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MARCH 2018
CONCEPTUAL FRAMEWORK REVIEWER
CONCEPTUAL FRAMEWORK FOR FINANCIAL
REPORTING
-describes the objective of, and the concepts for,
general purpose of financial reporting.
-It is not a Standard.
-It may revise from time to time on the basis of the
Board’s experience of working with it.
-It contributes to the stated mission of IFRS Foundation
and of the Board. That mission is to develop Standards
that bring transparency, accountability and efficiency to
financial markets around the world.
Purpose of Conceptual Framework is to:
 Assist the International Accounting Standards
board to develop IFRS Standards that are based
on consistent concepts.
 Assist prepares to develop consistent accounting
policies when no Standard applies to a particular
transaction or other event.
 Assist all parties to understand and interpret the
Standards.
CHAPTER 1 – THE OBJECTIVE OF GENERAL-
PURPOSE FINANCIAL REPORTING
GENERAL PURPOSE FINANCIAL REPORTING
-it is to provide financial information about the
reporting entity that is useful to existing and potential
investors, lenders, and other creditors in making
decisions relating to providing resources to the entity.
-it does not and cannot provide all of the information
that existing and potential investors, lenders and other
creditors need.
-It’s not designed to shoe the value of reporting entity;
but they provide information to help existing and
potential investors, lenders and creditors to estimate the
value of the reporting entity.
-Many existing and potential investors,
Those decisions involve decisions about:
 Buying, selling or holding equity and debt
instruments.
 Providing or settling loans and other forms of
credit.
 Exercising rights to vote on, or otherwise
influence, management’s actions that affect the
use of the entity’s economic resources.
Existing and potential investors, lenders and other
creditors need information about:
 Economic resources of the entity, claims against
the entity and changes in those resources and
claims.
 How efficiently and effectively the entity’s
management and governing board have
discharged their responsibilities to use the
entity’s economic resources.
-Many existing and potential investors, lenders and
other creditors cannot require reporting entities to
provide information directly to them and must rely on
general purpose financial reports for much of the
financial information they need.
ECONOMIC RESOURCES AND CLAIMS
-Information about the nature and amounts of a
reporting entity’s economic resources and claims can

help users to identify the reporting entity’s financial
strengths and weaknesses.
-the information can help users to assess the reporting
entity’s liquidity and solvency, its needs for additional
financing and how successful it is likely to be in
obtaining that financing.
-that information can also help users to assess
management’s stewardship of the entity’s economic
resources.
CHANGES IN ECONOMIC RESOURCES AND
CLAIMS
-It results from that entity’s financial performance and
from other events or transactions such as issuing debt or
equity instruments.
 ACCRUAL ACCOUNTING – depicts the
effects of transactions and other events and
circumstances on a reporting entity’s economic
resources and claims in the period in which
those effects occur, even if the resulting cash
receipts and payments occur in a different
period.
Example: Accrued Income
-Economic resources and
claims during a period provide a better basis for
assessing the entity’s past and future performance
than information solely about cash receipts and
payments during that period.
-Information about a reporting entity’s cash flow
during a period also helps users to assess the
entity’s ability to generate future net cash inflows
and to assess management stewardship of the
entity’s economic resources.
-A reporting entity’s economic resources and claims
may also change for reasons other than financial
performance, such as ISSUING DEBT or
EQUITY INSTRUMENTS.
Examples of management’s responsibilities is:
 To use the entity’s economic resources
include protecting those resources from
unfavorable effects of economic factors,
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such as price and technological changes and
ensuring that the entity complies with
applicable laws, regulations and contractual
provisions.
CHAPTER 2 – QUALITATIVE
CHARATERISTICS OF USEFUL FINANCIAL
INFORMATION
QUALITATIVE CHARATERISTICS OF USEFUL
FINANCIAL INFORMATION
-It identifies the types of information that are likely to
be most useful to the existing and potential investors,
lenders and other creditors for making decisions about
the reporting entity on the basis of information in its
financial report.
FUNDAMENTAL QUALITATIVE
CHARACTERISTICS
1. RELEVANCE- It is capable of making a
difference in the decisions made by users, even
if some users choose not to take advantage of it
or are already aware of it from other sources.
-PREDICTIVE VALUE AND
CONFIRMATORY VALUE are interrelated.
Information that has PREDICTIVE VALUE often
also has confirmatory value.
 Materiality- Information of material if
omitting it or misstating it could influence
decisions that the primary users of general-
purpose financial reports make in the basis
of those reports, which provide financial
information about a specific reporting
entity.
2. FAITHFUL REPRESENTATION- To be
useful, financial information must not only
represent relevant phenomena, but it must also
faithfully represent the substance of the
phenomena that it purports to represent.
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-to be a perfectly difference among items. It does not relate to a

