I

nter
medi
ateFi
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alAccount
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erOne

CHAPTERONE
FI
NANCI
ALREPORTI
NGANDACCOUNTI
NGSTANDARDS

LEARNI
NGOBJECTI
VES
Af
terst
udy
ingt
hischapt
er,
youshoul
dbeabl
eto:
[Link]
aint
heobj
ect
iveoff
inanci
alr
epor
ti
ng.
2.I
dent
if
ythemaj
orpol
i
cy-
set
ti
ngbodi
esandt
hei
rrol
eint
hest
andar
d-set
ti
ng
pr
ocess.
[Link]
ibet
heusef
ulnessofaconcept
ualf
ramewor
kandt
heobj
ect
iveoff
inanci
al
r
epor
ti
ng.

4.I
dent
if
ythequal
i
tat
ivechar
act
eri
sti
csofaccount
ingi
nfor
mat
ionandt
hebasi
c
el
ement
soff
inanci
alst
atement
s.

[Link]
iewt
hebasi
cassumpt
ionsofaccount
ing.

[Link]
aint
heappl
i
cat
ionoft
hebasi
cpr
inci
plesofaccount
ing.

[Link]
ibecashbasi
sandaccr
ual
basi
sofaccount
ing.

1.
1. I
ntr
oduct
ion
Account
ingi
stheuni
ver
sall
anguageofbusi
[Link]
edeconomi
standpol
i
tici
an
i
ndi
cat
edt
hatt
hesi
ngl
e-mosti
mpor
tanti
nnov
ati
onshapi
ngcapi
talmar
ket
swast
he
dev
elopment of sound account
ing pr
inci
ples. The essent
ial char
act
eri
sti
cs of
account
ingar
e(1)t
hei
dent
if
icat
ion,measur
ement
,andcommuni
cat
ionoff
inanci
al
i
nfor
mat
ionabout(
2)economi
cent
it
iest
o(3)i
nter
est
edpar
ti
es.
1.
2. .UserofAccount
ingI
nfor
mat
ion
Theobj
ect
iveoff
inanci
alr
epor
ti
ngi
dent
if
iesi
nvest
orsandcr
edi
tor
sast
hepr
imar
yuser
gr
oupf
orgener
al-
pur
posef
inanci
alst
atement
s.I
dent
if
yingi
nvest
orsandcr
edi
tor
sas
t
he pr
imar
yusergr
oup pr
ovi
des an i
mpor
tantf
ocus ofgener
al-
pur
pose f
inanci
al
r
epor
ti
[Link]
e,whenacompanyi
ssuesi
tsf
inanci
alst
atement
s,i
tspr
imar
y
f
ocusi
soni
nvest
orsandcr
edi
tor
sbecauset
heyhav
ethemostcr
it
icalandi
mmedi
ate
needf
ori
nfor
mat
ioni
nfi
nanci
alr
epor
ts.I
nvest
orsandcr
edi
tor
sneedt
hisf
inanci
al
i
nfor
mat
iont
o assesst
hatcompany
'sabi
l
ityt
o gener
atenetcashi
nfl
owsand t
o

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under
standmanagement
'sabi
l
ityt
opr
otectandenhancet
heasset
soft
hecompany
,
whi
chwi
l
lbeusedt
ogener
atef
utur
enetcashi
nfl
[Link]
esul
t,t
hepr
imar
yuser
gr
oupsar
enotmanagement
,regul
ator
s,orsomeot
hernon-
inv
est
orgr
oup.
Thedet
ailoft
hepar
ti
est
hatar
econsi
der
edasuser
soff
inanci
ali
nfor
mat
ionandi
ts
usedepi
ctedasf
oll
ows:

Usergr
oup Use
Tohel
pthem t
omakedeci
sionsandpl
ansf
ort
hebusi
nessandt
o
Manager
s hel
pthem t
oexer
cisecont
rolt
otr
ytoensur
ethatpl
anscomet
o
f
rui
ti
on

Usergr
oup Use

Empl
oyees (
non- To assess t
he abi
l
ity oft
he busi
ness t
o cont
inue t
o pr
ovi
de
management
) empl
oymentandt
orewar
dempl
oyeesf
ort
hei
rlabor
.
Toassesshow ef
fect
ivel
ythemanager
sar
erunni
ngt
hebusi
ness
andt
omakej
udgment
saboutl
i
kel
ylev
elsofr
iskandr
etur
nint
he
f
utur
e.
Owner
s
hel
psi
nvest
orsassesst
heamount
s,t
imi
ng,and uncer
tai
ntyof
[
Inv
est
ors]
pr
ospect
ive cash i
nfl
ows f
rom di
vi
dends ori
nter
est
,and t
he
pr
oceedsf
rom t
hesal
e,r
edempt
ion,ormat
uri
tyofsecur
it
iesor
l
oans
Cr
edi
tor
s Toassesst
heabi
l
ityoft
hebusi
nesst
omeeti
tsobl
i
gat
ionsandt
o
[
Lender
s] payi
nter
estandt
orepayt
hepr
inci
pal
.[Sol
vency
/Cr
edi
twor
thi
ness]
.
To assess how much t
axt
he busi
ness shoul
d pay
,whet
heri
t
Gov
ernment compl
i
eswi
thagr
eedpr
ici
ngpol
i
ces[
regul
ati
on]
,whet
herf
inanci
al
suppor
tisneeded
Toassesst
heabi
l
ityoft
hebusi
nesst
ocont
inuei
nbusi
nessandt
o
Cust
omer
s
suppl
ytheneedsoft
hecust
omer
s.
Toassesst
heabi
l
ityoft
hebusi
nesst
opayf
ort
hegoodsand
Suppl
i
ers
ser
vicessuppl
i
ed.
I
nvest
ment Toassesst
hel
i
kel
yri
sksandr
etur
nsassoci
atedwi
tht
hebusi
ness
anal
yst
s i
nor
dert
odet
ermi
nei
tsi
nvest
mentpot
ent
ialandt
oadv
isecl
i
ent
s

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ingI Chapt
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accor
dingl
y.

To assess t
he abi
l
ity oft
he busi
ness t
o cont
inue t
o pr
ovi
de
Communi
ty
empl
oymentf
ort
hecommuni
tyandusecommuni
tyr
esour
ces,t
o
r
epr
esent
ati
ves
hel
pfundf
orenv
ironment
ali
mpr
ovement
s,et
c.

1.
3. Needf
orHi
ghQual
i
tyI
nter
nat
ional
Standar
ds
Tof
aci
l
itat
eef
fi
ci
entcapi
talal
l
ocat
ion,i
nvest
orsneedr
elev
anti
nfor
mat
ionandf
ait
hful
r
epr
esent
ati
onoft
hati
nfor
mat
iont
oenabl
ethem t
omakecompar
isonsacr
ossbor
der
s.
Asi
ngl
e,wi
del
yaccept
edsetofhi
gh-
qual
i
tyaccount
ingst
andar
dsi
sanecessi
tyt
o
ensur
eadequat
ecompar
abi
l
ity
.Inv
est
orsar
eabl
etomakebet
teri
nvest
mentdeci
sions
i
ftheyr
ecei
vef
inanci
ali
nfor
mat
ionf
rom Ni
pponTel
egr
aphandTel
ephonet
hati
s
compar
abl
ewi
thDeut
scheTel
[Link]
obal
i
zat
iondemandsasi
ngl
esetofhi
gh-
qual
i
ty
i
nter
nat
ionalaccount
ingst
andar
[Link] i
sthi
stobeachi
eved?Her
ear
esome
el
ement
s:

[Link]
ngl
esetofhi
gh-
qual
i
tyaccount
ingst
andar
dsest
abl
i
shedbyasi
ngl
est
andar
d
set
ti
ngbody
.
2. Consi
stencyi
nappl
i
cat
ionandi
nter
pret
ati
on.
[Link]
scl
osur
es.
[Link]
gh-
qual
i
tyaudi
ti
ngst
andar
dsandpr
act
ices.
5. Commonappr
oacht
oregul
ator
yrev
iewandenf
orcement
.
[Link]
ionandt
rai
ningofmar
ketpar
ti
cipant
s.
[Link]
i
ver
ysy
stems(
e.g.
,Ext
ensi
bleBusi
nessRepor
ti
ngLanguage-
XBRL)
.
[Link]
oacht
ocompanygov
ernanceandl
egalf
ramewor
ksar
oundt
he
wor
ld

1.
4. I
nter
nat
ional
Standar
d-Set
ti
ngOr
gani
zat
ions
Formanyy
ear
s,manynat
ionshav
erel
i
edont
hei
rownst
andar
d-set
ti
ngor
gani
zat
ions.
Forexampl
e,Canadahast
heAccount
ingSt
andar
dsBoar
d,Japanhast
heAccount
ing
St
andar
dsBoar
dofJapan,
Ger
manyhast
heGer
manAccount
ingSt
andar
dsCommi
tt
ee,
and t
heUni
ted St
ateshast
heFi
nanci
alAccount
ing St
andar
dsBoar
d(FASB)
.The
st
andar
dsi
ssuedbyt
heseor
gani
zat
ionsar
esomet
imespr
inci
ples-
based,r
ules-
based,

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nter
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ateFi
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alAccount
ingI Chapt
erOne

t
ax-
ori
ent
ed,orbusi
ness-
based.I
n ot
herwor
ds,t
heyof
ten di
ff
eri
n conceptand
obj
ect
ive.

