Conceptual Framework for Financial Reporting 2018

1 Conceptual Framework (Revised). Issued June 2018 Revised August 2020. Conceptual Framework for Financial Reporting 2018. Conceptual Framework FOR Financial Reporting . COPYRIGHT. Copyright 2018 2020 Hong Kong Institute of Certified Public Accountants This Framework contains the IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operations, Hong Kong Institute of Certified Public Accountants, 37/F.

2 , Wu Chung House, 213. Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by IFRS Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFRS Foundation at Further details of the IFRS Foundation copyright notice is available at Copyright 2 Conceptual Framework (REVISED) (August 2020). Conceptual Framework FOR Financial Reporting . CONTENTS. from paragraph STATUS AND purpose OF THE Conceptual Framework CHAPTER 1 THE OBJECTIVE OF general purpose .

3 Financial Reporting . INTRODUCTION OBJECTIVE, USEFULNESS AND LIMITATIONS OF general purpose . Financial Reporting INFORMATION ABOUT A Reporting ENTITY'S ECONOMIC RESOURCES, CLAIMS AGAINST THE ENTITY AND CHANGES IN RESOURCES AND CLAIMS Economic resources and claims Changes in economic resources and claims Financial performance reflected by accrual accounting Financial performance reflected by past cash flows Changes in economic resources and claims not resulting from Financial performance INFORMATION ABOUT USE OF THE ENTITY'S ECONOMIC RESOURCES CHAPTER 2 QUALITATIVE CHARACTERISTICS OF USEFUL. Financial INFORMATION. INTRODUCTION QUALITATIVE CHARACTERISTICS OF USEFUL Financial INFORMATION Fundamental qualitative characteristics Enhancing qualitative characteristics THE COST CONSTRAINT ON USEFUL Financial Reporting CHAPTER 3 Financial STATEMENTS AND THE Reporting .

4 ENTITY. Financial STATEMENTS Objective and scope of Financial statements Reporting period Perspective adopted in Financial statements Going concern assumption THE Reporting ENTITY Consolidated and unconsolidated Financial statements CHAPTER 4 THE ELEMENTS OF Financial STATEMENTS. INTRODUCTION DEFINITION OF AN ASSET Right Potential to produce economic benefits Control Copyright 3 Conceptual Framework (REVISED). Conceptual Framework FOR Financial Reporting . DEFINITION OF A LIABILITY Obligation Transfer of an economic resource Present obligation as a result of past events ASSETS AND LIABILITIES Unit of account Executory contracts Substance of contractual rights and contractual obligations DEFINITION OF EQUITY DEFINITIONS OF INCOME AND EXPENSES CHAPTER 5 RECOGNITION AND DERECOGNITION.

5 THE RECOGNITION PROCESS RECOGNITION CRITERIA Relevance Faithful representation DERECOGNITION CHAPTER 6 MEASUREMENT. INTRODUCTION MEASUREMENT BASES Historical cost Current value INFORMATION PROVIDED BY PARTICULAR MEASUREMENT BASES Historical cost Current value FACTORS TO CONSIDER WHEN SELECTING A MEASUREMENT BASIS Relevance Faithful representation Enhancing qualitative characteristics and the cost constraint Factors specific to initial measurement More than one measurement basis MEASUREMENT OF EQUITY CASH-FLOW-BASED MEASUREMENT TECHNIQUES CHAPTER 7 PRESENTATION AND DISCLOSURE. PRESENTATION AND DISCLOSURE AS COMMUNICATION TOOLS PRESENTATION AND DISCLOSURE objectives AND PRINCIPLES CLASSIFICATION Classification of assets and liabilities Classification of equity Classification of income and expenses Copyright 4 Conceptual Framework (REVISED).

6 Conceptual Framework FOR Financial Reporting . AGGREGATION CHAPTER 8 CONCEPTS OF CAPITAL AND CAPITAL. MAINTENANCE. CONCEPTS OF CAPITAL CONCEPTS OF CAPITAL MAINTENANCE AND THE DETERMINATION OF. PROFIT CAPITAL MAINTENANCE ADJUSTMENTS APPENDIX 1 DEFINED TERMS. APPENDIX 2 COMPARISON OF THE HONG KONG. Conceptual Framework WITH THE IASB Conceptual . Framework . BASIS FOR CONCLUSIONS [see separate booklet]. AMENDMENTS TO REFERENCES TO THE Conceptual . Framework IN HKFRS STANDARDS [see separate booklet]. AMENDMENTS TO REFERENCES TO THE Conceptual . Framework IN HKFRS STANDARDS (BASIS FOR. CONCLUSIONS) [see separate booklet]. AMENDMENTS TO REFERENCES TO THE Conceptual . Framework IN HKFRS STANDARDS (ILLUSTRATIVE.)

7 EXAMPLES AND IMPLEMENTATION GUIDANCE) [see separate booklet]. Copyright 5 Conceptual Framework (REVISED) (August 2020). Conceptual Framework FOR Financial Reporting . STATUS AND purpose OF THE Conceptual Framework . The Conceptual Framework for Financial Reporting ( Conceptual Framework ) describes the objective of, and the concepts for, general purpose Financial Reporting . The purpose of the Conceptual Framework is to: (a) assist the HKICPA to develop Hong Kong Financial Reporting Standards (Standards). and Accounting Guidelines that are based on consistent concepts;. (b) assist preparers to develop consistent accounting policies when no Standard or Accounting Guideline applies to a particular transaction or other event, or when a Standard or an Accounting Guideline allows a choice of accounting policy; and (c) assist all parties to understand and interpret the Standards and Accounting Guidelines.

8 The Conceptual Framework is not a Standard nor an Accounting Guideline. Nothing in the Conceptual Framework overrides any Standard, any requirement in a Standard or Accounting Guideline. To meet the objective of general purpose Financial Reporting , the HKICPA may sometimes specify requirements that depart from aspects of the Conceptual Framework . If the HKICPA. does so, it will explain the departure in the Basis for Conclusions on that Standard. The Conceptual Framework may be revised from time to time on the basis of the HKICPA's experience of working with it. Revisions of the Conceptual Framework will not automatically lead to changes to the Standards and Accounting Guidelines.

9 Any decision to amend a Standard or an Accounting Guideline would require the HKICPA to go through its due process for adding a project to its agenda and developing an amendment to that Standard or Accounting Guideline. The Conceptual Framework provides the foundation for Standards and Accounting Guidelines that: (a) contribute to transparency by enhancing the comparability and quality of Financial information, enabling investors and other market participants to make informed economic decisions. (b) strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money. Standards and Accounting Guidelines based on the Conceptual Framework provide information needed to hold management to account.

10 As a source of comparable information, those Standards and Accounting Guidelines are also of vital importance to regulators. (c) contribute to economic efficiency by helping investors to identify opportunities and risks, thus improving capital allocation. For businesses, the use of a single, trusted accounting language derived from Standards and Accounting Guidelines based on the Conceptual Framework lowers the cost of capital and reduces Reporting costs. Copyright 6 Conceptual Framework (REVISED). Conceptual Framework FOR Financial Reporting . from paragraph CHAPTER 1 THE OBJECTIVE OF general purpose . Financial Reporting . INTRODUCTION OBJECTIVE, USEFULNESS AND LIMITATIONS OF general purpose .