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THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING (PART 2) — Transcript

by FOG Accountancy Tutorials · 2,798 words · 454 segments · language en · Watch on YouTube

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0:05okay so now we continue with our lesson
0:08on the conceptual framework and we are
0:10going to look at the content or let me
0:12call it the issues that are dealt with
0:14in the conceptual framework so
0:17issues dealt
0:24with in the framework
0:31issues that are dealt with in the
0:34conceptual
0:36framework issues that are dealt with in
0:39the conceptual framework now there are
0:41seven issues that are dealt with in the
0:43conceptual framework and I'm going to
0:44mention them and then what I'm going to
0:46do is that I'll pick each of them one by
0:48one as a subtopic and teach so I'm going
0:51to take my time to go through this whole
0:53conceptual framework okay it entails a
0:55lot that is why I am breaking them so I
0:58begin with the issues that are dealt
1:00with in the conceptual framework now
1:02there are seven issues that are dealt
1:04with in the conceptual framework it's
1:06not listed in any particular order okay
1:08so the first one has to do with the
1:10objectives of financial statement the
1:21objectives that's the first one okay and
1:24then the next one I'm going to put it on
1:26your screen again the objectives of
1:28financial statement and the next next
1:30one is the user
1:32groups so the user
1:38groups the user groups so look at it so
1:41the first one the objectives of
1:43financial statement so the conceptual
1:45frameware talks about the objectives
1:47then it comes to talk about the user
1:49groups and then the next thing is the
1:52assumptions underlying financial
1:53statement preparation so
1:56assumptions underline the preparation of
1:59financial
2:06statement that is the next one
2:08assumptions underline the preparation of
2:10financial statement and then
2:14Also it talks about the qualitative
2:27characteristics the qualitative
2:29characteristics of financial statement
2:31that is the fourth item that is being
2:34dealt with in the so all these things
2:36are dealt with in the conceptual
2:37framework they talk about them and then
2:40also the conceptual framework talks
2:42about the elements of financial
2:44statement the elements remember we spoke
2:47about the components in part one the
2:49elements of financial
2:52statements now what I'm interested in
2:55here is not just about the element it
2:57talks about their recognition and
2:59measurement so it's very important the
3:01element of financial statement with
3:03emphasis on their recognition and
3:07measurement so you can see the element
3:09of financial statement comma or colon
3:12semicolon they are recognition and
3:15measurement that is the fee thing and
3:17then it talks about the concept of
3:19capital and capital
3:20maintenance so the concept of
3:24capital and then Capital maintenance
3:30all right the concept of capital and
3:32capital maintenance and then finally it
3:34talks about the reporting entity that
3:36one was added
3:38recently the
3:41reporting entity so these are seven
3:45things or seven issues that are dealt
3:48with so if you go to an exam and you are
3:50ask this is also highly examinable you
3:52can be asked everything in the
3:54conceptual framework is examinable okay
3:56so you can be asked in the exam mention
3:59five issues that are dealt with in the
4:01conceptual framework then you should be
4:03able to mention any of these five any of
4:06these seven sorry so we talk about the
4:08objectives of financial statement then
4:10the user groups assumptions underline
4:13the preparation of financial statement
4:16qualitative characteristics of financial
4:17statement the element of financial
4:20statement their recognition and
4:21measurement the concept of capital and
4:24capital maintenance and the reporting
4:27entity these are the issues
4:30that are dealt with in the conceptual
4:32framework so if you talk about
4:33conceptual framework conceptual
4:35framework for financial reporting it
4:36talks about these seven issues now what
4:39I'm going to do for you in this lesson
4:41is that I'm going to pick them one by
4:42one because under each of them there is
4:44a lot to talk about so I'm going to pick
4:46them as subheadings so I'm going to
4:48begin with the objectives of financial
4:49statement then from there we'll talk
4:51about the user groups and then we'll
4:53come to the assumptions and then we come
4:55to the qualitative characteristics of
4:57financial
4:58statement and then we will talk about
5:00the element of financial statement so
5:03this is the order that I'm going to go
5:05in my presentation so we are going to
5:07start with the objectives of financial
5:10statement okay okay so let's talk about
5:13the objectives of financial statement
5:15the
5:17objectives of financial statement now
5:20this is very
5:22simple this is very simple when you are
5:25asked to talk about the objectives of
5:26financial statement talk about the main
5:30components of financial statement and
5:32what it does okay so the objective of
5:35financial statement is to provide
5:39information about one the financial
5:43position of the business I'm going to
5:45link it to something for you so the
5:48objective according to the conceptual
5:50framework this is what you expected to
5:51write in exam that the the objective of
5:54financial statement is that it should
5:56provide information about to provide
5:58info about about colon one provide info
6:02about the financial position of the firm
6:05or the business two it should provide
6:08information about the financial
6:13performance of The Firm now there's a
6:16difference between position and
6:17performance so take note now and then
6:20also finally it should provide
6:22information about the cash
6:24flows of the
6:27firm now these are the only three that
6:29is being expected of you in exam and
6:32this is what the conceptual framework
6:33talks about that the objectives of