The mai
nint
ernat
ionalst
andar
d-set
ti
ng or
gani
zat
ion i
s based i
n London,Uni
ted
Ki
ngdom,andi
scal
l
edt
heI
nter
nat
ionalAccount
ingSt
andar
dsBoar
d(I
ASB)
.TheI
ASB
i
ssuesI
nter
nat
ionalFi
nanci
alRepor
ti
ngSt
andar
ds(
IFRS)
,whi
char
eusedonmost
f
orei
gnexchanges.I
FRSi
spr
esent
lyusedorper
mit
tedi
nov
er149j
uri
sdi
cti
ons(
simi
l
ar
t
ocount
ri
es)andi
srapi
dlygai
ningaccept
ancei
not
hercount
ri
esaswel
l
.

The t
wo or
gani
zat
ions t
hathav
ear
olei
nint
ernat
ionalst
andar
d-set
ti
ng ar
ethe
I
nter
nat
ional
Organi
zat
ionofSecur
it
iesCommi
ssi
ons(
IOSCO)andt
heI
ASB.

1.
4.1.I
nter
nat
ional
Organi
zat
ionofSecur
it
iesCommi
ssi
ons(
IOSCO)

TheI
nter
nat
ionalOr
gani
zat
ionofSecur
it
iesCommi
ssi
ons(
IOSCO)
isanassoci
ati
onof
or
gani
zat
ionst
hatr
egul
atet
hewor
ld'
ssecur
it
iesandf
utur
esmar
ket
[Link]
sar
e
gener
all
ythe mai
nfi
nanci
alr
egul
atorf
ora gi
ven count
ry.I
OSCO does notset
account
ingst
andar
ds.I
nst
ead,
thi
sor
gani
zat
ioni
sdedi
cat
edt
oensur
ingt
hatt
hegl
obal
mar
ket
scanoper
atei
nanef
fi
cientandef
fect
ivebasi
[Link]
es(
suchas
f
rom Fr
ance,
Ger
many
,NewZeal
and,
andt
heUni
tedSt
ates)hav
eresol
vedt
o:
 Cooper
atet
oget
hert
opr
omot
ehi
ghst
andar
dsofr
egul
ati
oni
nor
dert
omai
ntai
njust
,
ef
fi
cient
,andsoundmar
ket
s.
 Exchange i
nfor
mat
ion on t
hei
rrespect
ive exper
iencesi
n or
dert
o pr
omot
ethe
dev
elopmentofdomest
icmar
ket
s.
 Uni
tet
hei
r ef
for
tst
o est
abl
i
sh st
andar
ds and an ef
fect
ive sur
vei
l
lance of
i
nter
nat
ional
secur
it
iest
ransact
ions.
 Pr
ovi
demut
ualassi
stancet
opr
omot
ethei
ntegr
it
yoft
hemar
ket
sbyar
igor
ous
appl
i
cat
ionoft
hest
andar
dsandbyef
fect
iveenf
orcementagai
nstof
fenses.

I
OSCO suppor
tst
hedev
elopmentanduseofI
FRSast
hesi
ngl
esetofhi
gh-
qual
i
ty
i
nter
nat
ionalst
andar
dsi
ncr
oss-
bor
derof
fer
ingsandl
i
sti
ngs.I
trecommendst
hati
ts
member
sal
l
owmul
ti
nat
ionali
ssuer
stouseI
FRSi
ncr
oss-
bor
derof
fer
ingsandl
i
sti
ngs,
assuppl
ement
edbyr
econci
l
iat
ion,di
scl
osur
e,andi
nter
pret
ati
onwher
enecessar
yto

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addr
essout
standi
ng subst
ant
ivei
ssuesata nat
ionalorr
egi
onall
evel
.(Formor
e
i
nfor
mat
ion,
got
oht
tp:
//www.
iosco.
org/
.)
1.
4.2.I
nter
nat
ional
Account
ingSt
andar
dsBoar
d(I
ASB)
The st
andar
d-set
ti
ng st
ruct
urei
nter
nat
ional
l
yis composed oft
he f
oll
owi
ng f
our
or
gani
zat
ions:
[Link]
FRSFoundat
ion:pr
ovi
desov
ersi
ghtt
otheI
ASB,
IFRSAdv
isor
yCounci
l
,and
I
FRS I
nter
pret
ati
onsCommi
tt
ee.I
nthi
srol
e,i
tappoi
ntsmember
s,r
evi
ews
ef
fect
iveness,
andhel
psi
nthef
undr
aisi
ngef
for
tsf
ort
heseor
gani
zat
ions.
[Link]
nter
nat
ionalAccount
ingSt
andar
dsBoar
d(I
ASB)
:dev
elopsi
nthepubl
i
c
i
nter
est
,a si
ngl
e setofhi
gh-
qual
i
ty,enf
orceabl
e,and gl
obali
nter
nat
ional
f
inanci
alr
epor
ti
ngst
andar
dsf
orgener
al-
pur
posef
inanci
alst
atement
s.
[Link]
FRSAdv
isor
yCounci
l
:(t
heAdv
isor
yCounci
l
)pr
ovi
desadv
iceandcounselt
o
t
heI
ASBonmaj
orpol
i
ciesandt
echni
cal
issues.
[Link] I
FRS I
nter
pret
ati
ons Commi
tt
ee:assi
stst
he I
ASB t
hrough t
he t
imel
y
i
dent
if
icat
ion,di
scussi
on,andr
esol
uti
onoff
inanci
alr
epor
ti
ngi
ssueswi
thi
nthe
f
ramewor
kofI
FRS.
I
naddi
ti
on,aspar
toft
hegov
ernancest
ruct
ure,aMoni
tor
ingBoar
dwascr
eat
[Link]
pur
poseoft
hisboar
dist
oest
abl
i
shal
i
nkbet
weenaccount
ingst
andar
d-set
ter
sand
t
hosepubl
i
caut
hor
it
ies(
e.g.
,I
OSCO)t
hatgener
all
yov
erseet
[Link]
tor
ingBoar
d
al
sopr
ovi
despol
i
tical
legi
ti
macyt
otheov
eral
lor
gani
zat
ion.

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ingI Chapt
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I
nter
nat
ional
Standar
d-Set
ti
ngSt
ruct
ure
1.
5. Ty
pesofPr
onouncement
s
TheI
ASBi
ssuest
hreemaj
ort
ypesofpr
onouncement
s:
1.I
nter
nat
ional
Financi
alRepor
ti
ngSt
andar
ds.
[Link]
ual
Framewor
kforFi
nanci
alRepor
ti
ng.
3.I
nter
nat
ional
Financi
alRepor
ti
ngSt
andar
dsI
nter
pret
ati
ons

1.I
nter
nat
ional
Financi
alRepor
ti
ngSt
andar
ds
Fi
nanci
alaccount
ingst
andar
dsi
ssuedbyt
heI
ASB ar
eref
err
edt
oasI
nter
nat
ional
Fi
nanci
alRepor
ti
ngSt
andar
ds(
IFRS)
.TheI
ASBhasi
ssued17oft
hesest
andar
dst
o
dat
e,cov
eri
ngsuchsubj
ect
sasbusi
nesscombi
nat
ions,shar
e-basedpay
ment
s,and
l
eases.

