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Conceptual & Regulatory framework
Home Level 2 2.1 Financial Reporting Conceptual & Regulatory framework Page 2

Category: Conceptual & Regulatory framework

2.1 Financial ReportingConceptual & Regulatory frameworkLevel 2

May 2016 Q3 d.

As a newly qualified accountant with The Institute of Chartered Accountants (Ghana) (ICAG), you are asked to make a short presentation to the rest of the staff in the accounting and finance department of your employer who are themselves yet to join ICAG as students about the standard setting process adopted by the International Accounting Standards Board.
Required:
Discuss the standard setting process as adopted by the IASB to these junior staff.                                                            (5 marks)

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The following summarizes the key steps in the standard setting process:

International Financial after considering all comments received, an IFRS is Reporting Standard approved by at least 8 votes (of 14) of the IASB. The final standard includes both a basis for conclusions and any dissenting opinions.

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2.1 Financial ReportingConceptual & Regulatory frameworkLevel 2

Nov 2015 Q4 a.

Two of the enhancing qualitative characteristics of useful financial information contained in the IASB’s Conceptual Framework for Financial Reporting are understandability and comparability.
Required:
Explain the meaning and purpose of the above characteristics in the context of financial reporting and discuss the role of consistency within the characteristic of comparability in relation to changes in accounting policy.                                  (6 marks)

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Understandability:
Financial information is intended to assist users in making economic decisions. For this purpose it is important that financial information is presented in a form which users can understand. However, this does not mean that complex matters which some users may find difficult to understand, and which some directors may like an excuse to exclude, should be left out of financial statements. Reports from which data has been excluded could be incomplete and misleading. The Conceptual Framework states that users can be assumed to have reasonable knowledge of business and economic activities and be prepared to review and analyze the information diligently.

Comparability:
In understanding the financial performance of an entity, users will want to compare its results with those of other entities in the same sector and with its own results for previous periods. The concept of comparability is therefore very important. Comparison between entities is made more possible by IFRSs in which most allowed alternatives have been removed and by the requirement to disclose accounting policies. So if two entities have applied different accounting policies users can be aware of that and allow for it.
Comparing an entity’s results with its performance in prior years requires the application of consistency. An entity should treat financial items and transactions in a consistent manner from year to year, by applying the same accounting policies. Where there is a change of accounting policy from one year to the next, the comparative information must be restated to show what the results for the previous year would have been if the new accounting policy had been applied. The statement of changes in equity also shows the effect on the previous year’s equity balances of the change of accounting policy. The user is therefore able to adjust for the change of accounting policy and observe the changes in underlying performances.

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