AFM291 Chapter Notes - Chapter 2: Summary Statistics, Financial Statement, Pro Forma
18 May 2018
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Chapter 2
Conceptual Frameworks for Financial Reporting
1. Sketch of a business plan for a car maker
• Assessment of Demand
o Consider the structure of the market (ex. incomes, needs, tastes)
o Need to be selective about choosing a target market and understanding the
needs of potential customers
▪ Understanding the needs will help identify the overall strategic
goal/objective and desirable product characteristics of the new product
• Supply planning
o Need to identify the potential product components that will help meet
customer needs
o Then begin the more specific product design
▪ Needs to take the technological and economic feasibility of the designs
o Throughout the planning process, numerous simplifying assumptions that
support the analysis would have been made
▪ Ca’t take ee data poit ito aout, use sua statistis ad
assume that these statistics are representative of the whole population
Components of the IFRS Conceptual Framework
Demand side: Users and their needs → objectives → qualitative characteristics
Supply side: Elements of financial statements → recognition → measurement
Users and their needs
- “et of uses aodig to the IFR“ → eistig ad potetial iestos, ledes, ad
othe editos
- IFRS focuses on parties that have provided financial resources to the enterprise in the
past and those who may decide to do so in the future. Not concerning customers or
employees.
find more resources at oneclass.com
find more resources at oneclass.com
2. Objectives of Financial Reporting
- The objective of general purpose financial reporting (financial reports publicly available)
is 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.
a. Investment and Lending Decisions
- Financial reports should help investors and creditors decide whether to invest or lend to
the reporting entity (other decision contexts are not primary concern in IFRS)
b. Amount, timing, and uncertainty of cash flows
- Receiving cash vs, the cash contributed to the investment
- The value of the cash flows to the investor/lender depend on amount of cash flow,
timing, and uncertainty (risk)
c. Ifoatio o the etit’s esoues, lais, ad pefoae
- Uses eed ifoatio aout the etit’s esoues, lais agaist the etit, ad the
etit’s pefoae
- Etit’s esoues → useful fo peditig futue ash iflos
- Clais agaist the etit → help pedit futue ash outflos
- Past pefoae → help predict future performance
- Accrual accounting: includes economic events when they happen rather than only when
cash exchange occurs
3. Qualitative Characteristics
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find more resources at oneclass.com
Document Summary
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