IFRS® Conceptual Framework
Project Summary
March 2018
Conceptual Framework for Financial Reporting
2 | Project Summary | Conceptual Framework | March 2018
Conceptual Framework at a glance
Introduction
The International Accounting Standards Board (Board) issued
the revised
Conceptual Framework for Financial Reporting (Conceptual
Framework), a
comprehensive set of concepts for financial reporting, in March
2018.
It sets out:
• the objective of financial reporting
• the qualitative characteristics of useful financial information
• a description of the reporting entity and its boundary
• definitions of an asset, a liability, equity, income and
expenses

• criteria for including assets and liabilities in financial
statements
(recognition) and guidance on when to remove them
(derecognition)
• measurement bases and guidance on when to use them
• concepts and guidance on presentation and disclosure
This Project Summary summarises:
• why the Board revised the Conceptual Framework
• the main changes from the previous Conceptual Framework
• the main concepts and guidance in each chapter of the
Conceptual Framework
Purpose
• to assist the Board to develop IFRS Standards (Standards)
based on
consistent concepts, resulting in financial information that is
useful to
investors, lenders and other creditors
• to assist preparers of financial reports to develop consistent
accounting
policies for transactions or other events when no Standard
applies or a
Standard allows a choice of accounting policies
• to assist all parties to understand and interpret Standards
Status
• provides concepts and guidance that underpin the decisions the

Board
makes when developing Standards
• not a Standard
• does not override any Standard or any requirement in a
Standard
Effective date
• immediately for the Board and the IFRS Interpretations
Committee
• annual periods beginning on or after 1 January 2020 for
preparers who
develop an accounting policy based on the Conceptual
Framework
Project Summary | Conceptual Framework | March 2018 | 3
Why have we revised the Conceptual Framework?
Priority
identified as a priority by stakeholders in the 2011 Agenda
Consultation
Filling gaps
for example, guidance on measurement, presentation and
disclosure
Updating
for example, the definitions of an asset and a liability
Clarifying

for example, the role of measurement uncertainty
Previous
Conceptual Framework
Revised
Conceptual Framework
• issued in 1989 and partly revised in 2010
• useful, but incomplete and needed improvement
• a comprehensive set of concepts for financial reporting
Approach
In revising the Conceptual Framework, the Board
sought a balance between providing high-level
concepts and providing enough detail for the
Conceptual Framework to be useful to the Board
and others.
The Board views the Conceptual Framework as a
practical tool to help it develop Standards.
Hence, the Conceptual Framework includes concepts
that help the Board develop Standards and also
discusses the factors the Board needs to consider
in making judgements when application of the
concepts does not lead to a single answer.
4 | Project Summary | Conceptual Framework | March 2018
Main changes
New

Measurement concepts on measurement, including factors to be
considered when selecting a measurement basis
Presentation and disclosure concepts on presentation and
disclosure, including when to classify income and expenses in
other comprehensive income
Derecognition guidance on when assets and liabilities are
removed from financial statements
Updated
Definitions definitions of an asset and a liability
Recognition criteria for including assets and liabilities in
financial statements
Clarified
Prudence Stewardship Measurement uncertainty Substance over
form
The revised Conceptual Framework introduces the following
main improvements:
Project Summary | Conceptual Framework | March 2018 | 5
Chapter 1—The objective of financial reporting
This chapter sets out the objective of general purpose financial
reporting (financial reporting), what information is needed to
achieve that
objective and who the primary users (users) of financial reports
are.
Objective of financial reporting
To provide financial information that is useful to users in

making decisions
relating to providing resources to the entity
Stewardship
Users of financial reports need information to
help them assess management’s stewardship. The
Conceptual Framework explicitly discusses this need
as well as the need for information that helps users
assess the prospects for future net cash inflows to the
entity.
Users’ decisions involve decisions about
buying, selling or holding
equity or debt instruments
providing or settling loans
and other forms of credit
voting, or
otherwise influencing
management’s actions
To make these decisions, users assess
prospects for future
net cash inflows to the entity
management’s stewardship of the
entity’s economic resources
To make both these assessments, users need information about
both