faithful representation, a depiction would have
three characteristics. It would be complete,
neutral and free from error.
-means there is no
errors or omissions in the description of the
phenomenon, and the process used to produce
the reported information has been selected and
applied with no errors in the process.
-COMPLETE DEPICTION includes all information
necessary for a user to understand the phenomenon
being depicted, including all necessary descriptions and
explanations.
-NEUTRAL DEPICTION is without bias in the
selection or presentation of financial information. It is
not slanted, weighted, emphasized
 Neutrality- is supported by the exercise of
prudence. Prudence is the exercise of
caution when making judgements under
conditions of uncertainty.
 means the assets and income are
not overstated and liabilities and
expenses are not understated.
MOST EEFICIENT AND EFFECTIVE PROCESS
FOR APPLYING THE FUNDAMENTAL
QUALITATIVE CHARACTERISTICS:
I. Identify an economic phenomenon information
about which capable of being useful to users of
the reporting entity’s financial information.
II. Identify the type of information about that
phenomenon that would be most relevant.
III. Determine whether that information is available whether the benefits of reporting particular information
and whether it can provide a faithful
representation of the economic phenomenon.
ENHANCING QUALITATIVE
CHARACTERISTICS
1. COMPARABILITY- user’s decisions involve
choosing between alternatives. It enables users
to identify and understand similarities and
single item.
 CONSISTENCY- Refers to the use of
the same methods for the same items,
either from period to period within
reporting entity or in a single period
across entities.
COMPARABILITY is the goals;
CONSISTENCY helps to achieve the
goals.
2. VERIFIABILITY- It helps assure users that
information faithfully represents the economic
phenomena it purports to represent.
 DIRECT VERIFICATION- means
verifying an amount or other
representation through direct
observation.
 INDIRECT VERIFICATION-
means checking the inputs to a model,
formula or other technique and
recalculating the outputs using the
same methodology.
3. TIMELINESS- means having information
available to decision-makers in time to be
capable of influencing their decisions.
4. UNDERSTANDABILITY- classifying,
characterizing and presenting information
clearly and concisely make it understandable.
THE COST CONSTRAINT ON USEFUL
FINANCIAL REPORTING
 COST- pervasive constraint on the information that
can be provided by financial reporting.
-In applying the cost constraint, the Board assess
are likely to justify the costs incurred to provide and use
information. The board seeks information from
providers of financial information, users, auditors,
academics and others about the expected nature and
quantity of the benefits and costs of the standard.
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III. Statement and Notes/ Disclosing Information

about:
 Recognized assets, liabilities, equity,
income and expenses.
 Assets and Liabilities have not been
recognized.
 Cash Flow
 Contributions from holders of equity
claims and distributions to them.
 The methods, assumptions and
judgements used in estimating the amount
presented or disclosed, and changes in
those methods, assumptions and
judgements.
REPORTING PERIOD
- Financial statements are prepared for a specified
CHAPTER 3 – FINANCIAL STATEMENTS AND
period of time and provide information about:
THE REPORTING ENTITY
 Assets and Liabilities including
unrecognized assets and Liabilities and
equity at the end of the reporting period
 FINANCIAL STATEMENTS- provides or during reporting period.
information about economic resources of the
 Income and Expenses for the reporting
reporting entity, claims against the entity, and
period.
changes in those resources and claims, that meet
the definitions of the elements of financial REPORTING ENTITY
statements.
- An entity that is required, or chooses to
- provides information about
prepare financial statements, it can be single
economic resources of the reporting entity as a
entity or portion of an entity or can comprise
whole, not for the perspective of any particular
more than one entity. It is not necessarily a
group of entity’s existing or potential investors,
legal entity.
lenders or other creditors.
 Consolidated Financial Statements- If a
OBJECTIVE AND SCOPE OF FNANCIAL reporting entity comprise both the parent
STATEMENTS and its subsidiaries.
- Provide
 It is to provide financial information about the
information about the assets, liabilities,
reporting entity’s assets, liabilities, equity,
equity, income and expenses of both the
income and expenses that is useful to users of
parent and its subsidiaries as a single
financial statements in assessing the prospects
reporting entity.
for future net cash inflow to the reporting entity
 Combined/Unconsolidated Financial
and in assessing management’s stewardship of
Statements- If a reporting entity is the
the entity’s economic resources.
parent alone.
I. Statement of Financial Position- recognizing
- designed to
assets, liabilities and equity.
provide information about the parent’s
II. Statement of Financial Performance-
recognizing income and expenses