Pr
iort
otheI
ASB(
for
medi
n2001)
,st
andar
d-set
ti
ngont
hei
nter
nat
ionall
evelwasdone
by t
he I
nter
nat
ionalAccount
ing St
andar
ds Commi
tt
ee,whi
ch i
ssued I
nter
nat
ional
Account
ingSt
andar
ds(
IAS)
.Thecommi
tt
eei
ssued41I
ASs,manyofwhi
chhav
ebeen
amendedorsuper
sededbyt
heI
[Link]
il
lremai
ningar
econsi
der
edundert
he
umbr
ell
aofI
FRS.
[Link]
ual
Framewor
kforFi
nanci
alRepor
ti
ng

TheConcept
ualFr
amewor
kforFi
nanci
alRepor
ti
ngset
sfor
tht
hef
undament
alobj
ect
ive
andconcept
sthatt
heBoar
dusesi
ndev
elopi
ngf
utur
est
andar
dsoff
inanci
alr
epor
ti
ng.
Thei
ntentoft
hedocumenti
stof
orm acohesi
vesetofi
nter
rel
atedconcept
s—a
concept
ualf
ramewor
k—t
hatwi
l
lser
ve as t
ool
sforsol
vi
ng exi
sti
ng and emer
ging
pr
obl
ems i
n a consi
stentmanner
.Forexampl
e,t
he obj
ect
ive ofgener
al-
pur
pose
f
inanci
alr
epor
ti
ng di
scussed ear
li
eri
s par
toft
his Concept
ualFr
amewor
[Link]
Concept
ualFr
amewor
kandanychangest
oitpasst
hrought
hesameduepr
ocess
(
prel
i
minar
yvi
ews,publ
i
chear
ing,exposur
edr
aft
,et
c.)asan I
[Link]
er,t
his
Concept
ualFr
amewor
kisnotanI
FRSandhencedoesnotdef
inest
andar
dsf
orany
par
ti
cul
armeasur
ementordi
scl
osur
[Link]
hingi
nthi
sConcept
ualFr
amewor
k
ov
err
idesanyspeci
fi
cint
ernat
ional
account
ingst
andar
d.
3.I
nter
nat
ional
Financi
alRepor
ti
ngSt
andar
dsI
nter
pret
ati
ons
I
nter
pret
ati
ons i
ssued byt
he I
FRS I
nter
pret
ati
ons Commi
tt
ee ar
e al
so consi
der
ed

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ingI Chapt
erOne

aut
hor
it
ati
veandmustbef
oll
[Link]
nter
pret
ati
onscov
er(
1)newl
yident
if
ied
f
inanci
alr
epor
ti
ng i
ssuesnotspeci
fi
cal
l
ydeal
twi
thi
nIFRS and (
2)i
ssueswher
e
unsat
isf
act
oryorconf
li
cti
ngi
nter
pret
ati
onshav
edev
eloped,orseem l
i
kel
ytodev
elop,
i
ntheabsenceofaut
hor
it
ati
vegui
[Link]
FRS I
nter
pret
ati
onsCommi
tt
eehas
i
ssuedov
er20oft
hesei
nter
pret
ati
onst
odat
e.

I
nkeepi
ngwi
tht
heI
ASB'
sownappr
oacht
oset
ti
ngst
andar
ds,t
heI
FRSI
nter
pret
ati
ons
Commi
tt
eeappl
i
esapr
inci
ples-
basedappr
oachi
npr
ovi
dingi
nter
pret
ati
vegui
[Link]
t
hisend,
theI
FRSI
nter
pret
ati
onsCommi
tt
eel
ooksf
ir
stt
otheConcept
ual
Framewor
kas
t
hef
oundat
ionf
orf
ormul
ati
ngaconsensus.I
tthenl
ookst
othepr
inci
plesar
ti
cul
atedi
n
t
heappl
i
cabl
est
andar
d,i
fany
,todev
elopi
tsi
nter
pret
ati
vegui
danceandt
odet
ermi
ne
t
hatt
hepr
oposedgui
dancedoesnotconf
li
ctwi
thpr
ovi
sionsi
nIFRS.

1.
6. Hi
erar
chyofI
FRS

Becausei
tisapr
ivat
eor
gani
zat
ion,t
heI
ASBhasnor
egul
ator
ymandat
eandt
her
efor
e
noenf
orcementmechani
[Link]
esul
t,t
heBoar
drel
i
esonot
herr
egul
ator
stoenf
orce
t
heuseofi
tsst
andar
[Link]
e,t
heEur
opeanUni
onr
equi
respubl
i
clyt
raded
membercount
rycompani
est
ouseI
FRS.
Anycompanyi
ndi
cat
ing t
hati
tispr
epar
ing i
tsf
inanci
alst
atement
sin conf
ormi
ty
wi
thI
FRSmustuseal
loft
hest
andar
dsandi
nter
pret
ati
[Link]
oll
owi
nghi
erar
chy
i
susedt
odet
ermi
newhatr
ecogni
ti
on,
val
uat
ion,
anddi
scl
osur
erequi
rement
sshoul
dbe
[Link]
esf
ir
stl
ookt
o:
1.I
nter
nat
ionalFi
nanci
alRepor
ti
ng St
andar
ds,I
nter
nat
ionalAccount
ing St
andar
ds
(
issuedbyt
hepr
edecessort
otheI
ASB)
,andI
FRSi
nter
pret
ati
onsor
igi
nat
edbyt
he
I
FRS I
nter
pret
ati
ons Commi
tt
ee (
and i
ts pr
edecessor
,the I
AS I
nter
pret
ati
ons
Commi
tt
ee)
;
[Link]
ual
Framewor
kforFi
nanci
alRepor
ti
ng;
and
[Link]
onouncement
sofot
herst
andar
d-set
ti
ngbodi
est
hatuseasi
mil
arconcept
ual
f
ramewor
k(e.
g.,
[Link])
.

I
ntheabsenceofast
andar
dorani
nter
pret
ati
oni
nit
em 1abov
e,compani
esl
ookt
othe
Concept
ual Fr
amewor
k f
or Fi
nanci
al Repor
ti
ng and t
hen t
o most r
ecent
pr
onouncement
s ofot
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andar
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ti
ng bodi
es t
hatuse a si
mil
arconcept
ual

7|
Page
I
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medi
ateFi
nanci
alAccount
ingI Chapt
erOne

f
ramewor
kto dev
elop account
ing st
andar
ds (
orot
heraccount
ing l
i
ter
atur
e and
accept
edi
ndust
rypr
act
icest
otheext
entt
heydonotconf
li
ctwi
tht
heabov
e).The
ov
err
idi
ng r
equi
rementofI
FRS i
sthatt
he f
inanci
alst
atement
s pr
ovi
de a f
air
pr
esent
ati
on(
oft
enr
efer
redt
oasa“
trueandf
airv
iew”
).Fai
rrepr
esent
ati
oni
sassumed
t
ooccuri
facompanyf
oll
owst
hegui
del
i
nesest
abl
i
shedi
nIFRS.
1.
7. Concept
ual
Framewor
kforFi
nanci
alRepor
ti
ng
Aconcept
ualf
ramewor
kest
abl
i
shest
heconcept
sthatunder
li
efi
nanci
alr
epor
ti
ng.A
concept
ualf
ramewor
kisacoher
entsy
stem ofconcept
sthatf
low f
rom anobj
ect
ive.
Theobj
ect
ivei
dent
if
iest
hepur
poseoff
inanci
alr
epor
ti
[Link]
herconcept
spr
ovi
de
gui
danceon(
1)i
dent
if
ying t
heboundar
iesoff
inanci
alr
epor
ti
ng;(
2)sel
ect
ing t
he
t
ransact
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herev
ent
s,andci
rcumst
ancest
ober
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3)how t
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ber
ecogni
zedandmeasur
ed;and(
4)howt
heyshoul
dbesummar
izedandr
epor
ted.I
t
i
sabodyofknowl
edgeorconst
it
uti
[Link]
ual
framewor
kisabasi
cdocumentt
hat
set
sobj
ect
ivesandt
heconcept
sforgener
alpur
posef
inanci
alr
epor
ti
ng.
I
stheFr
amewor
kequi
val
entt
otheSt
andar
d?
Fr
amewor
kis NOT aSt
andar
dit
sel
[Link]
fyouwi
sht
o deci
deont
hef
inanci
al
r
epor
ti
ngofcer
tai
ntr
ansact
ion,y
ouneedt
olooki
ntot
heappr
opr
iat
est
andar
d–I
FRS
orI
[Link]
imes,
itmayev
enhappent
hatt
her
ulesi
nthatI
FRSorI
ASst
andar
dwi
l
lbe
cont
rar
ytowhatt
heFr
amewor
ksay
s.I
nthi
scase,y
ouneedt
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ythest
andar
d,not
t
heFr
amewor
k.
Whenshoul
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amewor
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nmostcases,
whent
her
ear
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fi
crul
es
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ory
ourt
ransact
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ouneedt
odev
elopy
ouraccount
ingpol
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l
ookt
otheFr
amewor
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oucannotdepar
tfr
om i
tsbasi
cpr
inci
plesanddef
ini
ti
ons.

1.
[Link]
orconcept
ual
framewor
k(I
mpor
tanceofConcept
ual
framewor
k)

Whydoweneedaconcept
ualf
ramewor
k?Fi
rst
,tobeusef
ul,r
ule-
maki
ngshoul
dbui
l
d
onandr
elat
etoanest
abl
i
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s.A soundl
ydev
elopedconcept
ual
f
ramewor
kthusenabl
est
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oissuemor
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ulandconsi
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onouncement
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ert
ime,andacoher
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ndeed,wi
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pr
ovi
dedbyasoundl
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elopedf
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ti
ngendsupbei
ngbasedon
i
ndi
vi
dual
concept
sdev
elopedbyeachmemberoft
hest
andar
d-set
ti
ngbody
.

