Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Financial Accounting for Management

4

Conceptual Framework of Financial Statements

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

CHAPTER OBJECTIVES

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Introduction Purpose of the Framework

Assistance to: Preparers Auditors Users of Financial Statements Accounting Standards Board (ASB)

Scope and Coverage Components of Financial Statements

Balance Sheet Statement of Profit and Loss Cash Flow Statement Notes to Account and Accounting Policies

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Researsh in Financial Reporting Case 1: Research in financial reporting Tata Motors

Ltd.

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Objective of Financial Statements Financial position

Economic resources Financial structure Liquidity and solvency

Performance Cash flows

Users and Their Information Needs Present and Potential Investors Employees and their Representative Groups Lenders Suppliers and other Trade Creditors Customers Governments and their Agencies Public Management Others

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Case 2 Reliance Industries Ltd.Annual Report 2005–06

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Assumptions Underlying Preparation of Financial Statements

Accrual basis Going concern Consistency

Qualitative Characteristics of Financial Statements Understandability Relevance Materiality

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Illustration 1

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Reliability Faithful representation Substance over form Neutrality Prudence Completeness Comparability

Constraints on qualitative characteristics Balance between Timeliness and Reliability Balance between Benefit and Cost Balance between Qualitative Characteristics

True and fair view

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Definitions, Characteristics Recognition and Measurement of the Elements of Financial Statements Definitions and Characteristics

Financial position• Assets• Liabilities• Equity

Performance• Income• Expenses

Cash flows Recognition

Process of recognition Specific Issues

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Measurement Measurement bases

• Historical cost• Current cost• Realisable value• Present value

Concepts of Capital and Capital Maintenance Capital

Financial concept Physical concept

Capital maintenance and determination of profit Financial capital maintenance

• Illustration 2 Physical capital maintenance

Financial Accounting for Management

Cop

yri

gh

t© D

orl

ing

Kin

ders

ley In

dia

Pvt

Ltd

Case 3 Infosys Technologies Ltd. (Annual Report 2005–06)

Concluding Remarks