MOS Finance and Accounting Chapter 2: Conceptual framework underlying financial reporting

Current Auditing Standards Definition of Materiality

5% of pre tax income from continuing operations for manufacturing companies and 1% of revenues for not for profit entities to be material.

GAAP definition of Consolidated Financial Statements

A parent and its subsidiaries may be separate legal entities, but merging their activities for accounting and reporting gives more meaningful info so consolidated financial statements are prepared form the perspective of economic entity. Allows grouping of assets, liabilities, and other financial statement elements that are under parent's control into one set of statements.

Exit Price

A selling price, as opposed to an entry price, which reflects the entity's purchase price.

Full Disclosure Principle

Accountants follow general practice of providing information that is important enough to influence an informed user's judgement and decisions. Nature and amount of info in reports reflects series of judgment trade-offs. Statements are formalized, structured way of communicating financial information. Disclosure isn't substitute for proper accounting. Disclosure may be made within the main body of financial statements, as notes to the financial statements, as supplementary information including MD&A

Elements of Financial Statements

Accounting uses terms that have specific meanings. Terms make up language of accounting and business. Elements that users expect to find on financial statements, including assets, liabilities, equity, revenues, expenses, gains and losses. More subcategories. Conceptual framework's second level defines basic elements

Derecognition

Act of taking something off the statement of financial position or income statement.

Measurement

All elements must be measurable to be recognized. Because accrual account followed, many estimates must be used when preparing statements. Most numbers are soft and inexact. elements cannot be recognized in the financial statements if they cannot be measured. Determine acceptable level of uncertainty, use measurements tools, and disclose enough information to signal uncertainty.

Economic Entity Assumption

Also known as entity concept. Allows us to identify an economic activity with a particular unit of accountability like a company a part of a company such as a division or individual. Helps determine what to include or recognize in a particular set of financial statements if economic events can be separated in meaningful way. The economic activity can be identified with a particular unit of accountability, business activity is separate and distinct from its owners, doesn't necessarily refer to legal entity, legal entity concept is used for tax and legal purposes.

Basic Elements

Are most directly related to measuring an enterprise's performance and financial status.

IFRS and ASPE Principles Based

Based on few foundational principles andconipts like those in conceptual framework. All decision theoretically consistent if they start from same foundational reasoning. Is flexible too but criticized for being too flexible as it allows too much choice resulting in lack of comparability. So flexibility isn't abused, neutrality is important. Conceptual framework is anchor that grounds financial reporting decisions.

General Purpose Financial Statements

Basic financial statements that give informations that meets the needs of key users. Provide useful information possible in a manner whereby benefits exceed costs to the different kinds of users

Financial Instrument Historical Cost Principle

Bonds, notes, and accounts payable issued by business enterprise in ecahgne for assets or services. Price is cost of the financial instrument and gives figure at which instrument should be recognized. Discounting used to measure the fair value for goods or services.

Other Pressures on Accountants

Bugets put pressure on company management. Lessen chances of fraud , controls and governance structure put in place by company includes vigilant, knowledgeable top management, independent audit committee, internal audit function, strong internal control systems.

How accounting is influened

By its environment in many cased negatively. By decisions made by individuals who often act is self-interest or in interests of company at expense of other stakeholders.

2nd Rationale for Conceptual Framework

By referring to existing framework, can solve new and emerging practical problems. Using good judgement, and with help of universally accepted conceptual framework, hoped that accountants will be able to decide against certain alternatives.

Subsequent Remeasurement of Historical Cost Principle

Can be based on different measurement values like fair value and give information that is more relevant, but often involve measurement uncertainty and values may be subjective. Trend toward mixed valuation model when what used to be historical cost-based model modified by the application of conservatism. Moving more toward market valuation model.

Price-level Change

Canada and Untied States, accountants ignore inflation and deflation by assuming that the unit of measurement dollar, remains reasonably stable.

Qualitative Characteristics of Useful Information

Choosing acceptable accounting method, amount and types of information to be disclosed, format in which info is presented involves determining which alternative gives the most useful information of evasion making purposes (decision usefulness). Conceptual framework's second level has identified the qualitative characteristics of accounting information that distinguish information that is better for making decision from information that is inferior

Two groups of Operating Expenditures

Classified into product costs and period costs depending on whether they are seen to be part of inventory production process.