8|
Page
I
nter
medi
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nanci
alAccount
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erOne

I
not
herwor
ds,st
andar
d-set
ti
ngt
hati
sbasedonper
sonalconcept
ualf
ramewor
kswi
l
l
l
eadt
odi
ff
erentconcl
usi
onsabouti
dent
ical
orsi
mil
ari
ssuest
hani
tdi
dpr
evi
ousl
[Link]
r
esul
t,st
andar
dswi
l
lnotbeconsi
stentwi
thoneanot
her
,andpastdeci
sionsmaynotbe
i
ndi
cat
ive off
utur
e [Link]
ther
mor
e,t
he f
ramewor
k shoul
dincr
ease f
inanci
al
st
atementuser
s'under
standi
ng ofand conf
idencei
nfi
nanci
alr
epor
ti
ng.I
tshoul
d
enhancecompar
abi
l
ityamongcompani
es'
financi
alst
atement
s.
Second,asar
esul
tofasoundl
ydev
elopedconcept
ualf
ramewor
k,t
hepr
ofessi
on
shoul
dbeabl
etomor
equi
ckl
ysol
venewandemer
gingpr
act
icalpr
obl
emsbyr
efer
ri
ng
t
oanexi
sti
ngf
ramewor
kofbasi
ctheor
[Link]
all
y,t
heconcept
ualf
ramewor
khast
he
f
oll
owi
ngi
mpor
tance:
[Link]
storgui
det
her
ule-
maki
ngbodyi
nthest
andar
dset
ti
ngpr
ocessbypr
ovi
ding
abasi
sfordev
elopi
ngnewandr
evi
sedaccount
ingandr
epor
ti
ngst
andar
ds;
[Link]
vet
he publ
i
cint
erestby pr
ovi
ding st
ruct
ure and di
rect
ion t
ofi
nanci
al
account
ingst
atement
s;
[Link]
ovi
desdescr
ipt
ionofcur
rentpr
act
ice;
[Link]
veasf
rameofr
efer
encef
orr
esol
vi
ngnew &emer
gingpr
act
icali
ssuesnot
cov
eredbyexi
sti
ngGAAP;
[Link]
ermi
ne t
he bounds f
orj
udgmenti
n pr
epar
ing f
inanci
alst
atement
s by
pr
ovi
dingdef
ini
ti
onsofbasi
cobj
ect
ives,
keyt
erms,
andf
undament
alconcept
s;
f
. Assi
staccount
ant
sand ot
her
sin sel
ect
ing f
rom al
ter
nat
iveaccount
ing and
r
epor
ti
ngmet
hodst
hatbestr
epr
esent
stheeconomi
creal
i
tyofagi
vensi
tuat
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g.I
ncr
easeuser
s’under
standi
ngofandconf
idencei
nfi
nanci
alst
atement
s;
[Link]
abi
l
ityt
hroughst
andar
diz
edaccount
ingpr
act
ice;
and
i
. For
mst
het
heor
eti
calbasi
sfordet
ermi
ningwhi
chev
ent
sshoul
dbeaccount
ed
andhowt
heyshoul
dbemeasur
edandcommuni
cat
edt
otheuser
s.
1.
[Link]
sofAconcept
ual
Framewor
k
I
ts pr
edecessor
,Fr
amewor
kfort
he pr
epar
ati
on and pr
esent
ati
on oft
he f
inanci
al
st
atement
swasi
ssuedbacki
n1989.
TheI
ASBi
ssued“
Concept
ualFr
amewor
kforFi
nanci
alRepor
ti
ng2010”(
theConcept
ual
Fr
amewor
k)i
[Link]
ualFr
amewor
kisawor
kinpr
ogr
essi
nthatt
heI
ASB
hasnoty
etcompl
etedupdat
ingt
hepr
evi
ousv
ersi
onofi
[Link]
eted

9|
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I
nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

Fr
amewor
kpubl
i
shedi
nMar
ch,2018compr
ises8chapt
ersandi
tisdescr
ibedas
f
oll
ows:
 Chapt
er1:
TheObj
ect
iveofGener
alPur
poseFi
nanci
alRepor
ti
ng
 Chapt
er2:
Qual
i
tat
iveChar
act
eri
sti
csofUsef
ulFi
nanci
alI
nfor
mat
ion
 Chapt
er3:
TheFi
nanci
alSt
atementandRepor
ti
ngEnt
it
y
 Chapt
er4:
Element
soft
hef
inanci
alst
atement
s
 Chapt
er5:
Recogni
ti
onandDe-
recogni
ti
on
 Chapt
er6:
Measur
ement
 Chapt
er7:
Present
ati
onanddi
scl
osur
e

 Chapt
er8:
ConcptofCapi
tal
andCapi
tal
mai
ntenance

[Link]
er1:
TheObj
ect
iveofGener
alPur
poseFi
nanci
alRepor
ti
ng
Theobj
ect
iveoff
inanci
alr
epor
ti
ngi
sthef
oundat
ionoft
heConcept
ualFr
amewor
k.
Ot
heraspect
soft
heConcept
ualFr
amewor
k—qual
i
tat
ivechar
act
eri
sti
cs,el
ement
sof
f
inanci
alst
atement
s,r
ecogni
ti
on,
measur
ement
,anddi
scl
osur
e—f
lowl
ogi
cal
l
yfr
om t
he
obj
ect
[Link]
soft
heConcept
ualFr
amewor
khel
ptoensur
ethatf
inanci
al
r
epor
ti
ngachi
evesi
tsobj
ect
ive.
Theobj
ect
iveofgener
al-
pur
posef
inanci
alr
epor
ti
ngi
stopr
ovi
def
inanci
ali
nfor
mat
ion
aboutt
her
epor
ti
ng ent
it
ythati
susef
ult
o pr
esentand pot
ent
ialequi
tyi
nvest
ors,
l
ender
s,andot
hercr
edi
tor
sinmaki
ngdeci
sionsaboutpr
ovi
dingr
esour
cest
otheent
it
y.
Those deci
sions i
nvol
ve buy
ing,sel
l
ing,orhol
ding equi
ty and debti
nst
rument
s,
pr
ovi
dingorset
tl
ingl
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herf
ormsofcr
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oti
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orot
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wisei
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uenci
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management
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[Link]
hesedeci
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ospect
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owst
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it
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poft
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it
y’seconomi
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r
esour
[Link]
efor
euserneedsi
nfor
mat
ionaboutt
heent
it
ies:
 Economi
cresour
cesandcl
aims(
thi
sref
erst
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inanci
alposi
ti
on)
;
 Thechangesi
neconomi
cresour
cesandcl
aimsr
esul
ti
ngf
rom ent
it
y’sf
inanci
al
per
for
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rom ot
herev
ent
s
 Howef
fi
ci
ent
lyandef
fect
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ymanagementhasdi
schar
gedi
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bil
i
ties
t
ouset
heent
it
y’seconomi
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I
tal
soput sonaccr
sanemphasi ualaccount
ingt
oref
lectt
hef
inanci
alper
for
manceof

10|
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I
nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

anent
it
y.I
tmeanst
hatt
heev
ent
sshoul
dber
efl
ect
edi
nther
epor
tsi
ntheper
iodswhen
t
he ef
fect
soft
ransact
ionsoccur
,regar
dlesst
he r
elat
ed cash f
lows.
Howev
er,t
he
i
nfor
mat
ionaboutpastcashf
lowsi
sver
yimpor
tantt
oassessmanagement
’sabi
l
ityt
o
gener
atef
utur
ecashf
lows.
[Link]
er2:
Qual
i
tat
iveChar
act
eri
sti
csofUsef
ulFi
nanci
alI
nfor
mat
ion

The I
ASB i
dent
if
ied t
he qual
i
tat
ive char
act
eri
sti
cs ofaccount
ing i
nfor
mat
ion t
hat
di
sti
ngui
shbet
ter(
mor
eusef
ul)i
nfor
mat
ionf
rom i
nfer
ior(
lessusef
ul)i
nfor
mat
ionf
or
deci
si
on-
maki
ngpur
posesandi
tissummar
izedasf
oll
ows:

Asi
tdepi
ctedi
ntheabov
efi
gur
equal
i
tat
ivechar
act
eri
sti
csar
eei
therf
undament
alor
enhanci
ngchar
act
eri
sti
cs,dependi
ngonhow t
heyaf
fectt
hedeci
sion-
usef
ulnessof
i
nfor
mat
[Link]
dlessofcl
assi
fi
cat
ion,eachqual
i
tat
ivechar
act
eri
sti
ccont
ri
but
est
o
t
hedeci
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usef
ulnessoff
inanci
alr
epor
ti
ngi
nfor
mat
[Link]
er,pr
ovi
dingusef
ul
f
inanci
ali
nfor
mat
ioni
sli
mit
edbyaper
vasi
veconst
rai
ntonf
inanci
alr
epor
ti
ng—cost
shoul
dnotexceedt
hebenef
it
sofar
epor
ti
ngpr
act
ice.
CostConst
rai
nt
I
n pr
ovi
ding i
nfor
mat
ion wi
tht
he qual
i
tat
ive char
act
eri
sti
cs t
hatmake i
tusef
ul,
compani
esmustconsi
deranov
err
idi
ngf
act
ort
hatl
i
mit
s(const
rai
ns)t
her
epor
ti
ng.