the entity’s economic resources, claims against the entity and
changes in those resources and claims
how efficiently and effectively management has discharged its
responsibilities to use the entity’s economic resources
Summary of changes
This chapter was issued in 2010 and went
through extensive due process at that time.
Therefore, in revising the Conceptual Framework,
the Board did not fundamentally reconsider this
chapter. However, it clarified why information
used in assessing stewardship is needed to
achieve the objective of financial reporting.
Users of financial reports
Users of financial reports are an entity’s existing
and potential investors, lenders and other
creditors. Those users must rely on financial
reports for much of the financial information
they need.
6 | Project Summary | Conceptual Framework | March 2018
Chapter 2—Qualitative characteristics of useful
financial information
This chapter discusses what makes financial information useful.
Prudence
Neutrality is supported by the exercise of prudence.
Prudence is the exercise of caution when making

judgements under conditions of uncertainty. Prudence
does not allow for overstatement or understatement of
assets, liabilities, income or expenses.
Measurement uncertainty
Measurement uncertainty does not prevent
information from being useful. However, in some cases
the most relevant information may have such a high
level of measurement uncertainty that the most useful
information is information that is slightly less relevant
but is subject to lower measurement uncertainty.
Fundamental qualitative characteristics
Relevance
• information is relevant if it is capable of making a
difference to the decisions made by users
• financial information is capable of making a
difference in decisions if it has predictive value or
confirmatory value
Faithful representation
• information must faithfully represent the
substance of what it purports to represent
• a faithful representation is, to the maximum extent
possible, complete, neutral and free from error
• a faithful representation is affected by level of
measurement uncertainty
Enhancing qualitative characteristics

Comparability Verifiability Timeliness Understandability
• these four qualitative characteristics enhance the usefulness of
information
• but they cannot make non-useful information useful
Cost constraint
• the benefit of providing the information needs to justify the
cost of providing and using the information
Summary of changes
This chapter was issued in 2010 and went through
extensive due process at that time. Therefore,
in revising the Conceptual Framework the Board
did not fundamentally reconsider this chapter.
However, the Board clarified the roles of prudence,
measurement uncertainty and substance over form
in assessing whether information is useful.
For information to be useful it must both be relevant and
provide a faithful representation of what it purports to
represent. Relevance and faithful representation
are the fundamental qualitative characteristics of useful
financial information, and the guiding concepts that apply
throughout the revised Conceptual Framework.
Project Summary | Conceptual Framework | March 2018 | 7
Boundary of a reporting entity

Determining the appropriate boundary of a reporting
entity can be difficult if, for example, the entity is
not a legal entity. In such cases, the boundary is
determined by considering the information needs
of the users of the entity’s financial statements.
Those users need information that is relevant
and that faithfully represents what it purports to
represent. A reporting entity does not comprise
an arbitrary or incomplete collection of assets,
liabilities, equity, income and expenses.
Financial statements
a particular form of financial reports that provide information
about the reporting
entity’s assets, liabilities, equity, income and expenses
Reporting entity
• an entity that is required, or chooses, to prepare financial
statements
• not necessarily a legal entity—could be a portion of an entity
or comprise more
than one entity
Consolidated
financial statements
Unconsolidated
financial statements
Combined
financial statements
provide information about assets,
liabilities, equity, income and

expenses of both the parent
and its subsidiaries as a single
reporting entity
provide information about assets,
liabilities, equity, income and
expenses of the parent only
provide information about assets,
liabilities, equity, income and
expenses of two or more entities
that are not all linked by a
parent-subsidiary relationship
Summary of changes
This chapter is new.
Chapter 3—Financial statements and
the reporting entity
This chapter describes the objective and scope of financial
statements and provides a description of the reporting entity.
8 | Project Summary | Conceptual Framework | March 2018
Chapter 4—The elements of financial statements
continued ...
This chapter defines the five elements of financial statements—
an asset, a liability, equity, income and expenses.
Previous definition of an asset