6:35financial statement is to provide
6:37information about financial position of
6:39the firm financial performance of the
6:40firm and the cash flow position now the
6:43financial position is being revealed by
6:46now each of these three is is been
6:48revealed by the components of the
6:49financial statement which is the
6:51statement of profit or loss the
6:52statement of changes in equity statement
6:54of financial position statement of cash
6:57flows now the note is not really part of
6:59the I mean the core component okay so
7:02the core for now the financial position
7:05is being revealed by the statement of
7:06financial
7:07position the financial performance is
7:10being reviewed by two statements the
7:12statement of profit or loss and the
7:13statement of changes in equity those to
7:15review the financial performance and
7:17then the cash flow position is being
7:19reviewed by the statement of cash flows
7:22so when you are asked to talk about the
7:24objectives of financial statement
7:25according to the conceptual framework
7:27you have to look at the major components
7:29and and what they review so the
7:31component of financial statement of
7:33financial position reviews financial
7:35position profit or loss and the changes
7:37in equity review financial performance
7:40and then the statement of cash flows
7:41review the cash flows and this is what
7:44we talk about the objectives of
7:46financial statement that it should
7:47provide information about these three
7:49that is what the conceptual framework
7:51talks
7:52about
7:54so having exhausted the first issue that
7:58is dealt with in the conceptual
7:59framework
8:00which is the objectives then we move to
8:02the user groups so let's talk about the
8:04user groups and the user groups are
8:06basically the users of accounting
8:08information which I have already spoken
8:10about them in my video on introduction
8:12to financial accounting so those that
8:14I've already spoken about in other
8:15videos I'm not going to explain into
8:17detail I'm just going to talk about them
8:19briefly and I'll refer you to watch
8:21those videos to enhance your
8:22understanding on them okay so we talk
8:25about the user group so another issue
8:29there with in the conceptual framework
8:32user groups now when we talk about the
8:34user groups we are basically referring
8:36to the users of the financial statements
8:39okay and when it comes to the user
8:41groups we know them we can talk about
8:45Investors we can talk about
8:49employees we can talk about management
8:51these are users of accounting
8:53information we can talk about the
8:55government and its agencies so
8:57government and then we can even talk
8:59about about um your
9:03suppliers and all that now the list
9:06continues I'm referring to watch my
9:08video on introduction to financial
9:10accounting I really took time to explain
9:13these user groups and it is not
9:16different from what we are talking about
9:17in the conceptual framework so I just
9:19want you to understand that the the
9:21first aspect is the objectives of
9:22financial statement so in other words
9:24you pick a financial statement and you
9:25know the objective for that then we have
9:27also mentioned that this is also covered
9:30in the conceptual framework so investors
9:32whenever you are talking about the user
9:34groups I told you before if you go and
9:38watch the video you understand that I
9:39said
9:41that when you mention the user you that
9:43is not enough you need to Define who the
9:46user is then you tell us why they need
9:48the financial information accounting
9:50information you cannot just say
9:52investors and then you continue to tell
9:54me why they need financial information
9:56by saying something like H invested need
9:59financial information to be able to
10:01determine whether they are getting a
10:02proper return on their investment now
10:05that is not going to give you full Mark
10:07if it is two and a half mark mentioning
10:10investors will give you a half mark or
10:12let's say one Mark let's say it's three
10:14marks to be fair so if you mention
10:17investor I give you one Mark if you tell
10:19me they need accounting information to
10:21be able to determine whether they
10:22getting a return on their investment to
10:24the level they require and all that that
10:26one gives you additional one Mark so
10:28you're getting two out of three there is
10:29something important you may have left
10:31out that is who is the investor so when
10:34you pick any of the user groups you need
10:36to Define who they are before you tell
10:38us why they need accounting information
10:40so investors one mark then you say for
10:43example and when I say Define it is not
10:45any Serious definition I just need you
10:47to um write something to show that you
10:51understand who you are talking about so
10:52who are investors so you say something
10:54like investors are people who have put
10:57their money or invested their money into
10:59the business with the hope of getting a
11:00return then I give you additional one
11:02mark then you can add that they need the
11:04financial information to determine
11:06whether they are getting the required
11:08level of uh return that they expect on
11:11their investment then that gives you an
11:13additional one to get a three so always
11:15remember that whenever you are answering
11:16any question on users of accounting
11:18information you have to first Define the
11:21user before you tell us why they need
11:24accounting information it is very very
11:26necessary for you to get full marks in
11:28the exam
11:30okay so we are done with the user groups
11:32so the next thing on the issues dealt
11:34with in the conceptual framework that we
11:36are going to talk
11:37about is the underlying assumptions okay
11:41so let's look at the underlying
11:43assumptions in the preparation of
11:45financial statement now the underlying
11:55assumptions now in the preparation of
11:58financial statement
12:00the conceptual framework has identified
12:02two key underlying assumptions the first