11|
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I
nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

Thi
sisr
efer
redt
oast
hecostconst
rai
[Link]
s,compani
esmustwei
ght
hecost
sof
pr
ovi
ding t
he i
nfor
mat
ion agai
nstt
he benef
it
sthatcan be der
ived f
rom usi
ng i
t.
Rul
emaki
ngbodi
esandgov
ernment
alagenci
esusecost
-benef
itanal
ysi
sbef
oremaki
ng
f
inalt
hei
rinf
ormat
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equi
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n or
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ojust
if
yrequi
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ti
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ar
measur
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osur
e,t
hebenef
it
sper
cei
vedt
obeder
ivedf
rom i
tmustexceed
t
hecost
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cei
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atedwi
thi
t.
Fundament
alQual
i
ty—Rel
evance
Rel
evancei
soneoft
het
wof
undament
alqual
i
tiest
hatmakeaccount
ingi
nfor
mat
ion
usef
ulf
ordeci
si
on-
maki
ng and i
ts mai
ningr
edi
entar
e summar
ized as f
oll
ows:

Rel
evant
:meansaccount
ingi
nfor
mat
ionmustbecapabl
eofmaki
ngadi
ff
erencei
na
deci
si
[Link]
nanci
ali
nfor
mat
ioni
scapabl
eofmaki
ngadi
ff
erencewheni
thaspr
edi
cti
ve
v
alue,conf
ir
mat
oryv
alue,orbot
[Link]
nanci
ali
nfor
mat
ionhaspr
edi
cti
vev
aluei
fithas
v
alue as an i
nputt
o pr
edi
cti
ve pr
ocesses used by i
nvest
orst
ofor
m t
hei
rown
expect
ati
onsaboutt
hef
utur
e.
Rel
evanti
nfor
mat
ion al
so hel
ps user
s conf
ir
m orcor
rectpr
iorexpect
ati
ons;i
t
hasConf
ir
mat
oryv
alue.
Mat
eri
ali
tyi
sacompany
-speci
fi
caspectofr
elev
ance.I
nfor
mat
ioni
smat
eri
ali
fomi
tt
ing
i
tormi
sst
ati
ngi
tcoul
dinf
luencedeci
sionst
hatuser
smakeont
hebasi
soft
her
epor
ted
f
inanci
ali
nfor
mat
ion.I
nfor
mat
ioni
simmat
eri
al,
andt
her
efor
eir
rel
evant
,ifi
twoul
dhav
e
noi
mpactonadeci
si
on-
maker
.Inshor
t,i
tmustmakeadi
ff
erenceoracompanyneed
notdi
scl
osei
t.
Assessi
ngmat
eri
ali
tyi
soneoft
hemor
echal
l
engi
ngaspect
sofaccount
ingbecausei
t
r
equi
resev
aluat
ingbot
hther
elat
ivesi
zeandi
mpor
tanceofani
[Link]
er,i
tis
di
ff
icul
ttopr
ovi
def
ir
m gui
del
i
nesi
njudgi
ngwhenagi
veni
tem i
sori
snotmat
eri
al.
Mat
eri
ali
tyv
ari
esbot
hwi
thr
elat
iveamountandwi
thr
elat
ivei
mpor
[Link]
e,

12|
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I
nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

I
tems/
CompanyName CompanyA CompanyB
Sal
es $10,
000,
000 $100,
000
Cost
sandexpenses 9,
000,
000 90,
000
I
ncomef
rom oper
ati
ons $1,
000,
000 $10,
000
Unusual
gai
n $20,
000 $5,
000

Dur
ing t
he per
iod i
n quest
ion,t
he r
evenues and expenses,and t
her
efor
ethe net
i
ncomesofCompanyAandCompanyB,ar
epr
opor
ti
onal
.Eachr
epor
tedanunusual
gai
n.I
nlooki
ng att
he abbr
evi
ated i
ncome f
igur
es f
orCompany A,i
tappear
s
i
nsi
gni
fi
cantwhet
hert
heamountoft
heunusualgai
nissetoutsepar
atel
yormer
ged
wi
tht
her
egul
aroper
ati
ngi
[Link]
nisonl
y2% oft
heoper
ati
ngi
ncome.
If
mer
ged,
itwoul
dnotser
iousl
ydi
stor
tthei
ncomef
igur
[Link]
gai
nof$5,
[Link]
er,i
tisr
elat
ivel
ymuchmor
esi
gni
fi
cantt
hant
hel
argergai
n
r
eal
i
[Link],ani
tem of$5,
000amount
sto50% ofi
ts
i
ncomef
rom oper
ati
[Link]
iousl
y,t
hei
ncl
usi
onofsuchani
tem i
noper
ati
ngi
ncome
woul
daf
fectt
heamountoft
hati
ncomemat
eri
all
[Link],weseet
hei
mpor
tanceoft
he
r
elat
ivesi
zeofani
tem i
ndet
ermi
ningi
tsmat
eri
ali
ty.

Compani
esandt
hei
raudi
tor
sgener
all
yadoptt
her
uleoft
humbt
hatany
thi
ngunder5%
ofneti
ncomei
sconsi
der
edi
mmat
eri
[Link]
er,muchcandependonspeci
fi
crul
es.
Forexampl
e,onemar
ketr
egul
atori
ndi
cat
est
hatacompanymayuset
hisper
cent
age
f
orani
nit
ialassessmentofmat
eri
ali
ty,buti
tmustal
soconsi
derot
herf
act
[Link]
exampl
e,compani
escannol
ongerf
ailt
orecor
dit
emsi
nor
dert
omeetconsensus
anal
yst
s'ear
ningsnumber
s,pr
eser
veaposi
ti
veear
ningst
rend,
conv
ertal
osst
oapr
ofi
t
orv
icev
ersa,i
ncr
easemanagementcompensat
ion,orhi
deani
l
legalt
ransact
ionl
i
kea
br
ibe.I
not
herwor
ds,
compani
esmustconsi
derbot
hquant
it
ati
veandqual
i
tat
ivef
act
ors
i
ndet
ermi
ningwhet
herani
tem i
smat
eri
al.
Thus,i
tisgener
all
ynotf
easi
blet
ospeci
fyuni
for
m quant
it
ati
vet
hreshol
dsatwhi
chan
i
tem becomesmat
eri
[Link]
her
,mat
eri
ali
tyj
udgment
sshoul
dbemadei
nthecont
extof
t
henat
ureandt
heamountofani
tem.
Fundament
alQual
i
ty—Fai
thf
ulRepr
esent
ati
on
Fai
thf
ulr
epr
esent
ati
on i
sthe second f
undament
alqual
i
tyt
hatmakes account
ing

13|
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I
nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

i
nfor
mat
ionusef
ulf
ordeci
sion-
maki
[Link]
thf
ulr
epr
esent
ati
onmeanst
hatt
henumber
s
anddescr
ipt
ionsmat
chwhatr
eal
l
yexi
[Link]
thf
ulr
epr
esent
ati
oni
sa
necessi
tybecausemostuser
shav
enei
thert
het
imenort
heexper
ti
set
oev
aluat
ethe
f
act
ual
cont
entoft
hei
nfor
mat
ion.
Thei
nfor
mat
ioni
sfai
thf
ull
yrepr
esent
edwheni
tiscompl
ete,
neut
ral
andf
reef
rom er
ror
.