A resource controlled by the entity as a result
of past events and from which future economic
benefits are expected to flow to the entity
Revised definition of an asset
A present economic resource controlled by the
entity as a result of past events
An economic resource is a right that has the
potential to produce economic benefits
Previous definition of a liability
A present obligation of the entity arising from
past events, the settlement of which is expected
to result in an outflow from the entity of
resources embodying economic benefits
Revised definition of a liability
A present obligation of the entity to transfer an
economic resource as a result of past events
An obligation is a duty or responsibility that
the entity has no practical ability to avoid
Main changes
in the definition
of an asset
• separate definition of an economic resource—to clarify that an
asset is the
economic resource, not the ultimate inflow of economic benefits

• deletion of ‘expected flow’—it does not need to be certain, or
even likely, that
economic benefits will arise
• a low probability of economic benefits might affect
recognition decisions and
the measurement of the asset
Main changes
in the definition
of a liability
• separate definition of an economic resource—to clarify that a
liability is the
obligation to transfer the economic resource, not the ultimate
outflow of
economic benefits
• deletion of ‘expected flow’—with the same implications as set
out above for an asset
• introduction of the ‘no practical ability to avoid’ criterion to
the definition
of obligation
No practical ability to avoid
The revised Conceptual Framework discusses how the
‘no practical ability to avoid’ criterion is applied in
the following circumstances:
(a) if a duty or responsibility arises from the entity’s
customary practices, published policies or specific
statements—the entity has an obligation if it has
no practical ability to act in a manner inconsistent

with those practices, policies or statements.
(b) if a duty or responsibility is conditional on a
particular future action that the entity itself may
take—the entity has an obligation if it has no
practical ability to avoid taking that action.
Summary of changes
The definitions of an asset and a liability have been
refined and the definitions of income and expenses
have been updated only to reflect that refinement.
The definition of equity as the residual interest
in the assets of the entity after deducting
all its liabilities is unchanged. The Board’s
research project on Financial Instruments
with Characteristics of Equity is exploring the
distinction between liabilities and equity.
Project Summary | Conceptual Framework | March 2018 | 9
... continued
Executory contract
An executory contract is a contract that is equally
unperformed. It establishes a single asset or liability
for the inseparable combined right and obligation to
exchange economic resources.
Substance of contracts
To represent contractual rights and obligations

faithfully, financial statements must report their
substance. In some cases, the substance of such rights
and obligations is clear from a contract’s legal form.
But, in other cases, the terms of the contract, or of a
group or series of contracts, may require analysis to
identify the substance of the rights and obligations.
Revised definition of expenses
Decreases in assets, or increases in liabilities,
that result in decreases in equity, other than
those relating to distributions to holders of
equity claims
Revised definition of income
Increases in assets, or decreases in liabilities,
that result in increases in equity, other than
those relating to contributions from holders of
equity claims
Although income and expenses are defined
in terms of changes in assets and liabilities,
information about income and expenses
is just as important as information about
assets and liabilities.
Unit of account
the right(s) or obligation(s), or group of rights and obligations,
to which
recognition criteria and measurement concepts are applied
Selecting the unit of account
Relevance

• a unit of account is selected to provide relevant
information about the asset or liability and any
related income and expenses
Faithful representation
• a unit of account is selected to provide a faithful
represention of the substance of the transaction
or other event from which the asset, liability and
any related income or expenses have arisen
10 | Project Summary | Conceptual Framework | March 2018
Chapter 5—Recognition and derecognition
Recognition
The process of capturing for inclusion in the statement of
financial position or
the statement(s) of financial performance an item that meets the
definition of an
asset, a liability, equity, income or expenses
This chapter discusses criteria for including assets and
liabilities in financial statements (recognition) and guidance on
when to remove them (derecognition).
Why recognition is important
Recognising assets, liabilities, equity, income and
expenses depicts an entity’s financial position and
financial performance in structured summaries
(the statements of financial position and financial
performance). The amounts recognised in a statement
are included in the totals and, if applicable, subtotals,

