CPA 115 Financial Reporting Summary
CPA 104 FINANCIAL REPORTING
MODULE 1 THE FRAMEWORK AND ITS APPLICATION IN FINANCIAL REPORTING
Part A: The role of a framework of accounting in global financial markets
Objective of General Purpose Financial Reporting
To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
Key factors driving the globalisation of financial markets
Technological innovation
Financial innovation
Reduction of barriers to capital flows
Convergence of generally accepted accounting principles
Two types of Theories
Positive/Descriptive theories: attempt to explain phenomena
Normative/Prescriptive theories: prescribe how something should be done. Normative theories are developed through a process of deductive reasoning which begins with setting objectives. The developer of the theory sets whatever objectives he desires. Having set the objectives, the developer should then deduct the assumptions that underlie those objectives. Once the objectives are specified, and any underlying assumptions deducted, the developer would then deduct the principles that flowed logically from both the objectives and the assumptions. In turn, the principles then enable the inventor to deduce the definitions, activities and observable actions that should result.
The role of a framework of accounting
To provide guidance to accounting standard setters when developing reporting requirements
To provide a formal frame of reference for the types of transactions and events that should be accounted for, when they should be recognised, how they should be measured.
To facilitate communication between preparers, auditors and users of financial statements by providing a common set of definitions, criteria and other principles.
Limitations of a framework
Economic and legal constraints
Social and political constraints
Human resource constraints
Professional
MODULE 1 THE FRAMEWORK AND ITS APPLICATION IN FINANCIAL REPORTING
Part A: The role of a framework of accounting in global financial markets
Objective of General Purpose Financial Reporting
To provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.
Key factors driving the globalisation of financial markets
Technological innovation
Financial innovation
Reduction of barriers to capital flows
Convergence of generally accepted accounting principles
Two types of Theories
Positive/Descriptive theories: attempt to explain phenomena
Normative/Prescriptive theories: prescribe how something should be done. Normative theories are developed through a process of deductive reasoning which begins with setting objectives. The developer of the theory sets whatever objectives he desires. Having set the objectives, the developer should then deduct the assumptions that underlie those objectives. Once the objectives are specified, and any underlying assumptions deducted, the developer would then deduct the principles that flowed logically from both the objectives and the assumptions. In turn, the principles then enable the inventor to deduce the definitions, activities and observable actions that should result.
The role of a framework of accounting
To provide guidance to accounting standard setters when developing reporting requirements
To provide a formal frame of reference for the types of transactions and events that should be accounted for, when they should be recognised, how they should be measured.
To facilitate communication between preparers, auditors and users of financial statements by providing a common set of definitions, criteria and other principles.
Limitations of a framework
Economic and legal constraints
Social and political constraints
Human resource constraints
Professional