Compl
eteness:means t
hat al
lthe i
nfor
mat
ion t
hat i
s necessar
yfor f
ait
hful
r
epr
esent
ati
oni
spr
ovi
[Link]
ssi
oncancausei
nfor
mat
iont
obef
alseormi
sleadi
ng
and t
hus notbe hel
pfult
othe user
s off
inanci
alr
epor
[Link]
e,when
Soci
eteGener
ale(
FRA)f
ail
sto pr
ovi
de i
nfor
mat
ion needed t
o assess t
he v
alue of
i
tssubpr
ime l
oan r
ecei
vabl
es (
toxi
c asset
s),t
he i
nfor
mat
ion i
s notcompl
ete and
t
her
efor
enotaf
ait
hful
repr
esent
ati
onoft
hei
rval
ues.
Neut
ral
i
tymeans t
hata company cannotsel
ecti
nfor
mat
ion t
ofav
our one set
of
int
erest
edpar
ti
esov
eranot
her
.Pr
ovi
dingneut
ralorunbi
asedi
nfor
mat
ionmustbe
t
heov
err
idi
ng consi
der
ati
[Link]
e,i
nthe not
es t
ofi
nanci
alst
atement
s,
t
obaccocompani
esshoul
dnotsuppr
essi
nfor
mat
ionaboutt
henumer
ousl
awsui
tst
hat
hav
e been f
il
ed because of t
obaccor
elat
edheal
th concer
ns—ev
en t
hough such
di
scl
osur
eisdamagi
ngt
othecompany
.
Neut
ral
i
tyi
ssuppor
tedbyt
heexer
ciseofpr
[Link]
udencei
stheexer
ciseofcaut
ion
whenmaki
ngj
udgement
sundercondi
ti
onsofuncer
tai
nty
.Pr
udencedoesnotal
l
owf
or
ov
erst
atementorunder
stat
ementofasset
s,l
i
abi
l
iti
es,
incomeorexpense.
An i
nfor
mat
ion i
tem t
hat i
s f
ree f
rom er
ror
wil
l be a mor
e accur
ate
(
fai
thf
ul)
repr
esent
ati
onofaf
inanci
ali
[Link]
e,i
facompanymi
sst
atesi
ts
l
oanl
osses,i
tsf
inanci
alst
atement
sar
emi
sleadi
ngandnotaf
ait
hfulr
epr
esent
ati
onof
i
tsf
inanci
alr
esul
[Link]
er,f
ait
hfulr
epr
esent
ati
on does noti
mpl
ytot
alf
reedom
f
romer
ror
.Thi
sisbecausemostf
inanci
alr
epor
ti
ngmeasur
esi
nvol
veest
imat
esof
v
ari
oust
ypest
hati
ncor
por
atemanagement
'sj
udgment
.Forexampl
e,management
14|
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I
nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

mustest
imat
etheamountofuncol
l
ect
ibl
eaccount
stodet
ermi
nebaddebtexpense.
Anddet
ermi
nat
ionofdepr
eci
ati
onexpenser
equi
resest
imat
ionofusef
ull
i
vesofpl
ant
andequi
pment
,aswel
last
her
esi
dual
val
ueoft
heasset
s.
Enhanci
ngQual
i
ties
Enhanci
ngqual
i
tat
ivechar
act
eri
sti
csar
ecompl
ement
aryt
othef
undament
alqual
i
tat
ive
char
act
eri
sti
[Link]
act
eri
sti
csdi
sti
ngui
shmor
e-usef
uli
nfor
mat
ionf
rom l
ess-
usef
uli
nfor
mat
[Link]
ng char
act
eri
sti
cs,shown i
nthe f
oll
owi
ngdi
agr
am,ar
e
compar
abi
l
ity
,ver
if
iabi
l
ity
,ti
mel
i
ness,
andunder
standabi
l
ity

Thesef
ourqual
i
tat
ivechar
act
eri
sti
csenhancet
heusef
ulnessofi
nfor
mat
ionbutt
hey
cannotmakenon-
usef
uli
nfor
mat
ionusef
ul.
Compar
abi
l
ity
:Inf
ormat
ion t
hati
smeasur
ed and r
epor
ted i
n asi
mil
armannerf
or
di
ff
erentcompani
esi
sconsi
der
edcompar
abl
[Link]
abi
l
ityenabl
esuser
stoi
dent
if
y
t
her
ealsi
mil
ari
ti
esanddi
ff
erencesi
neconomi
cev
ent
sbet
weencompani
[Link]
her
t
ype ofcompar
abi
l
ity
,consi
stency
,is pr
esentwhen a companyappl
i
es t
hesame
account
ingt
reat
mentt
osi
mil
arev
ent
s,f
rom per
iodt
oper
[Link]
oughsuchappl
i
cat
ion,
t
hecompanyshowsconsi
stentuseofaccount
ingst
andar
[Link]
deaof
consi
stency
doesnotmean,
howev
er,
thatcompani
escannotswi
tchf
rom oneaccount
ingmet
hodt
o
anot
her
.Acompanycanchangemet
hods,buti
tmustf
ir
stdemonst
rat
ethatt
henewl
y
adopt
edmet
hodi
spr
efer
abl
etot
heol
d.I
fappr
oved,t
hecompanymustt
hendi
scl
ose
t
henat
ureandef
fectoft
heaccount
ingchange,aswel
l
ast
hej
ust
if
icat
ionf
ori
t,i
nthe
f
inanci
alst
atement
sfort
heper
iodi
nwhi
chi
tmadet
[Link]
n
account
ing pr
inci
ples occur
s,t
he audi
torgener
all
yref
erst
oiti
n an expl
anat
ory
par
agr
aphoft
heaudi
trepor
[Link]
spar
agr
aphi
dent
if
iest
henat
ureoft
hechangeand
r
efer
sther
eadert
othenot
eint
hef
inanci
alst
atement
sthat
discussest
hechangei
n

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nter
medi
ateFi
nanci
alAccount
ingI Chapt
erOne

det
ail
.
Ver
if
iabi
l
ity occur
s when i
ndependent measur
ers, usi
ng t
he same met
hods,
obt
ainsi
mil
arr
esul
ts.
Ti
mel
i
ness:meanshav
ingi
nfor
mat
ionav
ail
abl
eto deci
sion-
maker
sbef
orei
tloses
i
tscapaci
tyt
oinf
luence deci
[Link]
ing r
elev
anti
nfor
mat
ion av
ail
abl
e sooner
canenhance i
ts capaci
tyt
oinf
luence deci
si
ons and a l
ack of t
imel
i
ness can
r
obi
nfor
mat
ionofi
tsusef
[Link]
e,i
facompanywai
tedt
orepor
tit
sint
eri
m
r
esul
tsunt
ilni
nemont
hsaf
tert
heper
iod,
thei
nfor
mat
ionwoul
dbemuchl
essusef
ulf
or
deci
si
on-
maki
ngpur
poses.
Under
standabi
l
ity
:Deci
sion-
maker
svar
ywi
del
yint
het
ypesofdeci
sionst
heymake,
how
t
heymakedeci
si
ons,t
hei
nfor
mat
iont
heyal
readypossessorcanobt
ainf
rom ot
her
sour
cesandt
hei
rabi
l
ityt
opr
ocesst
hei
nfor
mat
[Link]
nfor
mat
iont
obeusef
ult
her
e
mustbeaconnect
ion(
li
nkage)bet
weent
heseuser
sandt
hedeci
sionst
[Link]
s
l
i
nk,
under
standabi
l
ity
,ist
hequal
i
tyofi
nfor
mat
iont
hatl
etsr
easonabl
yinf
ormeduser
s
sees i
ts si
gni
fi
cance. Under
standabi
l
ity i
s enhanced when i
nfor
mat
ion i
s
cl
assi
fi
ed,
char
act
eri
zed,
andpr
esent
edcl
ear
lyandconci
sel
y
[Link]
er3:
TheFi
nanci
alSt
atementandRepor
ti
ngEnt
it
y
TheFi
nanci
alSt
atement
s:
Thef
inanci
alst
atement
sshoul
dpr
ovi
det
heusef
uli
nfor
mat
ionaboutt
her
epor
ti
ng
ent
it
y:
A.I
nthest
atementoff
inanci
alposi
ti
on,
byr
ecogni
zi
ng

o Asset
s,

o Li
abi
l
iti
es,

o Equi
ty

B.I
nthest
atement
soff
inanci
alper
for
mance,
byr
ecogni
zi
ng

o I
ncome,
and

o Expenses

16|
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medi
ateFi
nanci
alAccount
ingI Chapt
erOne

not
C.I herst
atement
s,bypr
esent
inganddi
scl
osi
ngi
nfor
mat
ionabout

o r
ecogni
zedandunr
ecogni
zedasset
s,l
i
abi
l
iti
es,
equi
ty,
incomeand
expenses,
thei
rnat
ureandassoci
atedr
isks;

o Cashf
lows;

o Cont
ri
but
ions f
rom and di
str
ibut
ions t
o equi
tyhol
der
s,and Met
hods,
assumpt
ions,
judgment
sused,
andt
hei
rchanges
Repor
ti
ngEnt
it
y:Thi
sisanewconcepti
ntr
oducedi Repor
n2018. ti
ngent
it
yisanent
it
y
t
hatmustorchoosest
opr
epar
ethef
inanci
alst
atement
[Link]
il
yal
egal
ent
it
y—coul
dbe
 Asi
ngl
eent
it
y–f
orexampl
e,onecompany
;
 Apor
ti
onofanent
it
y–f
orexampl
e,adi
vi
si
onofonecompany
 Mor
ethanonesent
it
ies–f
orexampl
e,apar
entandi
tssubsi
diar
iesr
epor
ti
ngas
agr
oup.
Asar
esul
t,wehav
eaf
ewt
ypesoff
inanci
alst
atement
s:
 Consol
i
dat
ed:
prov
idei
nfor
mat
ionaboutasset
s,l
i
abi
l
iti
es,
equi
ty,
incomeand
expensesofbot
hthepar
entandi
tssubsi
diar
iesasasi
ngl
erepor
ti
ngent
it
y;
 Unconsol
i
dat
ed:
prov
idei
nfor
mat
ionaboutasset
s,l
i
abi
l
iti
es,equi
ty,i
ncomeand
expensesoft
hepar
entonl
y