Objective of Financial Reporting

Communicate information that is useful to investors, creditors, and other users. Useful in making decisions about how to allocate resources including assessing management stewardship. Provide information about financial position, changes in position, and performance. How efficiently and effectively management have discharged resposnbiilties to use the entity's resources

4 Ways to Enhance Qualitative Characteristics

Comparability, Verifiability, Timeliness, Understandability.

Foundational Principles

Conceptual framework's third level that implement the basic objectives of first level. Explain which, when, and how financial elements and events should be recognized, measured, and presented disclosed by accounting system. Include assumptions and conventions.

Entities Policies in absence of GAAP

Consistent with specific GAAP guidance, developed through exercising professional judgement and applying conceptual framework.

ASPE definition of Control

Continuing power t determine strategic decision without the cooperation of others - similarly broad concept. Similar where company owns voting common shares in another company. Focuses more on whether the other entity is demonstrably distinct looking for wether the needy in question can be unilaterally dissolved by company and wether others have more than 10% of ownership interest.

5 Key elements in MD&A

Core business, objectives and strategy, capability to deliver results, results and outlook, key performance measure and indicators. IFRS has trend toward increased disclosures in bid for greater transparency

Recognition

Deals with the act of including something on the entity's statement of financial position or income statement. At macro level, decisions need to be made about whether to consolidate investments in other entities. At micro level, decisions made about whether and when to include assets, liabilities, revenues, expenses, gains, and losses in financial statements and when decisions need to de-recognzie elements. Conceptual framework provides criteria and elements financial statements have been recognized when they meet the definition of an element like a ability, are probably and are reliably measurable. Must use all info to make natural decision as whether liability or asset exists and whether outflow or inflow or resources will occur and if its measurable. Elements financial statements historically recognized when they meet the definition of an elements, are probable, and are reliably measurable. Process of including an item on an entity's balance sheet or income statement.

Resource Allocation

Decisions are assumed to include assessment of management stewardship like management role in maximizing shareholder value

Expenses

Decreases in economic resources, either by outflows or reductions of assets or by the incurrence of liabilities that result from an entity's ordinary revenue-generating activities.

Losses

Decreases in equity (net assets) from an entity's peripheral or incidental transactions and from all other transactions and other events and circumstances affecting the entity during a period, except those that result from expenses or distributions to owners.

Fraudulent Financial Reporting

Don't use financial statements to portray something not there. should be a result of well reasoned and supported analysis grounded in conceptual framework not influenced by external pressures.

4 Things under Recognition/Derecognition Foundational Principles

Economic Entity Assumption, Control, Revenue Recognition and Realization Principle, Matching Principle

MD&A Guidance on Preparation and Disclosure 6 Disclosure Principles

Enable readers to view entities through management's eyes, supplement and complement the information in financial statements, provide fair complete and balanced info that is material to decision making needs of users, outline key trends, risks, uncertainties likely to affect company in future by providing info about quality of earnings and cash flows, explain management plan for accomplishing short term and long term goals goal and be understandable, revlevant, comparable, verifiable, and timely.

Laid-down Costs

For non-financial assets, any cost that is incurred to get the asset ready (whether for sale or for generating income by using it) Like Inventory might include cost of material, labour, and reasonable allocation of overhead or self-constructed assets would include expenditures made to get asset ready for intended use like transportation/installation.

Third Level of Conceptual Framework

Foudnational principles used in establishing and applying accounting stadnards

Objectives of the Conceptual Framework

Foundation for building a set of accounting concepts and objectives. Framework is a reference of basic accounting theory for solving new and emerging practical problems of reporting

What's under Presentation and Disclosure Foundational Principle

Full Disclosure Principle.

Representational Faithfulness

Fundamental Qualitative Characteristic that is To the extent that is faithfully reflects or represents the underlying economic substance of an event or transaction. Also referred to as transparency. Information is complete, neutral, and free from material error and substance over form (Leasing equipment a $1 buyout).

Relevance

Fundamental Qualitative Characteristic that says Accounting info capable of making a difference in a decision. Has predictive and feedback/confirmatory value. Includes are material information that makes difference to decision maker. Middle left of pyramid

Notes to Financial Statements

Generally amplify or explain the items presented in the main body of the statements. Doesn't have to be quantifiable or qualify elements. Descriptions of accounting policies and methods used in measuring elements reported in statements, explanations of uncertainties and contingencies, details that are too voluminous to include in statements.

