Conceptual Framework 1989 and 2010

Basic and only the key definitions I have learned contained in the following two frameworks:
(Please note that my own application of the definitions are not given, but rather the exact way in which the Framework states it, as I have studied it)

The objective of general purpose financial reporting
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. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit.
This objective of general purpose financial reporting forms the foundation of the Conceptual Framework.


Underlying assumptions
Accrual basis
The effects of transactions and other events are recognised when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate.

Going concern
The financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the need to liquidate or curtail materially the scale of its operations.

Qualitative characteristics
An essential quality of the information provided in financial statements is that it is readily understandable by users.  For this purpose, users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. Information about complex matters that should be included in the financial statements because of its relevance to the economic decision-making needs of users should not be excluded merely on the grounds that it may be too difficult for certain users to understand.

Information must be relevant to the decision-making needs of users. Information is deemed relevant if it influences the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations. Relevant information also has predictive or confirmative value. Relevance depends on the materiality of the information. Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement.

Information is reliable when it is free from material error and bias and can be depended upon by users to be represented faithfully.

Financial statements are at risk of being less faithfully represented than what it purports to portray.  This is not due to bias, but rather to inherent difficulties either in identifying the transactions and other events to be measured or in devising and applying measurement and presentation techniques that can convey messages that correspond with those transactions and events.

Substance over form principle portraits that information about transactions are presented in accordance with their substance and economic reality and not merely their legal form.

Financial statements must be free from bias, thus, neutral. They are not neutral if, by the selection or presentation of information, they influence the making of a decision or judgement in order to achieve a predetermined result or outcome.

Financial Statements must also be prepared in a prudent manner. Prudence is the inclusion of a degree of caution in the exercise of the judgements needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated.

To be reliable, the information in financial statements must be complete within the bounds of materiality and cost.

Users must be able to compare the financial statements of an entity through time in order to identify trends in its financial position and performance, as well as to be able to compare the financial statements of an entity with its competitors.

Constraints presenting relevant and reliable information:
Undue delay in the reporting of information may cause that the information can lose its relevance. To provide information on a timely basis it may often be necessary to report before all aspects of a transaction or other events are known, thus impairing reliability.  Conversely, if reporting is delayed until all aspects are known, the information may be highly reliable but of little use to users who have had to make decisions in the interim. A balance between reliability and relevance is needed, therefore the overriding consideration is how best to satisfy the economic decision-making needs of users.

The balance between benefit and cost
The benefits derived from information should exceed the cost of providing it.  This evaluation is substantially a judgemental process.

The balance between qualitative characteristics
The aim is to achieve an appropriate balance among the characteristics in order to meet the objective of financial statements.

True and fair view/fair presentation
The application of the principal qualitative characteristics and of appropriate accounting standards normally results in financial statements that convey what is generally understood as a true and fair view of, or as presenting fairly such information.


Below, only the information that differs from the already stated above information is set out and those differing the most are marked in red.

Underlying consumption
Going concern
(See 1989 Framework)
(The Accrual basis like in the 1989 Framework is not listed here under the underlying assumptions)

Fundamental qualitative characteristics

(See 1989 Framework)

Faithful Representation
According to this standard, financial reports represent economic phenomena in words and numbers. To be useful, financial information must not only represent relevant phenomena, but it must also faithfully represent the phenomena that it purports to represent. To be a perfectly faithful representation, a depiction would have three characteristics. It would be complete, neutral and free from error. Of course, perfection is seldom, if ever, achievable. The Board’s objective is to maximise those qualities to the extent possible.

A complete depiction includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations.

A neutral depiction is without bias in the selection or presentation of financial information. A neutral depiction is not slanted, weighted, emphasised, de-emphasised or otherwise manipulated to increase the probability that financial information will be received favourably or unfavourably by users.

Free from error means there are no errors or omissions in the description of the phenomenon, and the process used to produce the reported information has been selected and applied with no errors in the process. In this context, free from error does not mean perfectly accurate in all respects.

