ACCT1511 Lecture Notes - Lecture 1: Accrual, Faithful Representation, Going Concern
Introduction
i) Fundamental qualitative characteristics
a) Relevance – material; should assist in decision making (predicting & confirming)
b) Faithful representation – complete, neutral, free from error
ii) Enhancing qualitative characteristics
a) Comparability – to past years, other companies in same industry etc
b) Verifiability – independent observer can confirm reports
c) Timeliness – for decision making
d) Understandability – reasonable person with reasonable knowledge able to interpret
iii) Trade-off: ADD is relevant, however an estimation may be inaccurate
iv) Assumptions:
a) Accrual basis – revenue/expenses recognised as transaction occurs
b) Going concern – business operations continue into foreseeable future
c) Economic entity
d) Accounting period
e) Monetary unit
f) Historical cost
Assets
i) Three fundamental characteristics:
a) Future economic benefit (or service potential)
Does item form part of operating activities?
Can we sell item for cash (or convert to cash)?
Does it help us save costs?
b) Controlled by the entity
Entity controls asset if it controls benefits expected to flow to entity
Not limited to legal ownership
c) Result of past events
Expected future transactions do NOT meet definition of an asset
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