ASPE Revenue Recognition Principle

Governs when revenue should be recognized. Risks and rewards have passed and/or the earning process is substantially complete (significant acts have been performed and there is no continuing involvement, the revenue is measurable, and the revenue is collectible (realized or realizable)

IFRS vs ASPE in Fair Value Option

IFRS allow fair value for some non-financial assets like investment properties and ppe or require it for others like bio assets. ASPE doesn't use fair value for these items but acknowledges fair value measures be used in agriculture and mining. ASPE defines it as amount of consideration that would be agreed upon in arms' length transaction between knowledgeable, willing parties who aren't under compulsion to act.

Financial Reporting Issues

IFRS and ASPE as principles-based so selecting and interpreting accounting principles and rules relies on application of professional judgement so financial engineering and fraudulent financial reporting may occur

IFRS definition of Revenue Recognition.

Identify the contract with the customer, identify the performance obligations in the contract (promises to transfer goods and or services that are distinct), determine the transaction price, allocate the transaction price to each performance obligation, recognize revenue when each performance obligation is satisfied. Balance sheet approach which recognizes that a transaction has occurred when entity enters into a contract.

Trade-Offs

In general, preparers of financial info should identify all relevant information then consider how best to ensure that financial statement are presented such that they reflect the economic substance (representational faithfulness). Trade-offs exist when in terse of providing more relevant information, new standard applied prospectively. Comparaibility is temporarily sacrificed for better information in the future. It is not always possible to have all fundamental and enhancing qualitative characteristics. Happen when one qualitative characteristic is scarfiecd for another

Supplementary Information

Include details or amounts that present a different perspective from what appears in financial statements. Quantifiable information high in relevance but low in reliability, or info helpful but not essential.

4 Financial Statements

Income state/State of comprehensive income (IFRS only, Statement of financial position, statement of retained earnings (ASPE only) or changes in shareholders' equity (IFRS only), Statement of Cash Flows

Revenues

Increases in economic resources, either by inflows or other enhancements of an entity's assets or by settlement of its liabilities, which result from an entity's ordinary activities

Gains

Increases in equity (net assets) from an entity's peripheral or incidental transactions and from all other transactions and other events and circumstances affecting the entity during a period, except those that result from revenues or investments by owners.

Information Asymmetry

Information in capital marketplace not always evenly accessible or available to investors/creditors. Markets and regulars try to ensure information symmetry for all and no disadvantage. Many stakeholders don't have right info which leads to making suboptimal decisions. Adverse selection and moral hazards may arise but well written conceptual framework addresses issues.

Tradeoffs in Full Disclosure Principle Aim For...

Information that is detailed enough to disclose matters that make a difference to users, but condensed enough to make information understandable and appropriate in terms of costs of preparing and using it.

IFRS Definition of Control

Investor has control over invest when it has power over the invested, exposure or rights to variable returns from its involvement with the invested and the ability to use its power over the invest to affect the amount of the investors returns.

Financial Engineering

Legally structuring a business arrangement or transaction so it meets company's financial reporting objective (like maximizing earnings or minimizing debt to equity ratio). Company raising debt financing wants instrument structured to meet GAAP def of equity rather than debt so debt to equity not negatively affected.

Conceptual Framework

Like a constitution. Coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements. Aids in creation of standards for the accounting profession, increases financial statement users understand of an condense in financial reporting, enhances comparability of financial statements of different companies. Framework is foundation for building a set of accounting concepts and objectives es. Reference of basic accounting theory for solving new and emerging practical problems of reporting

ASPE definition of Probable

Likely (there is a high change of occurrence)

Structured Financing

Many financial institutions develop and market financial instruments to clients.

Product Costs

Material, labour, and overhead attach to the product and are carried into future periods as inventory if not sold as they are seen as part of inventory production process and inventory meets definition of asset.

Most Accurate Measure of enterprise's Activity

Measurement at the time of the enterprise's eventual liquidation. Complete certainty with all cash flows.

IFRS definition of Probable

Morel likely than not (often interpreted to mean a greater than 50% chance). Cause more losses and liabilities to be recognized under IFRS due to perceived lower threshold

Cost-Benefit Relationship

Must be considered: the costs of providing information must be weighed against the benefits that can be had from using the information. Costs include collecting and processing, distributing, auditing, potential litigation, disclosure of propertiary information to competitors, analysis and interpretation. Benefits enjoyed by prepare and users. Benefits more difficult to quantify. Benefits of using information should outweigh the costs of proving that benefit

Challenges to using Historical Cost Principle

Non monetary or barter transaction where no cash or monetary consideration is exchanged. Non monetary, non monetary, non-reciprocal transaction were there is no exchange, like donations. Related party transaction where parties to the transaction are not acting at arm's length (no outside party). Estimate fear value if possible.