12:05one is the acral
12:10basis for preparation of financial
12:13statement and the second one is the
12:15going concern
12:20concept the underlying assumptions for
12:23preparing general purpose financial
12:24statement is one the Cru basis and the
12:29going concent these are the two
12:33underlying assumptions now there are so
12:34many assumptions that I have already
12:36explained you can refer to my video on
12:39accounting Concepts policies and
12:41conventions I have really explained many
12:43of these assumptions however the
12:45underlying assumptions that have been
12:46recognized by the conceptual framework
12:48is two the acral bases and the going
12:51concent and the acral bases simply is
12:54about recognition of income and expense
12:57okay that revenue is recognized when it
13:01has been ended and that expenditure is
13:04also or expense is recognized when it
13:06has been inced so that is the basis
13:10for the preparation of financial
13:13statement then when it comes to the
13:15going concern we say that a business is
13:17assumed to operate into a foreseeable
13:19future and that is why we keep on
13:22pushing balances to the following period
13:25subsequent periods because we assume
13:27that the business will continue to exist
13:29into a foreseeable future I have
13:31explained all these things in the video
13:33of accounting Concepts so please take
13:35time go and then watch and it's going to
13:38be very helpful to you so these are the
13:40two underlying assumptions for
13:43preparation of financial
13:45statements after the underlying
13:47assumptions we move on to the
13:49qualitative characteristics of financial
13:51statement now okay I'm
13:55coming the qualitative
14:00characteristics of
14:03financial
14:08statement the qualitative characteristic
14:11in fact this is one of the most highly
14:13examinable areas of the conceptual
14:15framework because it entails a lot in
14:19fact it contains so much and I have a
14:22video that has been dedicated solely for
14:25this H uh issue or this Topic in the
14:29conceptual framework and you can look on
14:32my channel and you see that the video is
14:35called the qualitative characteristics
14:36of financial statement that is how I
14:38titled the video go and watch I'm going
14:40to just mention them but take your time
14:42and watch because in that video I
14:44explain what the examiner expects from
14:46you how you should write it how you
14:48should even explain because you can be
14:50asked to explain just one concept for
14:52five marks and just by explaining what
14:55you understand will not going to it's
14:56not going to end you the five marks so
14:58please take note when it comes to the
15:00qualitative characteristics of financial
15:02statement there are two subcategories
15:04under that we have the
15:08fundamental qualitative characteristics
15:11and we have the
15:13enhancing please take note and listen
15:15that is why I'm saying go back and watch
15:17that video we have the fundamental
15:20qualitative characteristics of financial
15:21statement and then we have the enhancing
15:24now when it comes to the
15:27fundamental there are two fundamental
15:30qualitative characteristics and there
15:32are four
15:33enhancing qualitative characteristics
15:36the fundamental qualitative
15:37characteristics are
15:39relevance and faithful
15:47representation
15:49so when it comes to the qualitative
15:52characteristics you can have the
15:53fundamental or the enhancing the
15:55fundamental are the basic two so in exam
15:58you can be asked to just explain these
16:00two fundamental qualitative
16:01characteristics for 10 marks and you
16:03cannot tell me that you you just write
16:05one line of understanding of relevance
16:08and get your five marks because if it's
16:1010 marks then it's five each and so in
16:12my video on the qualitative
16:13characteristic of financial statement I
16:15have taken time to explain how these
16:17things should be
16:19written so go and then watch that now
16:22when it comes to the enhancing
16:24qualitative characteristics there are
16:26four of them we have comparability as
16:30the first
16:32one we have
16:39verifiability we have
16:43timeliness and then we
16:46have
16:51understandability so financial
16:53statements should possess this
16:55qualitative characteristics two of which
16:57are fundamental two enhances the the the
17:01strength or the fairness and truth of
17:03the financial statement so
17:05comparability verifiability timeliness
17:08and understandability in the same video
17:11I'm talking about I have explained this
17:13four in detail go and watch those videos
17:16and then help yourself to understand the
17:18qualitative characteristics of financial
17:20statement this is what the conceptual
17:22framework uh talks about please take
17:25note and it's so surprising that when
17:27you are being asked with explain the
17:29fundamental qualitative you see 10 marks
17:31and when you asked to explain the enhan
17:34you can even see eight marks so it tells
17:36you that there is more load here and
17:38this can just earn you two Mark each but
17:40this can be five marks so please take
17:42note and go and listen and understand
17:44very well the qualitative
17:46characteristics of financial
17:49statements okay all right so this will
17:51bring us to the end of part two of our
17:53lesson on the conceptual framework now
17:56we are left with three things to talk
17:57about that is the element of financial
18:00statement which is another key
18:01examinable area very thick and then we
18:05also talk about um the concepts of
18:07capital and capital maintenance and then
18:09finally we talk about the reporting
18:11entity and then we'll be done with the
18:13conceptual framework those three will be
18:15dealt with in the third part of this
18:16lesson remember to subscribe to this
18:18channel if it is your first time share
18:20this video and let others also have a
18:22benefit and until we meet again for
18:24another video it's bye for now thank you

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