Question Tag: Conceptual Framework

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  • 15 Marks

CR – May 2019 – L3 – Q6 – Presentation of Financial Statements (IAS 1)

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Dangogo Plc. has adopted IFRS in the preparation and presentation of its financial statements in line with Financial Reporting Council of Nigeria requirements. During deliberations on their financial statements for the year ended 31 March, 2019 the directors of Dangogo Plc. found the distinction between profit or loss and other comprehensive income confusing. This is the case with many other preparers or users of financial statements in Nigeria who seem to be unclear about the relationship between profit or loss and other comprehensive income (OCI). They blame the conceptual framework for Financial Reporting and IAS 1 regarding the confusing nature of re classification. The emergence of integrated reporting holds promises for better reporting, but preparers are equally uncertain about whether the International Integrated Reporting Councils (IIRC) or Integrated Reporting (IR) Framework constitutes suitable criteria for report preparation.

a. Discuss the nature of a re-classification adjustment and the arguments for and against allowing re-classification of items to profit or loss. (6 Marks)

bi. Discuss the objectives of integrated reporting and key components (content elements) of integrated reports. (6 Marks)

ii. Comment on any concerns which could limit the Framework’s suitability for assessing the performance and prospects of an entity. (3 Marks)

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  • 15 Marks

CR – Nov 2021 – L3 – Q7 – Introduction to Corporate Reporting

Evaluate prudence reintroduction, revised asset and liability definitions in the Conceptual Framework.

The Conceptual Framework 2010 was criticized for its lack of clarity, the exclusion of certain important concepts, and for being outdated in terms of the IASB’s current thinking. The revised Conceptual Framework 2018 includes some new concepts such as prudence, provides updated definitions and recognition criteria for assets and liabilities, and clarifies some important concepts in a well-arranged eight chapters. Chapter four of the revised Conceptual Framework 2018 on elements of financial statements redefined some basic elements and concepts.

Required:

a. Evaluate the arguments for and against re-introduction of prudence into the Conceptual Framework.
(7 Marks)

b. Identify TWO of the concepts (Asset and Liability) which definitions were revised and justify the reasons for revised definitions.
(8 Marks)

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  • 9 Marks

FR – Nov 2022 – L2 – Q7a – Conceptual Framework Purposes

Short Summary: Summarize the six primary purposes of IASB's Conceptual Framework in international standards development.

Briefly explain SIX purposes of the Conceptual Framework of the International Accounting Standard Board (IASB). (9 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SA – Q2 – Conceptual Framework for Financial Reporting

Discusses the information needs of financial statement users, CAMA director report requirements, and deferred tax calculations.

a. The Conceptual Framework for Financial Reporting sets out the concepts that underlie the preparation and presentation of financial statements and considers the various users of these financial statements.

Required:
Identify and discuss the information needs of the different users of financial statements. (10 Marks)

b. The Companies and Allied Matters Act (CAMA) 2020 is the primary source of company law that establishes the requirements for financial reporting by all companies in Nigeria.

Required:
Briefly explain FIVE issues that must be contained in a directors’ report in accordance with CAMA 2020. (5 Marks)

c. Babanriga Nigeria Limited acquired a factory machine for N10 million on January 1, 2019. The machine had an estimated life and residual value of 10 years and N2 million, respectively, and is depreciated on a straight-line basis. In lieu of depreciation, the tax authority allows a tax expense of 40% of the cost of this type of machine to be claimed against income tax in the year of purchase, with 25% per annum of its tax base subsequently on a reducing balance basis. The prevailing company income tax rate is 30%.

Required:
Calculate the deferred tax charge or credit which will be recorded in Babanriga Nigeria Limited’s Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2021, and the deferred tax balance in the Statement of Financial Position at that date. (5 Marks)

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  • 15 Marks

FR – May 2022 – L2 – SB – Q6 – Conceptual Framework for Financial Reporting

Discuss the qualitative characteristics that make financial information useful and explain the capital maintenance concepts under the IASB framework.

a. The IASB Conceptual Framework for Financial Reporting gives much detail about the qualitative characteristics of financial information that make it useful.

Required:
Discuss the qualitative characteristics that make information useful to users of financial statements. (10 Marks)

b. The Financial Reporting Council of Nigeria (FRCN) is a Federal Government parastatal under the supervision of the Federal Ministry of Industry, Trade, and Investment.

Required:
Identify FOUR main objectives of FRCN as defined in the Act establishing the Institution. (2 Marks)

c. The IASB Conceptual Framework states that there are two concepts of capital maintenance.

Required:
Explain the term financial capital maintenance and physical capital maintenance concepts. (3 Marks)

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  • 5 Marks

FR – NOV 2016 – L2 – Q2b – Conceptual Framework for Financial Reporting

Question tests understanding of conceptual issues in development costs and application of asset recognition criteria per the conceptual framework.

Evaluate the conceptual issues involved in product development costs and the definition of an asset that may be applied in determining whether development expenditure should be treated as an expense or an asset.

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  • 4 Marks

FR – NOV 2016 – L2 – Q2a – Conceptual Framework for Financial Reporting

Question tests understanding of substance over form concept in the conceptual framework and its importance in financial reporting.