First Level of Conceptual Framework

Objectives of financial reporting. The "why" goals and purposes of accounting. Conceptual framework's building blocks

Period Costs

Officers' salaries and other admin expenses are recognized immediately- even thought benefits associated with costs occur in future. Not part of production process and aren't inventory costs and costs don't meet definition of assets. Normal ongoing annual expenses.

Trueblood Committee (1970's)

Overall objective of financial reporting is to provide information that is useful to users like investors and creditors and decision relevant for resource allocation

Predictive Value

Part of Relevance, relevant information helps users make predictions about the final outcomes of past, present, and future events.

Feedback/Confirmatory Value

Part of relevance, information also helps users confirm or correct their previous expectations

Materiality

Part of relevance, refers to how important a piece of information is. Material if it makes difference to decision-maker. Determined if entity's amount of other revenues and expenses, assets and liabilities, or net income. Must consider impact on key financial statement rations, management compensation, any sensitive number on the financial statements. Must use quantitative and qualitative factors. Factor in large number of internal accounting decisions. Must sensibly apply materiality constraint. If leaving or including information would influence or change the judgement of a reasonable person, then that information is material. Quantitative guidelines for materiality include professional judgement

4 Things under Measurement Foundational Principle

Periodicity assumption, Monetary Unit Assumption, Going Concern Assumption, Historical Cost Principle, Fair Value Principle

Rules based vs Principle based Accounting

Principle based is key objectives of good reporting, subject area provides guidance, explains the objectives, relates to common examples, some rules exist, however the intent is not to have cruel for every situation, when in doubt go to principles and professional judgement is most important.

Matching in Manufacturing Business

Product costs like material, labor and overhead have direct relationship between cost and revenue therefore cognize in period of revenue. Period costs like salaries and administrative costs have no direct relationship between cost and revenue and expense is incurred

Main Objective of Financial Reporting

Provide reliable, decision-relevant financial information to users so they can make well-informed capital allocation decisions.

Economic or Business Environment Pressures

Put pressure on company to prop up revenues and pressured to cognize revenues before they should be or to defer recognition of some expenses. purging has positive impact fm making future earnings look better.

Qualitative and Quantitative Factors in Materiality

Qualitative Factors include illegal acts, failure to comply with regulations, or inadequate or inappropriate description of account policy.

Second Level of Conceptual Framework

Qualitative characteristics that make accounting information useful and elements of financial statements (assets, liabilities, equity, revenues, expenses, gains, and losses.

Accrual Accounting

Records cash transaction and non cash transactions. Noncash transaction include purchase of inventory on account, sales on account, expenses used but not yet paid, revenue earned but not yet received, depreciation, usage of prepaid rent, insurance, and supplies

Comprehensive Income

Relatively new income concept and includes more than traditional notion of net income. Includes net income and other comprehensive income (all other changes in equity except for owners' investments and distributions.

2 Fundamental Qualitative Characteristics

Relevance and representational faithfulness that make accounting information useful for decision making

Legal Enttiy

Relevant unit for an incorporated company. Tax returns are filed and taxes are paid based on taxable income for each corporation. Lawsuits filed against corporation it is a separate legal entity but shareholders and management may be sued as individuals

GAAP Matching Requirements

Requires that a rational and systematic allocation policy be used the approximates asset's contribution to revenue stream. Make assumptions about benefits received an costs associated with benefits. Cost of long-lived assets, must be allocated over all accounting periods during which asset is used because asset contributes to revenue generation throughout its useful life.

Equity (net Assets)

Residual interest in an entity that remains after deducting its liabilities from its assets. Known as net worth. Equity is the ownership interest. Represents residual interest in assets after all liabilities are deducted

Management Stewardship

Resource allocation decisions are assumed to include assessment of management stewardship like management role in maximizing shareholder value.

Accounting Principles and Rules must be...

Selected and interpreted and professional judgement must be applied.

Neutrality in Standard Setting and Economic Consequences Argument

Some argue that standards show not be issued if they cause undesirable economic effects on an industry or company. (Economic Consequences Argument). Standards must be free from bias, or we'll no longer have credible financial statements. Regulators choose standards regardless of economic consequences.

