On 29 March 2018! the IASB released a new version of the Conceptual Framework for Financial Reporting (the Framework). This event marks the completion of a multi-year project! one of the most significant in the IASB’s activities over the past 20 years. The new version of the Framework comes into effect for mandatory application by companies for their 2020 financial statements.
The Framework underpins the development of all IFRSs. It also serves as a guide for sms gateway slovenia the Board itself when it develops international financial reporting standards. Although any standard issued takes precedence over the Framework! having a single base document helps the Board ensure that the standards are consistent! focused on the interests of reporting users! and follow common principles.
Also! based on the Concept! companies develop accounting policies in situations where there are no specific provisions of the standards or there are certain options for choosing actions.
First! the IASB set a new objective for what awaits us? financial reporting ! namely to provide information about assets! liabilities! equity! income and expenses that is useful to users in assessing the future net economic flows of an entity and the ability of management to utilize the economic resources of the entity.
A new definition has been introduced: a reporting entity is a party to economic activity that has clearly defined boundaries. At the same time! a reporting entity does not necessarily have to be a separate legal entity. Thus! it is emphasized that a “reporting entity” can be in many forms! for example! as part of a legal entity. It is also separately noted that consolidated reporting is more useful to users than non-consolidated reporting.
What’s new in the 2018 Concept?
In addition! the IASB added the concept of stewardship for the information presented in the financial statements. It also emphasizes that the information in the financial statements should also help users! among other things! to evaluate the effectiveness of the company’s management in managing economic resources.
A new concept of prudence in the preparation of financial statements has also been introduced . Prudence is understood as the exercise of caution in making judgments under conditions of uncertainty. That is! prudence requires neutrality in the data presented rather than asymmetry in the reporting data (in other words! overstatement or understatement of assets! liabilities! income or expenses).
In the new version of the Concept! the priority of economic content over form ( substance over form ) has finally officially appeared . That is! it is considered that a true representation is achievable only by reflecting the essence of an economic phenomenon. In most cases! it is possible to put a contact segmentation: how to create lists in hubspot certain equality between it and the legal form! but if this is suddenly not the case! only the reflection of the essence will correspond to the true reflection of information.
New definitions of assets and liabilities have been introduced and are shown below in comparison with previous definitions:
Definition of Asset:
Was
An asset is a resource controlled by an organization as a result of past events that is expected to provide future economic benefits to the organization.
It became
An asset is an existing economic resource controlled by an entity as a result of past sab directory events. An economic resource is an entity’s right that provides the potential to generate economic benefits.
Definition of Obligation:
Was
A liability is a present obligation of an entity as a result of past events ! the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.
It became
A liability is a present obligation of an entity as a result of past events! the settlement of which will result in a reduction of economic resources.
An obligation is a duty to make a transfer of economic resources that is impractical to avoid.
The definitions use the term “economic resource” instead of “resource.” This emphasizes that the IASB no longer thinks of assets as physical objects! but rather as a set of rights. There is also no “expected” (probable) inflow or outflow in the new definitions – instead! the potential of an asset (liability) to produce (transfer) economic benefits.