Conceptual framework for reporting emphasises the importance that transactions should be recorded on the basis of their substance over their form. Explain the importance of substance over form and why financial statements should show the substance of the underlying transaction different from its legal form.

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  • 10 Marks

FR – March 2020 – L2 – Q6b – Financial Reporting

Discuss objectives of FRCON and ethical issues in reporting.

b. The regulatory body responsible for issuing accounting standards in accordance with local and international regulations in Nigeria is the Financial Reporting Council of Nigeria (FRCON).
Required:
Explain briefly THREE main objectives of setting up the Financial Reporting Council of Nigeria (FRCON) and identify TWO ethical issues in financial reporting which companies may be sanctioned for by this body.
(10 Marks)

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FR – May 2020 – L2 – Q5b – Determining Liability Under the Conceptual Framework

This question tests the application of the conceptual framework to determine a liability in the event of an accident and subsequent lawsuit.

Amankwatia Ltd (Amankwatia) is a local construction company. The regulation in the construction sector requires employers to provide personal protective equipment for every employee. The company failed to do that, and a Plumber got involved in an accident in the course of work resulting in a serious and costly injury. The Plumber has sued the company.

The Solicitors of the company have prepared to vigorously defend the company in the lawsuit. They estimated that the company would have to make a compensation of GH¢17,000 to cover the injured party’s costs. A court decision, however, is not expected for at least a year.

Required:
What aspects of the conceptual framework might help you in determining the appropriate accounting treatment for this situation?

 

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  • 6 Marks

FR – May 2018 – L2 – Q5a – Conceptual Framework for Financial Reporting

Explain the qualitative characteristics of financial statements under IFRS and assess how they make financial information useful

Explain the following qualitative characteristics of financial statements reported under IFRS and assess how they make the information very useful:

i. Relevance
ii. Comparability
iii. Understandability
iv. Faithful Representation

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  • 5 Marks

FR – March 2024 – L2 – Q5b – Conceptual Framework for Financial Reporting

Discuss the reasons for the need of a conceptual framework in the standard-setting process.

Discuss FIVE (5) reasons for the need of a conceptual framework in the standard-setting process.
(5 marks)

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  • 6 Marks

FR – May 2018 – L2 – Q5b – Conceptual Framework for Financial Reporting

Explain the distinction between financial capital maintenance and physical capital maintenance.

According to the IASB Conceptual Framework, the concept of capital maintenance is concerned with how an entity defines the capital it seeks to maintain. The concept of capital gives rise to financial capital maintenance and physical capital maintenance. The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements.

Required:
Distinguish between financial capital maintenance and physical capital maintenance. (6 marks)

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  • 6 Marks

CR – May 2019 – L3 – Q5c – Regulatory framework and ethics

The question asks for four reasons why the IASB found it necessary to revise the conceptual framework, as part of its effort to improve financial reporting.

The Framework for the Preparation and Presentation of Financial Statements was originally issued in 1989. In 2004, the IASB and the FASB decided to review and revise the conceptual framework. However, this decision changed priorities and the slow progress in the project led to the project being abandoned in 2010. This was after only Phase A of the original joint project was finalized and introduced into the existing framework as Chapters 1 and 3 in September 2010.
The current form of the conceptual framework as at May 2018 provides a revised and complete version of the framework.

Required:
Explain FOUR (4) primary reasons why the IASB believed it was necessary to revise its conceptual framework. (4 marks)

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  • 6 Marks

CR – Nov 2017 – L3 – Q5b – Regulatory Framework and Ethics

Discuss the need for an international conceptual framework for financial reporting and its practical impact on accounting issues.

The financial reporting process is concerned with providing information that is useful in the business and economic decision-making process. Therefore, a conceptual framework will form the theoretical basis for determining which events should be accounted for, how they should be measured, and how they should be communicated to the user. Although theoretical in nature, a conceptual framework for financial reporting has practical aims.

Required:
Discuss whether an agreed international framework for financial reporting is needed in order to resolve practical accounting issues.

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  • 3 Marks

PSAF – Nov 2018 – L2 – Q1a – The context of public financial management

Identify primary users of GPFRs and their information needs in public sector financial reporting.

a) According to the Conceptual Framework for General Purpose Financial Reporting (GPFR) for Public Sector Entities issued by IPSASB, GPFR of public sector entities are developed primarily to respond to the information needs of the primary users who do not possess the authority to require a public sector entity to disclose the information they need for accountability and decision-making purposes. It adds that the objectives of financial reporting are therefore determined by reference to the users of GPFRs, and their information needs.

Required:
i) In relation to the Conceptual Framework, which category of users is regarded as primary users of the GPFRs of public sector entities? (2 marks)

ii) When preparing financial reports for the Consolidated Fund of Government, identify THREE (3) primary users and their information needs you would endeavour to meet. (3 marks)

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  • 10 Marks

PSAF – May 2020 – L1 – Q1d – General purpose financial reporting framework

Explain the connection between the Conceptual Framework, IPSAS, and RPGs, and illustrate a practical case where the Conceptual Framework is useful.