1st Rationale for Conceptual Framework

Standard setting should build on an established body of concepts and objectives. Able to issue addition useful and consistent standards over time. Result in coherent set of standards and rules. Should increase financial statement users understand of and confidence in financial reporting and enhances comparability of different companies financial statements.

AcSB

Taken steps to reduce cost of providing info by developing separate standards for private entities that are less onerous. Follow simplified GAAP. Private companies have greater access to info and for smaller private companies business and its model aren't as complicated and less complex standards required.

When going Concern Assumption doesn't apply

There is intent to liquidate the company's net assets and cease operations or cease trading in the company's shares or when the company has no realistic alternatives but to liquidate or cease operations. Revaluation of assets and liabilities approximates the entity's net realizable value.

Assets

There is some economic benefit to entity, entity has control over benefit, benefits result from past transaction or event. When determining if economic resource exists, must take care to review not only inventory, cash, land and patents which are tangible and intangible but all contractual and other rights.

Liabilities

They represent a present duty or responsibility. Duty or responsibility obligates the entity, leaving it little or no discretion to avoid it. Transaction or event results from a past transaction or event. Negative economic value and requires entity give up economic resources to settle obligation. May arise through contractual obligations, constructive or equitable obligation.

Fair Value Option

To encourage increased use of fair value and to simplify accounting, standard setters have given companies the option to use fair value for most financial instruments like cash ,receivables, non-strategic investments, and payables as accounting policy choice. Under both IFRS and ASPE. Fair value more relevant as it reflects current cash equivalent value. Financial instruments measured at fair value with gains and losses being booked to income.

Trade-off with Uncertainty

Too much measurement ucnenertainty undermines the reliability of the financial statements but if elements isn't recognized, relevant information hasn't been included and statements are incomplete. Company should disclose the measurement uncertainty.

Going Concern Assumption

Under Measurement, Business enterprise will continue to operate for the foreseeable future, that it won't be forced to end operations. There is an expectation of continuing long enough to meet their objectives and commitments. Management must look out at least 12 months from balance sheet date and if liquidation of the company is assumed likely, use liquidation accounting at net realizable value

Fair Value Principle

Under Measurement, IFRS calls for use of standardized fair value measurements. May be more useful than historical cost for certain types of assets and liabilities and in certain industries. defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is also a market-based measure opposed to entity-specific measure as its more objective. Subsequent to initial recognition, historical cost and fair value often differ, fair value often considered more relevant for certain assets/liabilities.

Monetary Unit Assumption

Under Measurement, Money is the common measurement of economic activity and is an appropriate basis for accounting measurement and analysis. Most effective way of expressing to interested parties changes in capital and exchanges of g/s. Relevant, simple, universally available, understandable, useful. Basic assumption that quantitative data are useful in communication econ info and in making rational econ decisions. Use of a monetary unit is relevant, simple and understandable, universally available, and useful. Canada and the United States the dollar is assumed to remain relatively stable in valuable in the inflation is ignored.

Historical Cost Principle

Under Measurement, Transactions initially measured at amount of cash that was paid or received or fair value ascribed to transaction that took place. Represents value at a point in time, results from reciprocal exchange (two way exchange), and exchanges includes an outside arm's-length party). Comes from an arm's length transaction or change, it represents a bargained, fairly arrived at value at specific point in time. First recognized, cost represents fair value but over time becomes irrelevant in terms of predictive value.

Periodicity Assumption

Under Measurement, Users need to be informed about performance and economic status on timely basis. Implies that an enterprise's economic activities can be divided into artificial time periods most commonly months, quarters, and years. Shorter period, more difficult to determine proper net income for period. Real-time financial information needs to be provided to ensure relevant information.

Matching Principle

Under Recognition, Derecognition PPE contribute to company's ability to generate revenues, therefore accounting attempts to match these costs with the revenues that they produce. Dictates the effort (expenditures) be matched with accomplishment (revenues) whenever this reasonable and can be done. Illustrates cause and effect relationship between money spent to earn revenues and revenues themselves. Expenses are matched with revenues that they produce. Illustrates cause and effect relationship between money spent to earn revenues and the revenues themselves. If the expense benefits the future periods and meets the definition of asset, it is recorded as an asset. this asset's cost is then systematically and rationally matched to future revenues.

Control

Under Recognition/Derecognition, important factor in deterring entities to be consolidated and included in the economic entity.