 Combi
ned:
prov
ide i
nfor
mat
ion aboutasset
s,l
i
abi
l
iti
es,equi
ty,i
ncome and
expensesoft
woormor
eent
it
iest
hatar
enotal
lli
nkedbyapar
entsubsi
diar
y
r
elat
ionshi
p
Boundar
yofaRepor
ti
ngEnt
it
y
Det
ermi
ning t
he appr
opr
iat
e boundar
yofa r
epor
ti
ng ent
it
ycan be di
ff
icul
tif
,for
exampl
e,t
heent
it
yisnotal
egalent
it
y.I
nsuchcases,t
heboundar
yisdet
ermi
nedby
consi
der
ingt
hei
nfor
mat
ionneedsoft
heuser
soft
heent
it
y’sf
inanci
alst
atement
s.
Thoseuser
sneedi
nfor
mat
iont
hati
srel
evantandt
hatf
ait
hful
l
yrepr
esent
swhati
t
pur
por
tst
orepr
esent
.Ar
epor
ti
ngent
it
ydoesnotcompr
iseanar
bit
rar
yori
ncompl
ete
col
l
ect
ionofasset
s,l
i
abi
l
iti
es,
equi
ty,
incomeandexpenses.

17|
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medi
ateFi
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alAccount
ingI Chapt
erOne

[Link]
er4:
Element
soft
hef
inanci
alst
atement
s
Ther
ear
efi
vebasi
cel
ement
soft
hef
inanci
alst
atement
s
Asset
:Apr
esenteconomi
cresour
cecont
rol
l
edbyt
heent
it
yasar
esul
tofpastev
ent
s.
An economi
cresour
ce i
sar
ightt
hathas t
he pot
ent
ialt
o pr
oduce economi
c
benef
it
[Link]
roli
sdef
inedast
heabi
l
ityoft
heent
it
ytodi
rectt
heuseofaneconomi
c
r
esour
ceandobt
aint
he(
posi
ti
veornegat
ive)economi
cbenef
it
sthatf
lowf
rom i
t.
Li
abi
l
ity
:Apr
esentobl
i
gat
ionoft
heent
it
ytot
ransf
eraneconomi
cresour
ceasar
esul
t
ofpastev
ent
[Link]
i
gat
ioni
sadut
yofr
esponsi
bil
i
tyt
hatt
heent
it
yhasnopr
act
ical
abi
l
ityt
oav
oid.
Equi
ty:
Ther
esi
dual
int
eresti
ntheasset
soft
heent
it
yaf
terdeduct
ingal
li
tsl
i
abi
l
iti
es
I
ncome:
i
ncr
easesi
nasset
sordecr
easesi
nli
abi
l
iti
esr
esul
ti
ngi
nincr
easesi
nequi
ty,
ot
hert
hancont
ri
but
ionsf
rom equi
tyhol
der
s;
Expenses:
decr
easesi
nasset
sori
ncr
easesi
nli
abi
l
iti
esr
esul
ti
ngi
ndecr
easesi
nequi
ty,
ot
hert
handi
str
ibut
ionst
oequi
tyhol
der
s.
Asi
ndi
cat
ed,t
heI
ASBcl
assi
fi
est
heel
ement
sint
otwodi
sti
nctgr
[Link]
ir
stgr
oup
oft
hreeel
ement
s—asset
s,l
i
abi
l
iti
es,andequi
ty—descr
ibesamount
sofr
esour
cesand
cl
aimst
oresour
cesatamomenti
nti
[Link]
oupoft
woel
ement
sdescr
ibes
t
ransact
ions,ev
ent
s,andci
rcumst
ancest
hataf
fectacompanydur
ingaper
iodoft
ime.
Thef
ir
stcl
ass,af
fect
edbyel
ement
soft
hesecondcl
ass,pr
ovi
desatanyt
imet
he
cumul
ati
ver
esul
tofal
[Link]
sint
eract
ioni
sref
err
edt
oas“
art
icul
ati
on.
’
’Thati
s,
keyf
igur
esi
nonef
inanci
alst
atementcor
respondt
obal
ancesi
nanot
her
[Link]
er5:
Recogni
ti
onandDe-
recogni
ti
on

Recogni
ti
oni
s‘t
hepr
ocessofcapt
uri
ng,f
ori
ncl
usi
oni
nthest
atementof
fi
nanci
al
posi
ti
onort
hest
atement
(s)off
inanci
alper
for
mance,
ani
tem t
hatmeet
sthedef
ini
ti
on
ofanasset
,al
i
abi
l
ity
,equi
ty,i
ncomeorexpenses.I
nsi
mpl
ywor
dsr
ecogni
ti
onmeans
i
ncl
udi
nganel
ementoff
inanci
alst
atement
sint
hef
inanci
alst
atement
s.
Recogni
ti
onpr
ocessl
i
nkst
heel
ement
sint
hef
inanci
alst
atement
saccor
dingt
othe
f
oll
owi
ngf
ormul
a:

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nter
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ateFi
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alAccount
ingI Chapt
erOne

Recogni
ti
on i
s appr
opr
iat
eifi
tresul
tsi
n bot
hrel
evanti
nfor
mat
ion aboutasset
s,
l
i
abi
l
iti
es,equi
ty,i
ncomeandexpensesandaf
ait
hfulr
epr
esent
ati
onoft
hosei
tems,
becauset
heai
mist
opr
ovi
dei
nfor
mat
iont
hati
susef
ult
oinv
est
ors,l
ender
sandot
her
cr
edi
tor
s.
Der
ecogni
tonmeansr
i emov
alofanassetorl
i
abi
l
ityf
rom t
hest
atementoff
inanci
al
posi
ti
onandnor
mal
l
yithappenswhent
hei
tem nol
ongermeet
sthedef
ini
ti
onofan
assetoral
i
abi
l
ity
.Itgoesont
osayt
hatder
ecogni
ti
onnor
mal
l
yoccur
s:
 Foranasset
,whent
heent
it
ylosescont
rol
ofal
lorpar
toft
her
ecogni
sed
asset
 Foral
i
abi
l
ity
,whent
heent
it
ynol
ongerhasapr
esentobl
i
gat
ionf
oral
lor
par
toft
her
ecogni
sedl
i
abi
l
ity
Der
ecogni
ti
onshoul
dai
mtof
ait
hful
l
yrepr
esentt
hoseasset
sandl
i
abi
l
iti
esr
etai
ned
af
tert
het
ransact
ion,i
fany
,andanychangei
nasset
sandl
i
abi
l
iti
esasar
esul
toft
he
t
ransact
iont
hatl
edt
otheder
ecogni
ti
on.

[Link]
er6:Measur :meansi
ement nwhatamountt
orecogni
zeasset
,li
abi
l
ity
,pi
ece
ofequi
ty,i
ncomeorexpensei
nyourf
inanci
alst
atement
[Link],y osel
ouneedt ect
t
he measur
ementbasi
s,ort
he met
hod ofquant
if
ying monet
ary amountf
or
el
ement
sint
he f
inanci
alst
atement
[Link] Fr
amewor
k di
scusses t
wo basi
c
measur
ementbasi
s:
[Link]
stor
icalcost–t
hismeasur
ementi
sbasedont
het
ransact
ionpr
iceatt
het
ime
ofr
ecogni
ti
onoft
heel
ement
;
[Link]
rentv
alue–i
tmeasur
est
heel
ementupdat
edt
oref
lectt
hecondi
ti
onsatt
he
measur
ementdat
[Link]
e,sev
eral
met
hodsar
eincl
uded:
 Fai
rval
ue;
thepr
icet
hatwoul
dber
ecei
vedt
osel
lanasset
,orpai
dtot
ransf
er

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I
nter
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ateFi
nanci
alAccount
ingI Chapt
erOne

al
i
abi
l
ity
,in an or
der
lyt
ransact
ion bet
ween mar
ketpar
ti
cipant
s att
he
measur
ementdat
e.r
efl
ect
smar
ketpar
ti
cipant
s’cur
rentexpect
ati
onsabout
t
heamount
,ti
minganduncer
tai
ntyoff
utur
ecashf
lows
 Val
uei
nuse(
forasset
)andFul
fi
lmentVal
uef
orl
i
abi
l
ity
:ref
lect
sent
it
y-
speci
fi
ccur
rentexpect
ati
onsaboutt
heamount
,ti
minganduncer
tai
ntyof
f
utur
ecashf
lows
 Cur
rentcost
:ref
lect
sthecur
rentamountt
hatwoul
dbepai
dtoacqui
rean
equi
val
entassetr
ecei
vedt
otakeonanequi
val
entl
i
abi
l
ity
.

