CHAPTER 1

STATUS AND PURPOSE OF THE CONCEPTUAL FRAMEWORK.

The Conceptual Framework for Financial Reporting (Conceptual Framework) describes the objective and
the concepts used in general purpose financial information. The purpose
of the Conceptual Framework is:

(a) help the International Accounting Standards Board (Board) to develop

IFRS standards (Standards) that are based on consistent concepts;
to assist preparers in developing consistent accounting policies when
no applicable regulation to a specific transaction or other event, or when
a standard allows an option for accounting policy; and
help all parties understand and interpret the Standards.
The Conceptual Framework is not a Standard. No content of the Conceptual Framework prevails.
about no standard or requirement of a standard.

To achieve the objective of general purpose financial information, the Board may, in
occasionally, specify requirements that deviate from certain aspects of the Framework
Conceptual. If the Council does this, it will explain this failure to comply in the Fundamentals of
the Conclusions of that Standard.

The Conceptual Framework can be reviewed periodically, based on the experience that the Council
has acquired by working with him. The revisions of the Conceptual Framework will not lead to
automatically to changes in the Regulations. Any decision to modify a Regulation
I would require the Council to observe its procedure to follow in order to add a project to its
Agenda and develop a modification to that standard.
The Conceptual Framework contributes to the stated mission of the IFRS Foundation and the Council, which
it is part of this Foundation. This mission consists of developing Standards that contribute
transparency, accountability, and efficiency to financial markets around the world.
The work of the Council serves the public interest by fostering trust, growth, and
long-term financial stability in the global economy. The Conceptual Framework provides the
basis for developing standards that:

They contribute to transparency by improving international comparability and quality.

from financial information, allowing investors and other market participants
make economic decisions with information.

They strengthen accountability by reducing the information gap between the

capital providers and the people to whom they have entrusted their money. The Standards based
in the Conceptual Framework they provide information that is necessary to maintain
control over management. As a source of globally comparable information, the
Standards are also of vital importance for regulators around the world.

They contribute to economic efficiency by helping investors to identify

opportunities and risks around the world, thereby improving capital allocation. For
businesses, the use of a single trusted accounting language, arising from Standards
based on the Conceptual Framework it lowers the cost of capital and will reduce costs of
international information.
Introduction.

The objective of financial information for general purpose constitutes the foundation of
Conceptual Framework. Other aspects of the Conceptual Framework—the qualitative characteristics, and the
cost restriction, useful financial information, the concept of the reporting entity, the
elements of the financial statements, recognition and derecognition of accounts, measurement,
presentation and information to be disclosed - derive logically from the objective.

Objective, usefulness, and limitations of general purpose financial information.

The objective of financial information for general purposes is to provide information

financial information about the entity that is useful to investors, lenders, and others
existing and potential creditors to make decisions related to the supply of
resources to the entity. Those decisions entail, in turn, decisions about:

the purchase, sale or maintenance of assets and debt instruments;

(b) the provision or cancellation of loans and other forms of credit; or

(c) the exercise of the right to vote or other ways to influence management actions that
they affect the use of the economic resources of the entity.

The decisions described in paragraph 1.2 depend on the returns that investors.
lenders and other existing or potential creditors expect, for example, dividends,
payments of principal and interest or increases in market price. The expectations of
investors, lenders, and other creditors on returns depend on their assessment
of the amount, calendar, and uncertainty (and outlook) of the future net cash inflow
to the entity and its evaluations of the management carried out by the resource management.
economic conditions of the entity. Investors, lenders, and other existing creditors and
Potential needs information to help them make those assessments.

To carry out the evaluations described in paragraph 1.3, investors, lenders, and others
existing and potential creditors need information about:

the economic resources of the entity, the rights of creditors against the entity and
changes in those resources and rights of the creditors; and

the extent to which management and the governing body have efficiently fulfilled
effective accountability for the use of the entity's economic resources.

Numerous investors, lenders, and other existing and potential creditors cannot
require that the reporting entities provide them with information directly, and they must
rely on general-purpose financial reports to obtain the most part of the
financial information they need. Consequently, they are the main users of
Who are the general purpose financial reports addressed to?

However, general-purpose financial reports do not provide and cannot

provide all the information that investors, lenders, and others need
existing or potential creditors. These users need to consider the information
relevant from other sources, for example, the general economic conditions and the
expectations, events and the political situation, and the outlook for the sector and the company.
Financial statements for general purposes are not designed to show the value of the
entity that informs; but they provide information to help investors,
lenders and other existing or potential creditors to assess the value of the entity that
inform.

Individual primary users have different information needs and desires, and
that may possibly conflict. The Council, when developing Standards, will seek to
provide the set of information that meets the needs of the largest number of
main users. However, focusing on common information needs does not
prevents the reporting entity from including additional information that may be more useful to a
particular subset of main users.

The management of an entity that reports is also interested in financial information.

about the entity. However, management does not need to rely on financial reports with
general purpose because it is able to obtain the financial information it needs efficiently
internal.

Other parties, such as regulators and the public other than investors, lenders, and others
creditors may also find general purpose financial reports useful.
However, those reports are not primarily addressed to these other groups.

