UNIT 1: THE CONCEPTUAL

FRAMEWORK FOR FINANCIAL

REPORTING

Resources:
• Reader: The Conceptual Framework for
Financial Reporting
• Introduction to IFRS: Chapter 1
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 UNIT 1: LEARNING OUTCOMES

At the end of this learning unit, a student should be able to:

• Understand the basic theory of accounting.
• Understand the qualitative characteristics of information in
the financial statements.
• Understand the definitions of the elements in the financial
statements and their recognition and measurement criteria.
• Answer theoretical questions about the Conceptual
Framework.
• Apply theory in discussion questions.
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 UNIT 1: CONTENTS

1.1. Background
1.2. Chapter 1 – The objective of general purpose financial reporting
1.3. Chapter 2 - Qualitative characteristics of useful financial information
1.4. Chapter 3 – Financial statements and the reporting entity
1.5. Chapter 4 – The elements of the financial statements
1.6. Chapter 5 – Recognition and derecognition
1.7. Chapter 6 – Measurement
1.8. Chapter 7 – Presentation and disclosure
1.9. Chapter 8 – Concepts of capital and capital maintenance
1.10. Exam Technique
1.11. Additional Resources
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1.12 Homework
Reader ref: CF5.1 – 5.33 Textbook ref: Chap 1:8

CHAPTER 5: RECOGNITION AND DERECOGNITION

• Recognition refers to:

• Including items that meets the definition of one of the elements of
financial statements—an asset, a liability, equity, income or expenses - in
the financial statements.

• Only items that meet the definition of an asset, a liability or equity are
recognised in the statement of financial position.

• Only items that meet the definition of income or expenses are recognised in
the statement(s) of financial performance.

• Not all items that meet the definition of the elements are recognise
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Reader ref: CF5.1 – 5.33 Textbook ref: Chap 1:8

CHAPTER 5: RECOGNITION AND DERECOGNITION

• Provided an element’s definition is met, an element is recognised in the

financial statements when the recognition provides users of financial
statements with information about the items that is both:
• Relevant; and
• Recognition may not always provide relevant info, i.e.:
• low probability of a flow of economic benefits
• existence uncertainty

• Can be faithfully represented.

• Whether recognition of an item results in a faithful representation
may be affected by, for example:
• measurement uncertainty

• What does this remind you of?

• Chapter 2 – The fundamental qualitative characteristics. Page 5 of 13
CHAPTER 5: RECOGNITION AND DERECOGNITION

 If an element’s definition is met, then

Recognition move on to:
 Then 2 criteria (Par 5.7) – does it provide
Exam technique relevant information? And is it a faithful
representation of the element?

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Reader ref: CF5.1 – 5.33 Textbook ref: Chap 1:8

CHAPTER 5: RECOGNITION AND DERECOGNITION

• Derecognition is the removal of all or part of a recognised asset or liability

from an entity’s statement of financial position.

• When?
• Normally when that item no longer meets the definition of an asset or of
a liability:
• asset: when the entity loses control of all or part of the
recognised asset
• liability: when the entity no longer has a present obligation

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Reader ref: CF6.1 – 6.21 Textbook ref: Chap 1:9

CHAPTER 6: MEASUREMENT

• Quantifying (giving value) the elements that are recognised

• Measurement bases:
• Historical cost
• Current value

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Reader ref: CF7.1 – 7.20 Textbook ref: Chap 1:10

CHAPTER 7: PRESENTATION AND DISCLOSURE

• Presentation: On the face of the financial statements

• Disclosure: The notes to the financial statements

• This is the communication with the users: The providing of useful

information

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Reader ref: CF8.1 – 8.10 Textbook ref: Chap 1:11
CHAPTER 8: CONCEPTS OF CAPITAL AND CAPITAL
MAINTENANCE

• Read through this chapter

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1.10 EXAM TECHNIQUE: SHOULD A QUESTION REQUIRE YOU
TO DISCUSS THE ACCOUNTING TREATMENT OF A SPECIFIC
ITEM– ALL THE FOLLOWING CONCEPTS SHOULD BE
DISCUSSED.

Definition Recognition Measurement Presentation Disclosure

Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 7

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 1.11 ADDITIONAL RESOURCES (ON
BB>RESOURCES>ADDITIONAL RESOURCES)
This document Illustrates the actual
sets out the detail disclosures per
per topic in the standard and should
financial be used as a
accounting from T OP I C reference to see the
year one to CTA I L L U S TRATI VE presentation an
A L L OC ATI ON
(PGCA) FI N AN C I AL disclosure
P E R Y E AR
It illustrates how S T AT EM ENT S requirements of of
G R OU P
your how is each standard being
knowledge built practically applied.
from year to year
AS S E TS L I AB I LIT IES
This document is a GRID GRID This document is a
summary of the summary of the
technical technical
requirements of each requirements of each
standard as it relates standard as it relates
to assets to liabilities Page 12 of 13
 1.12 HOMEWORK

• Work through the questions in the module guide by completing the

questions as if you are writing a test.

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