Okay, this is the first session we are having this or this DIP-IFRS syllabus. So this is what we say that conceptual framework, it actually provides you the basis, the guidance, the fundamental conventions and the principles upon which all of the IFRS standards will be built. Now, last time conceptual framework was updated in 2018. Before that, it was given in 2010. And then before it was in, you know, 83 first time it was even in 1983 and so on. We are following the conceptual framework, which is from 2010. And actually, it's the same one, but there are many definitions and submit changes. So what is the conceptual framework, a statement of generally accepted theoretical principles, which form a frame of reference for financial reporting, you should remember that the IFRS standards and IES standards. they give you two things you know one is which is called guidance and one is which is called judgment guidance is something which is clearly explicitly told to you in it through standard that how you should do application or what you should apply okay so guidance means where the standard is telling you what to do and then there is another thing which is called judgment judgment means that you decide the standard is silent on that the standard does not tell you what to do The standard only tells you that these are the principles, or this is the conceptual framework and you make your own decision. And this is where we use the word frame of reference. Frame of reference means that when I'm taking a judgment, when I'm taking a decision, which is a judgmental based decision. I make in my mind sure that I'm not going against the conceptual framework. And whatever application, whatever decision and whatever application of IFRS I'm applying, this is in line with the conceptual framework. the fundamentals of conceptual framework. For example, I have to take a judgment, but my judgment should not be against the principle of prudence, my judgment should not be against the concept of a cool, my judgment should not be against the concept of consistency, and so on. So it ultimately becomes a frame of reference. Frame of reference means to which you measure it. These provide a basis for developing new accounting standards and a platform to evaluate those already in existence. So this is like the principles which are given in conceptual framework. They become basis for creating the new standards. Advantages of conceptual framework. Of course, it's very common, it's simple that the advantage is that once you have one conceptual framework, which means the rule of the game, it means it gives you, it puts you in a position that your financial statements would be consistent, because your IFRS standards are consistent, everything is based on the same conceptual framework, the development of standards is less subject to political pressure. because you are not following or taking any political pressure. In fact, you are following to your how to say conceptual framework. I'll give you an answer. How do I see this conceptual framework? Actually, if you see standards, I can consider or think like that standard are particular laws. And conceptual framework is like constitution, you know, in any country, you have got a constitution, And then you've got different types of laws, your tax laws, your labor laws, and so on, your criminal law and civil law. But none of the laws will be against the Constitution of the country. The same is the importance of conceptual framework. Conceptual framework is like the Constitution. And then based on that, you develop or prepare different standards and all of them are in line with conceptual framework. A consistent statement of financial position driven or profit or loss driven approach is used. Disadvantages of a conceptual framework? Yes, that is also something we should be talking about, although we can't do anything about it. So we say that financial statements have many users, all with different needs. And I will tell you here very practical reason that where this conceptual framework tends to fail. or tends to you know fail to satisfy the needs of the users now remember that your financial statements you've got different types of users okay uh you've got employees you've got shareholders you've got lenders creditors you know government tax authorities and all of these diff users they have different needs uh they have different expectations from financial statements Now, your suppliers, who is your creditor, they're not really interested in seeing the profitability of the business, they are more interested in liquidity. Current investors, they have a different perspective, future investors, they have a different perspective. So based on that conceptual framework, the financial statements which we prepare, these financial statements are not capable of justifying the needs of everyone. To help you understand this thing better, I tell you one thing, there is a concept which we use here, we call it, you know, the concept of prudence. Okay. Prudence concept, what does it say? Prudence, it tells us or it says us that we should be when you prepare financial statements, those have to be prepared on conservative, okay, conservative approach. Now, what is conservative approach? Conservative approach says that income and assets When you estimate them, you take the lower estimate. And when you take expenses and liabilities, when you make estimates, you take a higher value for this estimate. Now, after applying this thing, I mean, you are creating a provision, you are thinking about future losses, you are thinking a bigger number, you are talking about asset valuation, you are taking a smaller number. So it means that you are being prudent, you are being conservative, which means that you are your financial statements are seeing the worst side of the picture, you are thinking about worst come worst. So you're not showing a very rosy picture. In all the instances, you are thinking about if bad happens, or if this happens, so you're always preparing yourself for, you know, getting ready for the worst. Now, This is where one problem arises. When you prepare a financial statement, sometimes they are we call it over conservative. Over conservative means that, you know, wherever were expenses and liabilities, I was increasing them. And whenever there were some assets and income streams, and I had to make a choice, I was taking a smaller number, the estimate, estimate I'm talking about, remember, there are two things in your financial reporting. One is called fact, one is called estimate. Fact is something which is there, which has documented evidence, which has a contract. Fact is a fact, you cannot change the fact. You have got an expense, thousand, it is thousand. You've got expense, million, it is million. You