Reference no: EM133855374
Advanced Financial Accounting
Accounting regulation and the conceptual framework
During Workshop
Activity 1
Applying the conceptual framework is subjective and requires judgement. Would the IASB be better off to abandon the conceptual framework entirely and instead rely on a very active interpretations committee that develops detailed guidance in response to requests from constituents?
Activity 2
A financial analyst said:
I advise my clients to invest for the long term. Buy good shares and hang onto them. Therefore, I am interested in a company's long-term earning power. Accounting standards that result in earnings volatility obscure long-term earning power. Accounting should report earning power by deferring and amortising costs and revenues. Get Professional Assignment Help Service Now!
Is this analyst's view consistent with the fundamental characteristics of financial information established in the conceptual framework?
Activity 3
Explain how Q Ltd should account for the following items/situations, justifying your answer by reference to the conceptual framework's definitions and recognition criteria:
Receipt of artwork of sentimental value only.
Q Ltd is the guarantor for an employee's bank loan:
You have no reason to believe the employee will default on the loan.
As the employee is in serious financial difficulties, you think it likely that he will default on the loan.
Q Ltd receives 1000 shares in X Ltd, trading at $4 each, as a gift from a grateful client.
The panoramic view of the coast from Q Ltd's café windows, which you are convinced attracts customers to the café.
Activity 4
In relation to the following multiple choice questions, discuss your choice of correct answer:
Which of the following statements about the conceptual framework is incorrect?
The conceptual framework considers timeliness and materiality to be constraints on relevant and reliable information.
The conceptual framework states that the elements directly related to the measurement of financial position are assets, liabilities and equity.
The conceptual framework applies to the financial statements of all commercial, industrial and business reporting entities.
In accordance with the conceptual framework, income is recognised when an increase in future economic benefits related to an increase in an asset or a decrease in a liability has arisen that can be measured reliably.
The conceptual framework's enhancing qualitative characteristics include:
Understandability, timeliness, verifiability and comparability.
Faithful representation, relevance, understandability and verifiability.
Comparability and reliability.
Substance over form and relevance.
Which of the following statements about the conceptual framework's definition of expenses is correct?
Expenses include distributions to owners.
Expenses are always in the form of outflows or depletions of assets.
Expenses exclude losses.
Expenses are always decreases in economic benefits.
In accordance with the conceptual framework, a lender should recognise the
forgiveness of its $20 000 interest-free loan as:
An increase in income and a decrease in a liability.
An increase in an expense and a decrease in an asset.
An increase in an asset and an increase in income.
An increase in an expense and a decrease in a liability.
After Workshop
Activity 1
Specify the objectives of general purpose financial reporting, the nature of users, and the information to be provided to users to achieve the objectives as provided in the conceptual framework.
Activity 2
Describe the qualitative characteristics of financial information according to the conceptual framework, distinguishing between fundamental and enhancing characteristics.
Activity 3
An airline places a non-cancellable order for a new aeroplane with one of the major commercial aircraft manufacturers at a fixed price, with delivery in 30 months and payment in full to be made on delivery.
Under the conceptual framework, do you think the airline should recognise any asset or liability at the time it places the order?
One year later, the price of this aeroplane model has risen by 5%, but the airline had locked in a fixed, lower price. Under the conceptual framework, do you think the airline should recognise any asset (and gain) at the time when the price of the aeroplane rises? If the price fell by 5% instead of rising, do you think the airline should recognise any liability (and loss) under the conceptual framework?
Activity 4
Glam Cosmetics has spent $220 000 this year on a project to develop a new range of chemical-free cosmetics. As yet, it is too early for Glam Cosmetics' management to be able to predict whether this project will prove to be commercially successful. Explain whether Glam Cosmetics should recognise this expenditure as an asset, justifying your answer by reference to the conceptual framework asset definition and recognition criteria.