in the statement. The statements are linked because
income and expenses are linked to changes in assets
and liabilities.
Summary of changes
The previous recognition criteria were that an
entity should recognise an item that met the
definition of an element if it was probable that
economic benefits would flow to the entity and
if the item had a cost or value that could be
determined reliably.
The revised recognition criteria refer explicitly
to the qualitative characteristics of useful
information.
The Board’s aim was to develop a more coherent set
of concepts, not to increase or decrease the range of
assets and liabilities recognised.
Cost constraint
Cost constrains recognition decisions, just as it constrains other
financial reporting decisions
Recognition criteria
Relevance
• whether recognition of an item results in relevant
information may be affected by, for example:
Faithful representation
• whether recognition of an item results in a

faithful representation may be affected by, for
example:
measurement uncertainty
presentation and disclosure
recognition inconsistency
(accounting mismatch)existence uncertainty
low probability of a flow of
economic benefits
Recognition is appropriate if it results in both relevant
information about assets, liabilities, equity, income
and expenses and a faithful representation of those items,
because the aim is to provide information that
is useful to investors, lenders and other creditors
continued ...
Project Summary | Conceptual Framework | March 2018 | 11
Derecognition
The removal of all or part of a recognised asset or liability from
an entity’s
statement of financial position
Derecognition resulting from a transfer
Normally, a faithful representation of a transfer
of an asset or liability is achieved by derecognition of
the asset or liability with appropriate presentation
and disclosure.

However, in limited cases, it may be necessary to
continue to recognise a transferred component of
an asset or liability together with a liability or asset
for the proceeds received or paid, with appropriate
presentation and disclosure.
Summary of changes
The guidance on derecognition is new.
Derecognition normally occurs
For an asset
when the entity loses control of all or part of the
recognised asset
For a liability
when the entity no longer has a present obligation
for all or part of the recognised liability
Derecognition aims to faithfully represent both
• any assets and liabilities retained after the transaction that led
to the derecognition
• the change in the entity’s assets and liabilities as a result of
that transaction
... continued
12 | Project Summary | Conceptual Framework | March 2018

Chapter 6—Measurement
This chapter describes various measurement bases and discusses
factors to be considered when selecting a measurement basis.
Summary of changes
The previous version of the Conceptual Framework
included little guidance on measurement.
The revised Conceptual Framework describes what
information measurement bases provide and
explains the factors to consider when selecting
a measurement basis.
Current value measurement bases
• current value provides information updated to reflect
conditions at the measurement date
• current value measurement bases include:
fair value
• the price that would be received to sell an asset, or paid
to transfer a liability, in an orderly transaction between
market participants at the measurement date
• reflects market participants’ current expectations about
the amount, timing and uncertainty of future cash flows
value in use (for assets)
fulfilment value (for liabilities)
• reflects entity-specific current expectations about the
amount, timing and uncertainty of future cash flows

current cost
• reflects the current amount that would be:
� paid to acquire an equivalent asset
� received to take on an equivalent liability
Historical cost measurement bases
• historical cost provides information derived, at least in part,
from the price of the transaction or other
event that gave rise to the item being measured
• historical cost of assets is reduced if they become impaired
and historical cost of liabilities is increased if
they become onerous
• one way to apply a historical cost measurement basis to
financial assets and financial liabilities is to
measure them at amortised cost
continued ...
Project Summary | Conceptual Framework | March 2018 | 13
Cost constraint
Cost constrains the selection of a measurement basis, just as it
constrains other financial reporting decisions
The factors to be considered when selecting a measurement
basis are relevance and faithful representation, because the aim
is to provide information that is
useful to investors, lenders and other creditors