Enhancing qualitative characteristics

Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.

Verifiability helps assure users that information faithfully represents the economic phenomena it purports to represent. Verifiability means that different knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is a faithful representation.

(See 1989 Framework)

(See 1989 Framework)






Elements of the financial statements
(identical in both editions of the Framework)

Financial position

  • An asset is 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.
  • A liability is 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 is the residual interest in the assets of the entity after deducting all its liabilities.


  • Income is increased in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
  • Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

IAS 10: Events After Reporting Period

IAS 10 is covered in FRK100, therefore, the following work is assumed knowledge and my reflection on what I have learned is a revision of 2017.

What I have learned:

The definition according to paragraph 3 in the Standard for events after reporting period is as follows:

Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. Two types of events can be identified:

(a) those that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the reporting period); and

(b) those that are indicative of conditions that arose after the reporting period (non-adjusting events after the reporting period).

Important notes that I have gotten from this standard:

  1. During the time between the end of a company’s financial year-end and the date when the financial statements are authorised for the issue, the company does not stop with its activities and operations, therefore, transactions can arise in this time. This Standard leads us to account for these transactions in a specific way.
  2. An adjusting event is for example when a debtor is declared insolvent (the event) during the time from a company’s financial year-end and the date when the financial statements are authorised for issue. This means that at the reporting date (financial year end) of the company, the condition (warning/indicator of the event) that the debtor was going to become insolvent or battling to pay debts, was evident. The financial statements relating to that specific year shall be adjusted accordingly even after the reporting date because it is deemed an adjusting event.
  3. A non-adjusting event is for example when a company receives a penalty from a court case decision (the event) for a particular reason during the time from a company’s financial year-end and the date when the financial statements are authorised for issue. If the entity was only sued (condition) after the reporting period then it is an event that is indicative that the condition arose after the reporting period. The financial statements for the current year shall not be adjusted. A note to disclose this event and condition is required by this Standard so that users can still make effective economic decisions and so that the financial statements are still faithfully represented.

#008 Google Classroom Assignment

Model Financial Statements – Referencing International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS)



SAA Case – Blog

A potential reason for the delay of the release of the annual report of South African Airways (SAA) for the year ended 31 March 2017, in terms of going concern:

The reasons for the long delay in releasing their annual report for the year ended 31 March 2017, is the major liquidity problems that South African Airways (SAA) face. The SOE is currently R13.8bn in debt with a predicted loss of R4bn by the end of March 2018.

Part of why there are still liquidity problems in the SAA is that Treasury has denied allowing state own entities to continue to seek financial support. Because it is there own responsibility to become financially viable, SAA does not have so much support form the state anymore as in previous years (there primary source of finance has denied helping them). Thus, they don’t receive equity anymore. It has been reported that the financial support SAA required from Treasury, would’ve helped them remain a going concern. So without there financial support, SAA struggles to get equity elsewhere in order to stay a going concern, prolonging the release of the annual report.

Because SAA is still in the process of merging with equity participants, such as Mango and SA Express, they never had equity participants to receive equity from in the first place when economic circumstances were taking a dip in South Africa and the state started denying them financial support. Without equity participants to provide SAA with the necessary equity to settle its debt, SAA will be liquidated and will not remain a going concern.

On the date when SAA does release there annual financial reports, their reputation will decline as this SOE reveals to the public that they were unable to strengthen their balance sheet. SAA will lose more investments as investors and other stakeholders leave the company in fear of losing more of there money. Public trust will be lost when SAA is no longer seen as a going concern, so by prolonging the actual release of their annual report and keeping the terrible news about the company’s financial problems as secret as possible, SAA softens the hit they expect to get.

More potential reasons for the prolonging release of their annual report is corrupt and inefficient leadership. By not managing the finances in an ethical way or identifying problems earlier through trustworthy auditors, financial problems arise, putting the state owned entity at risk of not being a going concern.