cannot make it more, you cannot make it less because it has a documented evidence. This is called a fact. But your financial statements, they also include estimates. Estimates are not facts. These are your estimates. For example, depreciation, it is your choice, which method to use, it is your choice, how much life are you going to take? For example, you create provisions. For example, you create bad debt allowances, you know, against some doubtful debts and receivables. So these are estimates. and your financial statements your income statement it does have you know expenses coming from provisions expenses coming from bad debts you know allowances expenses coming from depreciation so being prudent means that you will take a bigger number for these expenses higher expenses you should take on the higher side so you've got you know many, many, many, many estimates in your financial statements. And in all of these estimates, you were prudent, you were conservative. And then what happens that as a result, the income statement which you will produce, it will show probably less profit, because you have absorbed all the conservatism into it. So, if I think about now, my question is that, okay, this is a financial statement, which has been prepared very prudently, which has been prepared being conservative. But don't you think that it is over conservative? Because you assume that all the bad things will happen to you. You know, all of the expenses where you made estimates will be on the higher side, and all of the incomes and assets, you put it on the lower side. So if there were if possible events you took 20 worst outcomes in reality it is not going to happen maybe some of them will fall on that side some of them will fall on the better side but when we use this conservatism we produced a financial statement which is called over prudent now this is the point which will not justify the future investors now if you consider a potential future investor who wants to invest money in a business and he sees the financial statement and he might not be very much impressed he might not be very much happy or attracted because he sees nothing inside he doesn't know that it has been you know overly frequently prepared so you need to and by the way this is where the cfs cfs they uh the financial analysts When they take financial statements, they start making adjustments. They say, okay, this financial statement says that the business is making 10 million or it is expected or it is making 10 million profit. But it has been prepared being overly conservative. If I take away the impact of conservatism, the profit should have been 12 million. because there were some non-cash expenses there were some allowances there were some you know provisions which you created which probably you need to adjust for that so a financial analyst might adjust the profitability so this is where we say that financial statements have many uses and all with different needs with different needs your current investors future investors your you know creditors employees, everybody wants to see a different thing. Single conceptual framework does not satisfy everything. A single framework cannot satisfy the need of all users. And therefore other users, they might have to take the financial statements and then use their brains as well. And probably they need to make some adjustments as well. There may be a need for a variety of accounting standards, each produced for a different purpose. with different conceptual basis. Now, this is something a wish list, okay, a wish list item, that you should be having, you know, multiple approaches for preparing financial statements for different user groups. It is not happening now. And I don't see it happening in near future. so having a conceptual framework may not make it any easier to prepare accounting standards anyways we just move on i explained this then we talk about the framework scope and by the way remember one thing first we have the conceptual framework based on the conceptual framework we prepare the accounting standards We do it so that the accounting standards should not conflict with each other. Everybody is following the same conceptual framework. However, you will face some time, it is possible some time that an IFRS standard and conceptual framework are in conflict. Conceptual framework says go left, IFRS standard says go right. What should you do? Who should you follow? If you see that there is something which is you know, some overriding or there is something, a deviation between or a conflict between an IFRS standard and a conceptual framework. In that situation, what you should do, the answer is follow the IFRS standard. Although conceptual framework is more powerful for us, but when we created the standard at that time, the standard setters, they already have considered that deviation. and they have created that deviation so you should be following the ifrs standard okay this is one point you should remember in application so the framework addresses the objective of general purpose financial reporting so what is the purpose of financial reporting purpose of general purpose of financial reporting is to provide the information about financial performance, about financial position, and about changes in financial position to different users for making economic decisions. Objective is to provide information, financial performance, financial position, and changes in financial position to the users so that they can make economic decisions. This is the purpose. And the framework solves this purpose. The framework you know, helps you prepare the financial statements, which would be used, or which would be relied upon in making economic decisions. And then you have qualitative characteristics of useful financial information, financial statements, and the reporting entity, we are going to discuss elements of financial statements, we will talk about recognition and de-recognition, we will speak about, okay. So these are the areas where your framework talks about. For example, when you say that you've got income, expenses, asset, liability, and capital, we say these are five elements of financial. you know, five elements of accounting, income, expenses, asset, liability, capital, who told you these things, financial, these elements of financial statements, you know, the framework gave it to you, the framework told you, and then you say recognition of transactions, what are the recognition criteria for assets and liabilities, who told you, framework tells you, and then we've got measurement, it's, you know, how to do measurement. So, and presentation and disclosure, actually, if you consider, you know, the framework deals with deals with when the IFRS standards as well, they deal with different areas in