Selecting a measurement basis
In selecting a measurement basis, it is necessary to
consider the nature of the information in both the
statement of financial position and the statement(s)
of financial performance.
The relative importance of each factor to be
considered (see boxes) depends upon the facts and
circumstances of individual cases.
Consideration of the factors and the cost constraint
is likely to result in the selection of different
measurement bases for different assets, liabilities,
income and expenses.
... continued
Factors to consider in selecting a measurement basis
Relevance
Relevance of information provided by a measurement basis is
affected by:
characteristics of the asset or liability
• the variability of cash flows
• sensitivity of the value to market factors or
other risks
• for example, amortised cost cannot provide
relevant information about a deriviative

contribution to future cash flows
• whether cash flows are produced directly or indirectly in
combination with other economic resources
• the nature of the entity’s business activities
• for example, if assets are used in combination to produce
goods or services, historical cost can provide relevant
information about margins achieved in a period
Faithful representation
Whether a measurement basis can provide a faithful
representation is affected by:
measurement inconsistency
• if financial statements contain measurement
inconsistencies (accounting mismatch),
those financial statements may not faithfully
represent some aspects of the entity’s financial
position and financial performance
measurement uncertainty
• does not necessarily prevent the use of a
measurement basis that provides relevant
information
• but if too high might make it necessary to consider
selecting a different measurement basis
14 | Project Summary | Conceptual Framework | March 2018

Chapter 7—Presentation and disclosure
This chapter includes concepts on presentation and disclosure
and guidance on including income and expenses in the statement
of profit or loss
and other comprehensive income.
Better Communication
Information about assets, liabilities, equity, income
and expenses is communicated through presentation
and disclosure in the financial statements.
Effective communication of information in financial
statements makes that information more relevant and
contributes to a faithful representation of an entity’s
assets, liabilities, equity, income and expenses.
The revised Conceptual Framework includes
concepts that describe how information should
be presented and disclosed in financial statements.
The Board is also working on several projects on the
theme of Better Communication to make financial
information more useful to investors, lenders and
other creditors and to improve the communication of
that information.
Summary of changes
This chapter is new.
Other comprehensive income
• In exceptional circumstances, the Board may decide to exclude

from the statement of profit or loss
income or expenses arising from a change in current value of an
asset or liability and include those
income and expenses in other comprehensive income
• The Board may make such a decision when doing so would
result in the statement of profit or loss
providing more relevant information or a more faithful
representation
The statement of profit or loss
• The statement of profit or loss is the primary source of
information about an entity’s financial
performance for the reporting period
• Profit or loss could be a section of a single statement of
financial performance or a separate statement
• The statement(s) of financial performance include(s) a total
(subtotal) for profit or loss
• In principle, all income and expenses are classified and
included in the statement of profit or loss
Recycling
• In principle, income and expenses included in other
comprehensive income in one period are recycled to
the statement of profit or loss in a future period when doing so
results in the statement of profit or loss
providing more relevant information or a more faithful
representation
• When recycling does not result in the statement of profit or
loss providing more relevant information

or a more faithful representation, the Board may decide income
and expenses included in other
comprehensive income are not to be subsequently recycled
Project Summary | Conceptual Framework | March 2018 | 15
Exemptions
• IFRS 3 Business Combinations
To avoid unintended consequences, acquirers are
required to apply the definitions of an asset and a
liability and supporting concepts in the previous,
rather than the revised, Conceptual Framework. The
Board plans to assess how IFRS 3 can be updated
without unintended consequences.
• Regulatory account balances
When developing accounting policies for regulatory
account balances applying IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors, entities are
required to refer to the previous, rather than the
revised, Conceptual Framework. This avoids entities
revising those accounting policies twice within
a short period: once for the revised Conceptual
Framework and again when a revised Standard on
rate-regulated activities is issued.
Objective of the
amendments
• Some Standards include explicit references to previous
versions of the

Conceptual Framework
• These amendments update those references so they refer to the
revised
Conceptual Framework
Effects
• The Board expects the amendments to references to the
Conceptual Framework
in Standards will not have a significant effect on users and
preparers of
financial statements
Effective date and
transition
• The amendments are effective for annual periods beginning on
or after
1 January 2020, with earlier application permitted
• The amendments should be applied retrospectively unless
retrospective
application would be impracticable or involve undue cost or
effort
Amendments to References to the Conceptual Framework in
IFRS Standards—a separate accompanying document
That document sets out amendments to Standards to update
references to the Conceptual Framework.
16 | Project Summary | Conceptual Framework | March 2018
Important information