Some accountants hold the view that development of a Conceptual Framework for General Purpose Financial Reporting (simply, the Conceptual Framework) in the Public Sector is needless and a mere information overload on the Accountants. This argument is predicated on the fact that the Conceptual Framework does not establish authoritative requirements for financial reporting by public sector entities that adopt IPSAS, nor does it override the requirements of the International Public Sector Accounting Standards (IPSAS) or the Recommended Practice Guides (RPGs).

Required:
i) Explain the connection between the Conceptual Framework on one hand and IPSAS and RPGs on the other hand.
(2 marks)

ii) Illustrate a practical case where the Conceptual Framework would be useful to an accountant in the preparation and presentation of a General Purpose Financial Report for his organization.
(4 marks)

iii) Explain TWO (2) constraints on information included in the General Purpose Financial Reports.
(4 marks)

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  • 10 Marks

PSAF – Apr 2022 – L2 – Q1a – General purpose financial reporting framework

Assess the merit of including budget amounts in public financial statements and evaluate the quality of financial statements using a conceptual framework.

The Financial Statements below were submitted on 15 February 2021, to the Finance and Administration Committee of Makambi District Assembly for consideration. Some members of the committee condemned the quality of the financial statements on two grounds:

  • That, it is unacceptable to disclose the budget amounts in the financial statement for external publication.
  • That, the financial statements lack quality and therefore should be rejected outright by the Committee.

Makambi District Assembly Statement of Financial Performance for the year ended 31 December 2020

Revenues Actual (GH¢’000) Budget (GH¢’000)
Decentralised transfers 341,000 304,100
Internally Generated Fund 117,000 187,300
Donations and grants 34,000 25,000
Total Revenues 492,000 516,400
Expenses Actual (GH¢’000) Budget (GH¢’000)
Compensation for employees 318,900 300,000
Use of goods and services 114,000 145,000
Consumption of fixed assets 12,000 –
Interest 9,000 9,400
Subsidies 500 800
Other expenses 8,600 6,600
Total Expenses 463,000 461,800

Net operating result: 29,000 (Actual) vs 54,600 (Budget)

Statement of Financial Position as at 31 December 2020

Assets GH¢’000
Non-Current Assets
Property, plant and equipment 1,200,000
Investment 300,000
Total Non-Current Assets 1,500,000
Current Assets
Receivables 23,000
Loans 50,000
Cash and Bank 160,000
Total Current Assets 233,000
Total Assets 1,733,000

Liabilities and Funds

Liabilities and Funds GH¢’000
Liabilities
Loans 900,000
Payables 106,000
Total Liabilities 1,006,000
Funds
Accumulated fund 727,000
Total Liabilities and Funds 1,733,000

Required:

i) Discuss the merit or otherwise on the first ground of condemnation of the financial statements presented to the Finance and Administration Committee. (2 marks)

ii) Using an appropriate framework of assessing the quality of a general-purpose financial statement under the Conceptual Framework, assess the quality of the financial statements presented to the Finance and Administration Committee to the extent that the information available allows. (8 marks)

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  • 20 Marks

FA – Aug 2022 – L1 – Q1 – Accruals and prepayments | The IASB’s Conceptual Framework

Explanation of the IASB’s enhancing qualitative characteristics of financial information and preparation of ledger accounts for commission received, stationery, and rates, including adjustments for accruals and prepayments.

a) IASB Conceptual Framework underpins what IFRS say and why they identify a particular accounting treatment. Another important aspect of the conceptual framework is an attempt to define “high quality” information or in other words, what makes financial information useful.

Required:
Explain in accordance with the IASB’s Conceptual Framework the enhancing qualitative characteristics of useful financial accounting information.
(10 marks)

b) On 1 January 2021, Koo Nimo, a trader, had the following entries in his ledger:

Account Amount (GHȼ)
Commission received (owing) 900
Stationery (owing) 400
Rates (prepaid) 600

The following information relates to the financial year ended 31 December 2021. All transactions were by cheque.

i) Commission received was as follows:

Date Amount (GHȼ)
14 January 850
16 November 3,200

On 31 December 2021 GHȼ800 was still owing in commission to Koo Nimo for the 2021 financial year.

ii) Stationery was paid as follows:

Date Amount (GHȼ)
19 January 800
13 November 4,200

On 1 January 2021 there was no stock of stationery, while at 31 December 2021 stock of stationery was GHȼ200. There were no outstanding invoices for stationery at 31 December 2021.

iii) Rates were paid as follows:

Date Amount (GHȼ)
9 April 2,600
24 November 2,800

A refund for rates of GHȼ800 was received on 15 December 2021. At 31 December 2021 rates were overpaid by GHȼ250.

Required:
Prepare the commission received, stationery and rates ledger accounts, including in each case the transfer to the Statement of Profit and Loss, for the year ended 31 December 2021, and the balance carried down to the next financial year.
(6 marks)

c) Explain TWO (2) reasons why a business entity will make adjustments for accruals and prepayments in the final accounts.
(4 marks)

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