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Conceptual Framework

AAT Financial Statements Conceptual Framework definitions

Going concern assumption that business will continue in operation for the foreseeable further and has no intention to change scale of operations
Relevance it is capable of influencing the decisions of users eg by something being in the accounts it makes a prospective customer not buy from them, or a prospective investor not to invest.
Faithful representations complete, neutral and free from error
Comparability over time and with similar info about other entities
Verifiability eg through audit assurance, both credible and reliable
Timeliness within a timescale suitable for their decision making purposes
Understandibility to those that want to review and use it. Facilitated through appropriate classification, characterisation and presentation of information
Materiality if its omission or misstatement, either individually or in aggregate with other omissions or misstatements, could influence the economic decisions of the users of the financial statements.
Assets A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Liability A present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
Equity interest The residual interest in the assets of the entity after deducting all its liabilities
Income Both revenue and gains
Expenses Both losses and expenses that arise in the normal course of business. Distributions to shareholders (dividends) are not expenses.
Historical cost amount of cash paid to acquire them. Liabilities are recorded at the processed received in exchange for the obligation
Current cost Assets are carried at current purchase price. Liabilities are carried at the undiscounted amount currently required to settle them
Realisable value assets are carried at the amount which could currently be obtained by an orderly disposal. Liabilities are carried at their settlements values.
Present value assets are at present discounted value of future net cash inflows. Liabilities are carried at present discounted value of the expected cash outflows necessary to settle them.
Created by: KayeDavis