This Project Summary has been compiled by the staff of the
IFRS Foundation for the convenience of interested parties. The
views
within this document are those of the staff who prepared this
document and do not necessarily reflect the views or the
opinions
of the Board. The content of this Project Summary does not
constitute any advice and is not to be considered as an
authoritative
document issued by the Board.
Official pronouncements of the Board are available in electronic
format to eIFRS subscribers. Publications are available for
ordering
from the IFRS Foundation website at www.ifrs.org.
Other relevant documents
Conceptual Framework for Financial Reporting—describes the
objective of, and the concepts for, general purpose financial
reporting.
Basis for Conclusions on the Conceptual Framework for
Financial Reporting—summarises the Board’s considerations in
developing the
Conceptual Framework.
Amendments to References to the Conceptual Framework in
IFRS Standards—sets out amendments to Standards, their
accompanying
documents and IFRS practice statements.
Feedback Statement—summarises the feedback on the proposals
that led to the revised Conceptual Framework.

Project Summary | Conceptual Framework | March 2018 | 17
Notes
18 | Project Summary | Conceptual Framework | March 2018
Notes
Project Summary | Conceptual Framework | March 2018 | 19
Notes
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2.4 EUR/USD: Jeremy Seetoh Heung Weng, s3834522
The Euro (EUR) is the second most used currency globally with
an estimated amount of 341 million users daily. A total of 37
countries uses EUR. The European Central Bank (ECB) is the
only central bank managing the EUR.
2.4.1 Past and Present Currency Analysis
Over the past one year, the EUR has a depreciating trend
against the USD. From 20 February onwards, the EUR started to
appreciate against USD. The spot rate from 11 March 2019 to
10 March 2020 increased from 1.1247 to 1.1347, a total of 1000
pips. The highest recorded value of EUR against USD is 1.1447
on 9 March 2020, while the lowest recorded value is 1.07847 on
20 February 2020.
Figure 1: EUR/USD Spot Rate 11 March 2019 – 10 March 2020
(Eikon, 2020)
Brexit
Brexit was an international event for the European Union (EU),
where United Kingdom (UK) left the EU. The entire event
lasted from 23 June 2016 to 31 January 2020. Figure 2 shows
EUR against USD throughout the period of Brexit.
Figure 2: EUR/USD Spot Rate 25 February 2015 to 24 February
2020 (XE, 2020)
The EUR showed signs of depreciation against the USD when
majority of the public voted UK to withdraw from the EU.

However, the value of EUR appreciated when then Prime
Minister of UK, Theresa May, announced that UK will still be
part of the EU for two years. When UK agreed with the EU on
the ‘divorced bill’ on 8 December 2017, the EUR can be seen
having a depreciation trend against the USD. Moreover, the
EUR continued to depreciate when UK officially left the EU on
31 January 2020 (Power, 2019). Brexit is one factor causing
economic instability resulting in a decreasing economic growth
of the EU as shown in Figure 3.
Figure 3: Economic Growth of the EU (Europa, 2020)
With a decrease in economic growth, a dealer will prefer to opt
for a short position, which will result in an increase in supply of
the EUR. This causes the exchange rate to decrease explained in
Figure 4.
Figure 4: S-D Model on Brexit effect on EUR
EU-US Trade Relations
In 2018, the EU is the largest exporter and second largest
importer of US. From 2008 to 2018, the EU is seen having an
increasing trend in trade surplus with US as shown in Figure 5.
This means that the EU is exporting more products to US
compared to their import.
Figure 5: EU-US Trade 2008-2018 (Europa, 2019)
There has been a trade tension between US and EU in recent
years. This has been largely influenced by President of USA,
Donald Trump, threatening to impose tariffs on multiple
products from EU. One example is imposing 25% tariff on
vehicles (Pramuk, 2020). However, negotiations between the