To a large extent, financial reports are based on estimates, judgments, and models rather than
of exact representations. The Conceptual Framework establishes the concepts that underlie in
those estimates, judgments, and models. The concepts are the goals they strive to achieve
the Council and the preparers of the financial reports. As with most goals, the
The vision of the ideal Conceptual Framework for financial information is unlikely to be achieved.
in its entirety, at least not in the short term, because it takes time to understand, accept and
to implement new ways to analyze transactions and other events. However, it is essential
set a goal towards which to direct efforts if one wants financial information
evolve to improve its usefulness.

Information about economic resources, the rights of creditors against the entity
and the changes in these of the reporting entity.

General purpose financial reports provide information about the situation

financial entity that reports, which is information about the economic resources of
the entity and the rights of creditors against the reporting entity. The reports
financials also provide information about the effects of transactions and others
events that change the economic resources and the rights of the creditors of an entity
which informs. Both types of information provide useful input data when
make decisions related to the supply of resources to an entity.

Economic resources and creditors' rights.

The information about the nature and amounts of the economic resources and rights of the
creditors of the reporting entity can help users identify strengths and
financial weaknesses of this entity. That information can help users to assess
the liquidity and solvency of the reporting entity, its additional financing needs and
the possibilities of being successful in obtaining that funding. That information can also
help users evaluate the management by management of economic resources
the entity. The information about the priorities and payment requirements of the rights
of existing creditors helps users predict how the flows will be distributed
effective futures among creditors with rights against the reporting entity.

The different types of economic resources affect the evaluation of a

user of the perspectives of the entity that reports on future cash flows.
Some future cash flows come directly from existing economic resources.
such as accounts receivable. Other cash flows come from the use of various resources
in combination with the production and marketing of goods or services to customers.
Although those cash flows cannot be identified with individual economic resources
(or creditors' rights), users of financial statements need to be aware of the
nature and amount of the resources available for use in the entity's operations
that informs.

Changes in economic resources and in the rights of creditors.

The changes in the economic resources and in the rights of the entity's creditors that
information comes from the financial performance of that entity (see paragraphs 1.17 to 1.20) and
of other events or transactions, such as the issuance of debt or instruments of
heritage (see paragraph 1.21). To appropriately assess the outlook for flows
of the future net cash flows of the reporting entity and the management performed by the
management of the entity's economic resources, users need to be able to
identify those two types of changes.

The information about the financial performance of a reporting entity helps

users to understand the profitability that the entity has generated from its resources
economic. Information about the profitability that the entity has produced can help to
users to evaluate the management by the management of economic resources of the
entity. The information about the variability and components of that profitability is also
important, especially for evaluating the uncertainty of future cash flows. The
information about the past financial performance of the reporting entity and the measure of
that your management has fulfilled its management responsibilities is usually
useful for predicting the future profitability of the entity's economic resources.

Financial performance reflected by accrual accounting.

Accrual accounting describes the effects of transactions and other

events and circumstances regarding the economic resources and the rights of the creditors of the
entity that reports during the periods in which those effects occur, even if the collections and
resulting payments occur in a different period. This is important because the
information about the economic resources and the rights of the creditors of the entity that
information and its changes over a period provides a better basis for evaluating the
past and future performance of the entity that information only about collections and
period payments.

The information about the financial performance of the reporting entity during a period,
reflected by the changes in their economic resources and the rights of creditors,
different from obtaining additional resources directly from investors and
creditors (see paragraph 1.21), is useful for evaluating past and future capacity of the
entity to generate net cash inflows. This information indicates to what extent the
the informing entity has increased its available economic resources, and thus its
ability to generate net cash inflows through its operations, instead of
obtain additional resources directly from investors and creditors. The information
About the financial performance of an entity that reports during a period can help.
also to users to evaluate the management of economic resources
of the entity.

The information on the financial performance of the reporting entity during a period
can also indicate the extent to which events such as changes in prices of
market or interest rates have increased or decreased economic resources and the
creditors' rights of the entity, affecting the entity's ability to generate
net cash inflows.

Financial performance reflected by past cash flows.

The information about the cash flows of an entity that reports over a period
it also helps users assess the entity's ability to generate inputs
net cash flows in the future and to evaluate the management by the management of economic resources
of the entity. This information indicates how the reporting entity obtains and spends
cash, including information about your loans and debt repayment, dividends in
cash or other cash distributions to investors, and other factors that may affect
to the liquidity and solvency of the entity. Information about cash flows helps to the
users to understand the operations of an entity that reports, to evaluate its activities
of investment and financing, determine its liquidity and solvency and interpret other information
about financial performance.

Changes in financial resources and creditor rights that do not proceed

of financial performance.

The economic resources and the rights of creditors of a reporting entity may
change also for reasons other than financial performance, such as the issuance of
debt or equity instruments. Information about this type of changes is necessary
to provide users with a complete understanding of why they changed the
economic resources and the rights of the creditors of the reporting entity, and of the
implications of those changes for their future financial performance.

Information about the use of the financial resources of the entity.

Information on the extent to which the management of the reporting entity has complied
efficiently and effectively their responsibilities regarding the use of economic resources of the
the entity helps users assess the management of those resources by management. This
information is also useful to predict the extent to which management will use efficiently
effectively the economic resources of the entity in future periods. Therefore, it is useful for the
evaluation of the future net cash inflows of the entity.

Examples of management responsibilities for using the entity's resources include

protect those economic resources of the entity against unfavorable effects of factors
economic factors, such as technological or price changes, and ensure that the entity complies
with the legislation, regulations, and contractual provisions that apply to it.