- 20 Marks
FR – L2 – Q6 – Conceptual Framework
Explain understandability, comparability, and the role of consistency in accounting policy changes in financial reporting.
Question
The IASB’s Conceptual Framework for Financial Reporting states that the qualitative characteristics of financial statements are the attributes that make financial information useful.
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:
(a). 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.
(b). Recognition in financial reporting is the process of incorporating into the financial statements an item that meets the definition of an element of financial statements and satisfies specified criteria.
Required:
State the criteria for recognition of an element of financial statements in financial reporting.
(c). The conceptual framework includes the measurement bases of the elements of the financial statements together with recognition criteria for them.
Required:
Explain the FOUR bases of measurement used in the financial statements.
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