two countries are still on-going to work out on a deal which will
improve trading relationships. This will affect exports of the EU
as vehicles are the second highest exports of EU to US in 2018
(Workman, 2019). With tariffs in place, manufacturers and
companies will increase the price of the products. This means
consumers will have to pay a higher price for the imported
products, causing exports of EU to fall. With higher imports,
there will be an increase in supply. This leads to the exchange
rate to decrease, explained in Figure 6.
Figure 6: S-D Model on EU-US Trade affecting EUR
Monetary Policies
The interest rate of EU is determined by the ECB while the
Federal Reserve Board determines the interest rate of US. Due
to the Coronavirus affecting global economies, numerous
Central Banks have lowered their interest rate. Statistics on 4
March 2020 showed the interest rate of US has decreased from
1.75% to 1.25%. The ECB maintained at 0% but deposit rates
were reduced to -0.5% (Lee, 2020).
With the ECB having a negative deposit rate, it discourages
deposit made to the ECB. This results in the ECB having lesser
EUR. A decrease in supply leads to EUR appreciating against
USD as shown in Figure 7.
Figure 7: S-D Model on Monetary Policies affecting EUR
2.4.2 Future Market Conditions for EUR/USD
In my opinion, the spot rate of EUR/USD will fluctuate in the
next 6 months. With measures from the ECB, the early stages of
the next 6 months will see the EUR generally appreciating
against USD. However, the poor economic growth will see the
EUR start depreciating against USD, but the spot rate will not
hit a record low. This is because the exports of EU can still

contribute to the economic growth and trade relationships
between EU and US can be further improved on.
References
EUR/USD (Point form)
Euro is the second most used currency worldwide with an
estimated amount of 341 million users daily.
(https://europa.eu/european-union/about-eu/euro/which-
countries-use-euro_en).
There is only one central bank managing the euro, the European
Central Bank. (https://www.thebalance.com/what-is-the-euro-
3305928).
The graph shows the exchange rate of EUR/USD.
(https://www.xe.com/currencycharts/?from=EUR&to=USD&vie
w=1Y)
37 countries uses Euro (https://www.thebalance.com/what-is-
the-euro-3305928#countries-that-use-the-euro)
Factor 1: Brexit
The graph shows the exchange rate of EUR/USD throughout the
whole period of Brexit.
(https://www.xe.com/currencycharts/?from=EUR&to=USD&vie
w=5Y). Reference for explanation
(https://www.theweek.co.uk/100284/brexit-timeline-key-dates-
in-the-uk-s-break-up-with-the-eu). As shown in the graph, the
Euro depreciated when the UK voted to leave the EU in the
third quarter of 2016. The value of the Euro appreciated when
then Prime Minister of the UK, Theresa May, announced that
the UK will still be part of the EU for the next two years in the
first quarter of 2017. On 8 December 2017, the UK agreed a
deal on the UK ‘divorced bill’ with the EU. This has caused the

Euro to depreciate against USD since 2018. On 31 January
2020, the UK left the EU officially, resulting in a significant
depreciation of the Euro where the value decreased from $1.11
on 1 February 2020 to $1.08 on 20 February 2020. The effect of
Brexit has led to a decrease in economic growth of the EU,
which could result in a recession for the EU in the near future.
(https://www.nytimes.com/2020/01/31/business/economy/europe
an-union-eurozone-economy.html). Brexit reference
(https://www.bbc.com/news/uk-politics-32810887).
Brexit can cause political instability
(https://www.reuters.com/article/us-britain-eu-ecb/brexit-could-
lead-to-political-instability-in-eu-ecbs-makuch-
idUSKCN0Z60G1) Economic growth table
(https://ec.europa.eu/eurostat/documents/2995521/10159272/2-
31012020-BP-EN.pdf/435a608a-c9f9-9043-52a1-43ee8cb03d8f)
Factor 2: Trade
US-EU trade stats
https://ustr.gov/countries-regions/europe-middle-
east/europe/european-union
US-EU trade tension
https://www.cnbc.com/2018/08/21/trump-us-to-put-a-25percent-
tariff-on-every-car-from-european-union.html
https://www.cnbc.com/2019/12/13/ustr-weighing-100percent-
tariffs-on-new-eu-products-including-whiskies.html
https://www.cnbc.com/2019/10/03/us-eu-trade-fight-could-drag-
on-after-victory-at-wto-clete-willems.html (favour US on tariff)
https://www.politico.com/news/2020/01/16/eu-trade-chief-
urges-reset-in-us-relationship-amid-tensions-099745
(negotiations)
https://www.ft.com/content/ae259de2-57db-11ea-a528-
dd0f971febbc (negotiation)
https://lot.dhl.com/timeline-how-the-u-s-eu-trade-dispute-took-
shape/ (timeline)
https://www.cnbc.com/2020/01/21/trump-says-he-is-serious-
about-tariffs-on-european-cars.html (threat)