[Link]
er7:
Present
ati
onanddi
scl
osur
e:Themai
nai
m ofpr
esent
ati
onand
di
scl
osur
esi
stopr
ovdeanef
i fect
ivecommuni
cat
iont
ooli
nthef
inanci
alst
atement
s.

Ef
fect
ivecommuni
cat
ionofi
nfor
mat
ioni
nthef
inanci
alst
atement
srequi
res:
 Focusonobj
ect
ivesandpr
inci
plesofpr
esent
ati
onanddi
scl
osur
e,notont
he
r
ules;
 Gr
oupsi
mil
ari
temsandsepar
atedi
ssi
mil
ari
tems;
 Aggr
egat
einf
ormat
ion,
butdonotpr
ovi
deunnecessar
ydet
ail
ort
heopposi
te–
excessi
veaggr
egat
iont
oobscur
ethei
nfor
mat
ion
[Link]
er8:
Concept
sofcapi
tal
andcapi
tal
mai
ntenance
Thi
schapt
eri
scar
ri
edf
orwar
dfr
om pr
evi
ousv
ersi
onsofFr
amewor
k,sot
her
e’snot
hing
newher
[Link]
amewor
kexpl
ainst
woconcept
sofcapi
tal
:
[Link]
nanci
alcapi
tal–t
hisi
ssy
nony
mouswi
tht
henetasset
sorequi
tyoft
heent
it
y.
Undert
hef
inanci
almai
ntenanceconcept
,thepr
ofi
tisear
nedonl
ywhent
he
amountofnetasset
satt
heendoft
heper
iodi
sgr
eat
ert
hant
heamountofnet
asset
sint
hebegi
nni
ng,af
terexcl
udi
ngcont
ri
but
ionsf
rom anddi
str
ibut
ionst
o
equi
tyhol
der
s.
Thef
inanci
alcapi
tal
mai
ntenancecanbemeasur
edei
theri
n
o Nomi
nal
monet
aryuni
ts,
or

o Uni
tsofconst
antpur
chasi
ngpower
.
[Link]
sicalcapi
tal– t
hisi
sthepr
oduct
ivecapaci
tyoft
heent
it
ybasedon,f
or
exampl
e,uni
tsofout
putperday
.Her
ethepr
ofi
tisear
nedi
fphy
sicalpr
oduct
ive

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ateFi
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ingI Chapt
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capaci
tyi
ncr
easesdur
ingt
heper
iod,af
terexcl
udi
ngt
hemov
ement
swi
thequi
ty
hol
der
s.
1.
8. Ot
herBasi
cAccount
ingAssumpt
ion
Economi
cEnt
it
yAssumpt
ion:meanst
hateconomi
cact
ivi
tycanbei
dent
if
iedwi
tha
par
ti
cul
aruni
tofaccount
abi
l
ity
.Inot
herwor
ds,acompanykeepsi
tsact
ivi
tysepar
ate
anddi
sti
nctf
rom i
tsowner
sandanyot
herbusi
nessuni
[Link]
entandi
tssubsi
diar
ies
ar
esepar
atel
egalent
it
ies,butmer
gingt
hei
ract
ivi
ti
esf
oraccount
ingandr
epor
ti
ng
pur
posesdoesnotv
iol
atet
heeconomi
cent
it
yassumpt
ion.
Goi
ng Concer
n Assumpt
ion:Mostaccount
ing met
hodsr
elyon t
he goi
ng concer
n
assumpt
ion:t
hatt
hecompanywi
l
lhav
eal
ongl
i
[Link]
tenumer
ousbusi
nessf
ail
ures,
mostcompani
eshav
eaf
air
lyhi
ghcont
inuancer
[Link]
ule,
weexpectcompani
est
o
l
astl
ongenought
oful
fi
lthei
robj
ect
ivesandcommi
tment
s.
Themonet
aryuni
tassumpt
ion:meanst
hatmoneyi
sthecommondenomi
nat
orof
economi
cact
ivi
tyandpr
ovi
desanappr
opr
iat
ebasi
sforaccount
ingmeasur
ementand
anal
ysi
[Link]
s,t
hemonet
aryuni
tist
hemostef
fect
ivemeansofexpr
essi
ngt
o
i
nter
est
edpar
ti
eschangesi
ncapi
talandexchangesofgoodsandser
[Link]
i
cat
ion
oft
hisassumpt
iondependsont
heev
enmor
ebasi
cassumpt
iont
hatquant
it
ati
vedat
a
ar
eusef
uli
ncommuni
cat
ingeconomi
cinf
ormat
ionandi
nmaki
ngr
ati
onaleconomi
c
deci
si
ons.
Per
iodi
cit
yAssumpt
ion:i
mpl
i
est
hatacompanycandi
vi
dei
tseconomi
cact
ivi
ti
esi
nto
ar
ti
fi
cialt
imeper
[Link]
imeper
iodsv
ary
,butt
hemostcommonar
emont
hly
,
quar
ter
ly,
andy
ear
ly.
Theshor
tert
het
imeper
iod,t
hemor
edi
ff
icul
titi
stodet
ermi
net
hepr
operneti
ncome
f
ort
heper
[Link]
h'sr
esul
tsusual
l
ypr
ovel
essr
eli
abl
ethanaquar
ter
'sr
esul
ts,
and
aquar
ter
'sr
esul
tsar
eli
kel
ytobel
essr
eli
abl
ethanay
ear
'sr
esul
ts.I
nvest
orsdesi
reand
demandt
hatacompanyqui
ckl
ypr
ocessanddi
ssemi
nat
einf
ormat
ion.
1.
9. CashFl
owandI
ncomeMeasur
ement
Accr
ualBasi
sofAccount
ing:Compani
espr
epar
efi
nanci
alst
atement
susi
ngt
heaccr
ual
basi
sofaccount
ing.I
tmeanst
hatt
ransact
ionst
hatchangeacompany
'sf
inanci
al
st
atement
sar
erecor
dedi
ntheper
iodsi
nwhi
cht
heev
ent
soccur
.Forexampl
e,usi
ng
t
heaccr
ualbasi
smeanst
hatcompani
esr
ecogni
zer
evenueswhen t
heysat
isf
ya

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ingI Chapt
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per
for
mance obl
i
gat
ion (
the r
evenue r
ecogni
ti
on pr
inci
ple)
.Thi
sisi
n cont
rastt
o
r
ecogni
ti
onbasedonr
ecei
[Link]
kewi
se,undert
heaccr
ualbasi
scompani
es
r
ecogni
zeexpenseswheni
ncur
red(
theexpenser
ecogni
ti
onpr
inci
ple)r
athert
hanwhen
pai
d.
Cash-
basi
saccount
ing:compani
esr
ecor
drev
enueonl
ywhencashi
srecei
[Link]
r
ecor
dexpensesonl
ywhencashi
spai
[Link]
sofaccount
ingi
spr
ohi
bit
ed
underI
[Link]
?
Becausei
tdoesnotr
ecor
drev
enueaccor
dingt
other
evenuer
ecogni
ti
onpr
inci
ple
(
discussedi
nthenextsect
ion)
.Si
mil
arl
y,compani
esdonotr
ecor
dexpenseswhen
i
ncur
red,whi
ch v
iol
ates t
he expense r
ecogni
ti
on pr
inci
ple(
discussed i
nthe next
sect
ion)
.
Fi
nanci
alst
atement
spr
epar
edont
heaccr
ualbasi
sinf
orm user
snotonl
yofpast
t
ransact
ionsi
nvol
vi
ngt
hepay
mentandr
ecei
ptofcashbutal
soofobl
i
gat
ionst
opay
cashi
nthef
utur
eandofr
esour
cest
hatr
epr
esentcasht
ober
ecei
vedi
nthef
utur
e.
Hence,t
heypr
ovi
det
het
ypeofi
nfor
mat
ionaboutpastt
ransact
ionsandot
herev
ent
s
t
hati
smostusef
uli
nmaki
ngeconomi
cdeci
sions.

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