Substance over form

A)

The term relevancesimply means that useful information should have the capacity to make a difference in the decision making process of entrepreneurs and managers.

Reliability is an attribute of financial information making it neutral, free from bias and error and complete.

Comparabilitysimply means the ability to compare, to bring together financial accounting information for the purpose of noting similarities, difference and to monitor the growth of the business entity.

By applying the concept of these qualitative characteristics in good faith, the effectiveness and usefulness of financial information is ensured. Thus, satisfying the diverse needs of both external and internal data users.

B) i) This item involves the characteristic of comparability. Any

finance costs relating to periods prior to the policy change (i.e. for two or more years ago) should be adjusted for by increasing retained earnings brought forward in the statement of changes in equity.

ii) the company could choose to revalue its hotel properties (which would subject it to other requirements). This option would still report an operating loss (probably an even larger loss than under historical cost if there are increased depreciation charges on the hotels), but the increases in value would also be reported (in equity) arguably giving a more complete picture of performance.

2) A) The primary purpose of the Framework is to provide a frame of reference to help the IASB itself in the developing new accounting standards and reviewing existing ones. Its main impact in accounting practice is therefore through its influence on the standard-setting process.

B) Assets are defined as a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity. The use of controlled agrees with the principle of substance over from in the where an entity may not legally own an asset but has control of the rights to future economic benefits accruing from it, the assets should be recognised.

Liabilities are defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economics benefits. This obligation may be legal or it may be constructive.

The emphasis placed upon correctly defining and recognising assets and liabilities underlines the importance of the statement of financial position. The elements of financial statement identified in the framework other than assets and liabilities themselves, are measured in terms of changes in assets and liabilities. Ownership interest is the excess of assets over liabilities and gains and losses are defined as increases or decreases in ownership interest, aside from contributions from and distribution to owners. So correct identification and measurement of assets and liabilities is crucial to the preparation of financial statements which present fairly the entity’s position and results.

3)The concept of faithful representation requires that the financial statement give a true picture of the nature and effect of financial transactions. This means that assets and liabilities as shown in the statement of financial position exist, are assets or liabilities of the entity and are shown at the correct amount. In accordance with the stated accounting policies of the entity.

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8)A) Matching/Accruals

This dictates that the effort of transactions and other events are recognised in the financial statement in the period in which they occur, rather in the period when cash is received or paid.

Substance over form

This is the principle that transaction and other events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. This is important in considering whether or not a sale has taken place

Prudence

Prudence requires accountants to exercise a degree of caution in making estimates under conditions of uncertainty, in order to ensure that assets are not overstated, not liabilities understated

Comparability

This requires consistent application of accounting policies and adequate disclosure

Materiality

The Frameworks describes this as a “threshold” quality and it requires the application of judgement. An item of information is material if it is omission or misstatement could influence the economic decision of users taken on the basis of the financial statements. An item can be material on account of its size or on account of its nature

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9)The IASB Framework defines an asset as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. The recognition criteria also require that the asset has a cost or value that can be measured reliably.

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14) A) Matching/Accruals

This dictates that the effort of transactions and other events are recognised in the financial statement in the period in which they occur, rather in the period when cash is received or paid.

Date: 2015-12-11; view: 746