accounting. And when we say that a standard addresses tangible non-current assets, okay, IEA 16 E property plant and equipment. So, if it is PPE property, plant and equipment and it is IAS 16, what am I looking for in IAS 16? What IAS 16 is telling me? It is going to give me guidance. So, it is going to give me guidance in which areas? So, there are four areas you should remember, okay? There are always four areas. First one is always we call it recognition. Second is measurement. Third is presentation and fourth is disclosure. Four areas we talk about. Recognition, measurement, presentation and disclosure. So if a transaction takes place, the first thing is that you recognize it. You understand what is this transaction? Is it my asset or is it my liability? Is it my revenue or is it my expense? What is it? That's very true. And you don't even sometimes there are some. transactions which apparently look like to you as a revenue but they are your liabilities which give an example for example you receive uh you know you receive money from your customer you receive cash from your customer and that is in business for the next year when you receive this money ten thousand dollars don't think it is your revenue it is actually your liability because you have not provided any service so unless or until you provide service it remains as a liability in your books so that's very simple example that you are receiving cash and you invoice to your customer customer paid you the amount the money comes to your bank you might be very happy that i got 10 000 that's not revenue that's a liability it will become revenue when you will deliver the services so first thing is you need to understand what is this transaction okay is it my revenue or is it my liability is it my asset is it an asset or not for example in case of intangible assets many times we see that some of the assets are there and you do not recognize by mistake or some assets you are trying to recognize but you should not be so you need to see the criterias should i recognize it or not and if i'm recognizing it what is it first point the second thing is okay if i'm recognizing it as my asset or as my liability the question is How much is the amount and that is a very logical sequence. First recognize, second measure, because I have to put it in my books. And if I have to put it in my books, I need to know the amount. So measurement comes in, and then you have different valuation methods for different types of assets. Okay, you know, historical cost, you know, replacement costs, you know, economic value, you've got fair value, you've got book value, you've got net realizable value, different types of measurement they have told you. So, the second is how do you measure it? Second thing, the second pillar. And the third pillar, okay, I know that it is my asset. And I have already calculated it. This is how much it is. The third thing is presentation. Where should I show this in my financial statements? Is it going to be shown in my income statement? Or should I be showing it in my balance sheet? If I put it in my balance sheet, is it my asset or is it my liability? or if it is my asset, is it my current asset or is it my non-current asset? Where am I supposed to present it? The third one. First, what is it? Does it belong to me? Should I recognize it or not? Yes, I should recognize it. This is my asset. Let's measure it. How much it is? It is $12,000. I need to measure $12,000. Then where do I show it? I put it on the presentation thing. And the last one is disclosure. The fourth one. The last one is disclosure. Disclosure means that what additional information we should provide about this asset. Okay, there should be some, probably there are some additional information about that particular transaction. Because remember, income statement and balance sheet is one page, and it is one line. And there are so many things which are accumulated. For example, in your income statement, you see administrative expenses, $9 million, $10 million. Now, what is inside that $10 million? There might be a list of long items. When you see your cost of sales, $24 million. Within cost of sales, there are so many things which have been included. In income statement balance sheet, you just have one line. In your balance sheet, you say, you know, I don't know, some investment property. Investment property, that's it, $5 million. You cannot provide all the details on balance sheet. Balance sheet is a short one-page thing. And you've got one line for investment property, that's it. Now, if you want to, the purpose is to provide information to the shareholders, I mean, not only to shareholders, to the users, and the balance sheet does not allow me to provide full information. So whatever number I put there, if I feel that I need to provide something more, some additional information, I use my disclosure notes. So you've got your disclosure notes where you show, where you, you know, provide further information about particular transactions or particular events. So that, because ultimately the objective is to provide information. Number, I've given their 5 million, but there are so many things which I need to speak about this 5 million about this investment property. Okay. maybe some non-current assets held for sale, maybe some discontinued operation, it is only an ownership discontinued operation. Okay, that's $10 million. That's all. But I need to explain the circumstances under which it is being discontinued. I need to explain to the users that, you know, I'm selling it for $10 million. If it was in the books, how much it was, if I'm selling it, how much loss I'm making, and why I'm making this loss, why I'm selling it. etc. So that all everything goes to disclosure. And disclosure notes are huge. If I don't have disclosure notes, income statement balance sheet is useless. I'm saying the word useless, you give me income statement. And it's a comparative income statement 2010-2011. And you asked me interpret this thing, understand this thing, I'm sorry, I cannot. I cannot. Show me the disclosure notes. I want to see the accounting policies which you have used while making this income statement. Because there are so many numbers about which I need further information and that further information is written in disclosure notes. Remember, if you see any good company, you know, good normal company, their financial statements would be 100 pages, 110 pages, 120 pages. So if it is 100 pages, one page income statements, second page balance sheet, third is cash flow, fourth is equity statement, four pages, four statements done. 96 pages are for the disclosure notes. Disclosure notes, there are a lot of valuable information that how these four pages were prepared. Any questions you have, you can ask me now.