assets, liabilities, equity, income and
expenses and not about if its subsidiaries.
CHAPTER 4 – THE ELEMENTS OF FINANCIAL
STATEMENTS
ELEMENTS OF FINANCIAL STATEMENTS
 Assets, Liabilities and Equity- reporting entity’s
financial position.
 Income and Expenses- reporting entity’s financial
performance.
I. ASSETS- present economic resources controlled
by the entity as a result of past events.s
 Economic Resource- right has the potential
to produce economic benefits.
3 ASPECTS OF THOSE DEFINITIONS:
a.) RIGHT – Have the potential to produce II.
economic benefits take many forms, including:
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1.) Rights that correspond to an obligation of
another
party
- Rights to receive cash
- Right to receive goods and services
- Right to exchange economic resources with
another
party on favorable terms.
- Right to benefit from an obligation of
another party
to transfer an economic resource if a
specified
uncertain future events occur.
2.) Rights that do not correspond to an
obligation of
another party.
- Rights over physical objects
- Rights to use intellectual property
LEGAL OWNERSHIP OF A PHYSICAL OBJECT
MAY GIVE RISE TO SEVERAL RIGHTS:
a) The right to use the object
b) The right to sell rights over the object
c) The right to pledge rights over the object
d) Other rights not listed
INCURS EXPENDITURE- This may provide
evidence that the entity has sought future economic
benefits but does not provide conclusive proof that the
entity has obtained an asset.
ABSENCE OF RELATED EXPENDITURE- Does
not preclude an item from meeting the definition of an
asset.
b.) CONTROL- It existence helps to identify the
economic resource for which the entity
accounts.
- It includes the present ability to present
other parties from directing the use of the economic
resources and from obtaining the economic benefits
that may flow from it.
c.) POTENTIAL
LIABILITIES- Present obligation of the entity to
transfer an economic resource as a result of past
events.
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3 CRITERIA MUS ALL BE SATISFIED:

a.) For liability is that the entity has an obligation.
 Constructive Obligation- obligation
that arise in such situations.
b.) For a liability is that the obligation is to
transfer an economic resource
OBLIGATIONS TO TRANSFER AN ECONOMIC
RESOURCE:
1.) Obligation to pay cash
2.) Obligation deliver goods or provide services
3.) Obligation to exchange economic resource with
another party on unfavorable terms
4.) Obligation to transfer an economic resource if a
specified uncertain future event occurs
5.) Obligations to issue a financial instrument if that
financial instrument will oblige the entity to
transfer an economic resource.
c.) For a liability is that the obligation is a present
obligation that exists as a result of past events.
UNIT OF ACCOUNT- the right or the group of rights,
the obligation or the group of obligations, or the group
of rights and obligations, to which recognition criteria
and measurement concepts are applied.
-it is selected for an asset or liability
when considering how recognition criteria and
measurement concepts will apply to that asset or
liability and too the related income and expenses.
EXECUTORY CONTRACT- Contract or portion of a
contract, that is equally unperformed neither party has
fulfilled any of its obligations, or both parties have CHAPTER 5 – RECOGNITION AND
partially fulfilled their obligations to an equal extent. DERECOGNITION
III. EQUITY- residual interest in the assets of the
entity after deducting all its liabilities.
 RECOGNITION- process of capturing for
IV. INCOME- Increase in assets or decrease in
inclusion in the statement of financial position or
liabilities that result in increase in equity other than
the statement of financial performance an item that
those relating to contribution from holders of
meets the definition of one of the elements of
equity claims.
financial statements, an asset, liability, equity,
V. EXPENSES- decrease in assets or increase in
income or expenses.
liabilities that result in decreases in equity other
than those relating to distributions to holders of
equity claims.

