial position

and financial performance of an entity.

- intended to be understandable by readers

Source:
https://www.accountingweb.com/sites/default/files/st
yles/banner/public/financial_statement_ivsigns.jpg?i
tok=ylGeWfhT
Date of access:
10/5/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Definition of Financial Statements

Elements of Financial Statements
• Asset
• Liability
• Equity
• Income
• Expense

Source: https://www.smythretail.com/wp-
content/uploads/2012/05/general_ledger_250.jpg
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Purpose of Financial Statements

- statements intended to meet the needs of users who
are not in a position to require an entity to prepare
reports tailored to their particular information
needs.

- it may be difficult or impossible to satisfy the needs

of all users

Source:
https://www.youngclausco.com/static/images/busine
ss-financial-statements.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Components of Financial Statements

A complete set of financial statements comprises:
• a statement of financial position
• a statement of profit or loss and other
comprehensive income
• a statement of changes in equity
• a statement of cash flows

Source:
https://www.youngclausco.com/static/images/busine
ss-financial-statements.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Components of Financial Statements

A complete set of financial statements comprises:
• notes, comprising significant accounting policies and
other explanatory information

Source:
https://www.youngclausco.com/static/images/busine
ss-financial-statements.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Objectives of Financial Statements

- to provide information about the financial position,
financial performance and cash flows of an entity

- show the results of management's stewardship of the

resources entrusted to it

Source:
https://www.youngclausco.com/static/images/busine
ss-financial-statements.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Objectives of Financial Statements

- The financial position comprises the assets, liabilities
and equity of an entity at a particular moment in
time.

- The financial performance comprises the revenue,

expenses and net income or loss of an entity for a
period of time.

Source:
https://www.youngclausco.com/static/images/busine
ss-financial-statements.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Objectives of Financial Statements

- Cash flows are the cash receipts and cash payments
arising from the operating, investing and financing
activities of the entity.

Source:
https://www.youngclausco.com/static/images/busine
ss-financial-statements.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Responsibility of Financial Statements

- The management is responsible for the preparation
and presentation of the financial statements

- The Board of Directors reviews and authorizes the

financial statements for issue before these are
submitted to the shareholders

Source: https://cdn2.hubspot.net/hub/23667/file-
2658001994-jpg/management.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Accountability of management

- Management is also accountable for

o the safekeeping of the resources and
o their proper, efficient and profitable use.
Shareholders are interested in information that helps
them assess how effectively management has fulfilled
this role.

Source: https://cdn2.hubspot.net/hub/23667/file-
2658001994-jpg/management.jpg
Date of access:
10/6/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

1. Fair presentation and compliance with PFRS

2. Going concern

3. Accrual basis

4. Materiality and aggregation

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

5. Offsetting

6. Frequency of reporting

7. Comparative information

8. Consistency of presentation

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Fair presentation
- financial statements shall present fairly the financial
position, financial performance and cash flows of an
entity.

- requires the faithful representation of the effects of

transactions, other events and conditions

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Fair presentation
- fair presentation is achieved if the financial
statements are prepared in accordance with PFRS

- departure from standards is permitted if the relevant

regulatory framework requires, or otherwise does
not prohibit, such a departure

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Going concern
- accounting entity is viewed as continuing in
operation indefinitely in the absence of evidence to
the contrary

- also known as continuity assumption

Source:
http://www.truthinaccounting.org/library/imglib/going
concern.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Going concern
- assets are normally recorded at original acquisition
cost

- management shall make an assessment of the

entity’s ability to continue as going concern when
preparing financial statements

Source:
http://www.truthinaccounting.org/library/imglib/going
concern.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Accrual basis
- entity shall prepare its financial statement, except for
cash flow, using the accrual basis of accounting.

- an entity recognizes items as assets, liabilities, equity,

income and expenses when they satisfy the
definitions and recognition criteria for each element

Source: https://www.paychex.com/a/i/articles/cash-
vs-accrual-profit-loss-effect.jpg
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Materiality and aggregation

- present separately each material class of similar
items.

- present separately items of dissimilar nature or

function unless they are immaterial

- forms line items in the financial statements

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

When is an item material?

- no strict or uniform rule for determining whether an
item is material or not

- this is dependent on good judgement, professional

expertise and common sense

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

When is an item material?

- However, a general guide may be given, to wit:

An item is material if knowledge of it would affect the

decision of the informed users of the financial
statements.

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Factors of materiality
• Relative size of the item in relation to the total of the
group to which the item belongs

• An item may be inherently material because by its

very nature it affects economic decision

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Offsetting
- an entity shall not offset assets and liabilities or
income and expenses, unless required or permitted
by the standards

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Frequency of Reporting
- entities shall present a complete set of financial
statements at least annually

- When an entity changes the end of its reporting

period and for a period longer or shorter than one
year, an entity shall disclose this information.

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Comparative information
- entity shall disclose comparative information in
respect of the previous period for all amounts

- shall be included for narrative and descriptive

information when it is relevant to an understanding
of the current period’s financial statements

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Consistency of presentation
- requires that “the accounting methods and practices
shall be applied on a uniform basis from period to
period.”

- presentation and classification of financial

statements shall be uniform

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

General Features of Financial Statements

Consistency of presentation
- essential and desirable to achieve comparability

- it does not mean that no change in accounting

method can be made as it is inappropriate to leave
accounting policies unchanged when better and
acceptable alternatives exist.

Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting

Identification of Financial Statements

- an entity shall display the following information:
• name of reporting entity
• whether of an individual entity or a group
• date of end of reporting period
• presentation currency
• level of rounding
Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
4/01/Financial-Reporting3.png
Date of access:
10/7/2017
Week 001: Financial Statements and Conceptual Framework for Financial Reporting
In summary:

Financial statements are the means by which the

information accumulated and processed in financial
accounting is periodically communicated to the users. A
complete set is comprised of:
• a statement of financial position
• a statement of profit or loss and other comprehensive
income
• a statement of changes in equity
• a statement of cash flows Source:
https://blogs.cfainstitute.org/marketintegrity/files/201
• notes, comprising significant accounting policies and 4/01/Financial-Reporting3.png
Date of access:
other explanatory information 10/7/2017