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Conceptual Framework For Small Entities

The document outlines a conceptual framework for financial reporting specifically designed for small and medium-sized entities (SMEs), emphasizing the need for clarity, relevance, reliability, and comparability in financial information. It details the objectives of financial reporting, qualitative characteristics, assumptions, elements of financial statements, recognition criteria, measurement bases, and compliance with simplified standards. This framework aims to ensure consistency and transparency in financial reporting while accommodating the operational simplicity of smaller organizations.

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19 views12 pages

Conceptual Framework For Small Entities

The document outlines a conceptual framework for financial reporting specifically designed for small and medium-sized entities (SMEs), emphasizing the need for clarity, relevance, reliability, and comparability in financial information. It details the objectives of financial reporting, qualitative characteristics, assumptions, elements of financial statements, recognition criteria, measurement bases, and compliance with simplified standards. This framework aims to ensure consistency and transparency in financial reporting while accommodating the operational simplicity of smaller organizations.

Uploaded by

olartemarielgerogalem
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Conceptual

Framework
By: Dr. Felinita R. Barroga, CPA
For Small Entities
1

DESCRIPTION
A conceptual framework for small entities refers to a
structured approach to financial reporting tailored to
the size, capacity, and operational simplicity of small
and medium-sized entities (SMEs). This framework
helps guide how financial statements are prepared,
presented, and interpreted, ensuring consistency and
transparency while recognizing the limited complexity
of smaller organizations.

Fauget University | 2024


2

CONCEPTUAL FRAMEWORK
Fauget University | 2024

FOR SMALL ENTITIES


1.) Objective of Financial
Reporting
To provide information about the financial position,
performance, and cash flows of a small entity that is useful
to:
A.) Owners (who are often also managers)
B.) Lenders or creditors
C.) Tax authorities
D.) Other stakeholders (e.g., investors or regulatory
bodies).
3

QUALITATIVE
CHARACTERISTICS OF
Fauget University | 2024

FINANCIAL INFORMATION
1.) Understandability
Information should be clear and
concise.
2.) Relevance
Only information that can influence decisions should be
included.
4

QUALITATIVE
CHARACTERISTICS OF
Fauget University | 2024

FINANCIAL INFORMATION
3.) Reliability (Faithful Representation)
Free from bias or material error. Completeness for its
intended purpose.

4.) Comparability
Information should allow comparison over time and with other
entities.
5

ASSUMPTIONS
Going Concern: The entity will continue in operation for
Fauget University | 2024

1 the foreseeable future.

Accrual Basis: Transactions are recorded when they


2 occur, not when cash is exchanged.

Materiality and Aggregation: Only material information


3 is required; immaterial details may be omitted or
aggregated.
Cost-Benefit Constraint: The benefit of information
4 should outweigh the cost of producing it.
6

ELEMENTS OF FINANCIAL
STATEMENTS
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1 Assets: Resources controlled by the entity.

2 Liabilities: Present obligations arising from past events.

3 Equity: Residual interest in the assets after deducting


liabilities.
4 Income: Increases in economic benefits (revenues,
gains).
5 Expenses: Decreases in economic benefits (costs,
losses).
7

RECOGNITION CRITERIA
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An item is recognized in the financial


statements if: that future economic benefits will flow to
It is probable
or from the entity, and It can be measured reliably.
8

MEASUREMENT BASES
Historical Cost (most common for SMEs)
Fair Value (used only when necessary or required)
Net Realizable Value
Present Value (rare for SMEs due to complexity)

Fauget University | 2024


9

PRESENTATION AND
Simplicity DISCLOSURE
Financial Statements
and Clarity include:
are key Statement of Financial Position
(Balance Sheet), Statement of
Profit or Loss (Income
Statement), Cash Flow
Statement (optional in some
jurisdictions for micro entities),
Notes to the financial
statements.
Fauget University | 2024
10

COMPLIANCE AND STANDARD


SETTING
SMEs often follow a simplified set of standards,
such as:
A.) IFRS for SMEs (by IASB)
B.) Local GAAP tailored to SMEs
C.) National regulatory frameworks.

Fauget University | 2024


THANK
YOU
Fauget University | 2024

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