STATEMENT OF FINANCIAL POSITION AT BEGINNING
Assets minus Liabilities equal equity
STATEMENT OF FINANCIAL PERFORMANCE
Income minus Expenses
CONTRIBUTIONS FROM HOLDERS OF EQUITY CLAIMS MINUS
DISTRIBUTIONS TO HOLDERS OF EQUITY CLAIMS
STATEMENT OF FINANCIAL POSITION AT END
Assets minus liabilities equal equity
 DERECOGNITION- removal of all or part of a
recognized asset or liabilities from an entity’s
statement of financial position.
CHAPTER 6 – MEASUREMENT
MEASUREMENT BASIS:
I. HISTORICAL COST- it measures provide
monetary information about assets,
liabilities and related income and expenses
using information derived, at least in part,
from the price of the transaction or other
event that gave rise to them.
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II. AMORTISED COST- a financial asset or
financial liability reflects estimates of future
cash flow, discounted at a rate determined at
initial recognition.
III. CURRENT VALUE- measures provide
monetary information about assets,
liabilities and related income and expenses
using information updated to reflect
conditions at the measurement date.
IV. FAIR VALUE- The price that would be
received to sell an asset, or paid to transfer a
liability, in an orderly transaction between
market participation ai the measurement
date.
 VALUE IN USE- present value of the
cash flows, or other economic benefits,
that an entity expects to derive from the
use of an asset and from its ultimate
disposal
 FULFILMENT VALUE- present
value of the cash or other economic
resources, that an entity expects to be
obliged to transfer as it fulfills a
liability.
V. CURRENT COST- Cost of an equivalent
asset at the measurement date, comprising
the consider-ration that would be paid at the
measurement date plus the transaction costs
that would be incurred at the date.
CHAPTER 7 – PRESENTATION AND
DISCLOSURE
DEVELOPING PRESENTATION AND
DISCLOSURE REQUIREMENT IN STANDARD
BALANCE IS NEEDED BETWEEN:
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a) Giving entities the flexibility to provide relevant  CONCEPTS OF CAPITAL- it should be adopted
information that faithfully represents the entity’s if the users of financial statements are primarily
asset, liabilities, equity, income and expenses. concerned with the maintenance of nominal
b) Requiring information that is comparable, both invested capital or the purchasing power of
from period to period for a reporting entity and invested capital.
in a single reporting period across entities.
CONCEPTS OF CAPITAL
 ENTITY-SPECIFIC INFORMATION – referred
to as “boilerplate”. a) FINANCIAL CAPITAL MAINTENANCE- a
 CLASSIFICATION- sorting of assets, liabilities, profit is earned inly if the financial amount of
equity, income and expenses on the basis f shared the net asset at the end of the period exceeds the
characteristics for presentation and disclosure financial amount of net assets at the beginning
purposes. of the period.
 OFFSETTING- occurs when an entity recognizes b) PHYSICAL CAPITAL MAINTENANCE- a
and measures both an asset and liability as separate profit is earned only if the physical productive
units of account, but groups them into a single net capacity of the entity at the end of the period.
amount in the statement of financial position.
 AGGREGATION- adding together of assets,
liabilities, equity , income and expenses that have
shared characteristics and are included in the same
classification.
CLASSIFICATION OF INCOME AND
EXPENSES:
a) Income and Expenses resulting from the unit
of account selected for an asset or liability.
b) Component of such income and expenses if
those components have different
characteristics and are identified separately.
The statement of profit and loss is the primary source of
information about an entity’s financial performance for
the reporting period.

CHAPTER 8 – CONCEPTS OF CAPITAL AND

CAPITAL MAINTENANCE