Revenue Recognition Principle

Under Recognition/Derecongition, Revenue is recognized when risks and rewards have assed or the earnings process is substantially complete, revenue is measurable and collectible. Revenues realized when products, merchandise, or assets exchanges for cash or claims to.

Understandability

Under enhancing qualitative characteristics, Users need to have reasonable knowledge of business and financial accounting matters in order to understand the information in financial statements. Must be of sufficient quality and clarity that it allows reasonably informed users to see its significance. Allows reasonably informed users to see the significance of the information. Provides enough information so that it is clear. Middle left pyramid.

Verifiability

Under enhancing qualitative characteristics, exists when knowledgeable, independent users achieve similar results or reach consensus regarding the accounting for particular transaction. Numbers easy to verify with reasonable degree of accuracy are hard numbers and soft numbers have more measurement uncertainty. Similar results achieved if same methods are used (consensus)

Timeliness

Under enhancing qualitative characteristics, information should be available to decision-makers before it loses its ability to influence their decisions. Quarterly reporting provides information on more timely basis. Middle left pyramid

Information Overload

Under full disclosure principle, more information isn't always better. Info about company's financial position, income, cash flows, investments found in main body of financial statements, notes to financial statements or supplementary information including the Management Discussion and Analysis.

Constructive Obligations

Under liabilities, aree obligations that arise through past or present practice that signal that the company acknowledges a potential economic burden. Company makes statement about standing behind product therefore if defective, not required to replace but will do under terms of sales contract.

Equitable Obligations

Under liabilities, arise due to moral or ethical considerations. Like a company might feel moral obligation to retrain an employee who is being downsized.

Freedom from Material Error

Under representational fairness, information must be reliable. Information must not always by perfectly accurate in all respects as there is no correct or single right way to portray economic reality.

Neutrality

Under representational faithfulness, means that information cannot be selected to favour one set of interested parties over another. Info not manipulated. Must be factual, truthful, unbiased.

Completeness

Under representational faithfulness, refers to idea that the statements should include all information necessary to portray the underlying events and transactions.

Comparability and IFRS vs FASB

Way to enhance qualitative characteristics, enables users to identify the real similarities and differences in economic phenomena as these haven't been obscured by accounting methods that cannot be compared. FASB allows use of last in, first out accounting, whereas IFRS doesn't, therefore using LIFO will have net income lower than companies not using LIFO. Resource allocation decisions involve evaluations of alternatives. Information measured and reported in similar way (company to company, and year to year). Allows users to identify real economic similarities and differences. Information measured and reported in similar way (company to company and year to year). Allows users to identify real economic similarities and differences. Middle left pyramid

Realized Revenues

When products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash. Revenues are realizable if the assets received or held can be readily converted into cash or claims to cash. Assets are readily convertible if they can be sold or interchanged in active market at price that are readily determinable and there is no significant additional cost

Performance Obligations

When settled (when control over goods' services passes to the customer), collectible revenue are then recognized

Measurement Uncertainty

When there is a variance between the recognized amount and another reasonably possible amount. When observable values not available like market prices and cost models like option pricing and discounted cash flow used to measure uncertainty.

Inventory Matching

While PPE used up in generating revenues, inventory is sold to generate revenues.

Historical Cost Principle and Liquidation

Would have limited usefulness if liquidation were assumed to be likely. Under liquidation approach, asset values are better stated at net realizable value (sales price less costs of disposal) than at acquisition cost. Current versus non-current classification of assets and liabilities would lose much of its significance. Labelling fixed or long term asset would be difficult to justify. Represents a value at a point int time, results from a reciprocal exchange, and exchange includes an outside arm's length relationship. Represents value at point in time, results from reciprocal exchange (two way exchange), and includes outside arm's length party.

Management Best Estimate

management makes assumptions us uncertainty in financial reporting as revenues recorded when cash isn't received yet. When choosing assumption, make best estimates in order to portray the economic reality. unbiased.

Other Comprehensive Income

revenues, expenses, gains, and losses that in accordance with primary sources of GAAP, are recognized in comprehensive income, but excluded from net income. Includes unrealized holding gains and losses on certain securities, changes in revaluation surplus web using the revaluation method to account for capital assets, certain gains and losses related to the translation of foreign operations and cash flow hedges, certain gains and losses related to re-measurement of defined benefit plans and liabilities measured at fair value. IFRS doesn't require companies use terms comprehensive.