Scope of the IASB Conceptual Framework for Financial Reporting:

1. Objective of General Purpose Financial Reporting:
   • The framework establishes that the primary objective of financial reporting is to provide useful financial information to a wide range of users, including investors, lenders, and other creditors, to help them make informed economic decisions about providing resources to the entity. This objective highlights the importance of meeting the needs of external users who do not have the ability to demand specific financial information.
2. Qualitative Characteristics of Useful Financial Information:
   • Fundamental Qualities:
     • Relevance: Information is relevant when it can make a difference in users’ decisions by providing predictive or confirmatory value.
     • Faithful Representation: Information must be complete, neutral, and free from material error to accurately represent what it claims to depict.
   • Enhancing Qualities:
     • Comparability: Users should be able to compare financial statements across different periods and entities.
     • Verifiability: Different knowledgeable and independent observers should be able to reach the same conclusions regarding the information provided.
     • Timeliness: Information must be provided in time to influence decision-making.
     • Understandability: Information should be clear and concise, making it accessible to users with reasonable financial knowledge.
3. Elements of Financial Statements:
   • The framework defines the key elements of financial statements, including:
     • Assets: Resources controlled by the entity that provide future economic benefits.
     • Liabilities: Present obligations that are expected to result in an outflow of economic resources.
     • Equity: The residual interest in the entity’s assets after deducting liabilities.
     • Income: Increases in economic benefits during an accounting period that result in an increase in equity.
     • Expenses: Decreases in economic benefits that result in a decrease in equity.
4. Recognition and Derecognition:
   • The framework provides criteria for recognizing elements in the financial statements:
     • Recognition occurs when it is probable that future economic benefits associated with an item will flow to or from the entity and the item has a cost or value that can be reliably measured.
     • Derecognition involves the removal of assets or liabilities from the balance sheet, usually when the entity no longer controls the asset or is no longer obligated by the liability.
5. Measurement:
   • The framework discusses different measurement bases that can be used to quantify elements in financial statements:
     • Historical Cost: Assets and liabilities are recorded at their original transaction price.
     • Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
     • Current Cost: The cost that would be incurred to acquire or replace an asset or settle a liability today.
6. Presentation and Disclosure:
   • The framework emphasizes the importance of presenting financial information clearly and appropriately. This includes determining how elements should be aggregated or disaggregated and how financial performance and position should be displayed in financial statements. The framework also calls for relevant disclosures to ensure that users have the necessary information to understand an entity’s financial position and performance.
7. Capital and Capital Maintenance:
   • The framework discusses the concept of capital maintenance, which ensures that the capital of an entity is maintained either in financial terms (financial capital) or in operational terms (physical capital). The distinction helps to determine whether the entity has maintained its capital intact over a reporting period.

Summary:

The IASB Conceptual Framework provides the fundamental principles that guide the preparation of financial statements, including the objectives of financial reporting, the qualitative characteristics of useful information, the elements of financial statements, recognition and measurement principles, presentation and disclosure requirements, and the concept of capital maintenance. These principles are essential for ensuring that financial statements are relevant, reliable, and useful for users’ decision-making.