https://ec.europa.eu/eurostat/web/products-eurostat-news/-
/DDN-20190520-1 (stats)
Factor 3: Interest Rate
https://www.investopedia.com/ask/answers/who-determines-
interest-rates/
https://europa.eu/european-union/about-eu/institutions-
bodies/european-central-bank_en
https://www.cnbc.com/2020/03/04/coronavirus-federal-reserve-
other-central-banks-cut-interest-rates.html
https://www.washingtonpost.com/business/2020/03/03/economy
-coronavirus-rate-cuts/
Introduction
Over the past year The EUR/USD currency exchange rate has
been experiencing a downward trend in favor of USD being
stronger compared with EUR. As of the first quarter of 2018
there was a sudden drop in the exchange rate between EUR/USD
and henceforth till today there has been showing a gradual
decreasing trend in the chart which can be shown in Fig.1. The
major factors affecting these fluctuation in exchange rate will
be inflation between the countries, their interest rates, and level
of national debt. By comparing the factors between these 2
countries we will be able to forecast what the exchange rate be
over the next 6 months
Figure 1 EUR/USD Exchange rates, (Eikon 2019)

1. Inflation rate
By comparing the inflation rate between the Eurozone and US
we can show that the exchange rate follow the rules that with
higher the inflation rate, it will lead to an eventual decline in
exchange rate for that respective currency. For the span of 1
year from July 2018 to July 2019 there was there has been a
downward trend on EUR/USD of 1.1742 to 1.1074 which was
decrease of 668 pips which can be shown from Fig 1. This is
highly influenced by the rate of inflation between the 2 zone of
interest which can be then shown in Fig 2. By forecasting the
inflation rate we can then forecast the EUR/USD exchange rate.
Forecast wise, inflation in the United States is expected to raise
by 1.70% by the end of this year quarter and the inflation rate
of for Euro area will be at 1.20% (Trading Economy, 2019).This
statement is also backed up by a news report by New Europe
stating that from a 1.7% inflation rate will lead to the inflation
to become 1.2% by the end of the quarter (New Europe, 2019).
Hence US having a higher inflation rate will result in a weaker
exchange rate this shows that by using just inflation there will
be an increase in the EUR/USD exchange rate.
Figure 2 United States & Euro area Inflation Rate (Trading
economics 2019)
2. Commodities
By having a higher commodity price it will lead to a raise in the
exchange rate of that country due to an increase in export
revenue (Emanuel, Fernando, & Andreas, 2016).
The ongoing trade war between US and China is yet to stop and
China is even introducing 2 new tariff on American exports that
will hit about $75 million worth of agriculture products, cars

and automotive products and oil exported from the U.S. These
auto tariff could be as high as 25% but mostly will be around
the range of 5% to 10% (Andrew, 2019). Due to the increase in
the tariff due to my prediction it will lead to a decrease in the
export in US goods out of the country, hence leading to a
decline in USD currency rate.
On Euro area side of the story, there has been a setback due to
the fact that the White House agreed to delay new tariffs on
imported automobiles and parts for six months as of May of
2019 (Bryce B. 2019). Hence before such tariffs are imposed
over the next 6 months I speculate that there will be an increase
in the export before the tariff by US is imposed. As such EUR
will have a rise in their exchange rate. Below the graph will
show an example of the forecast of Euro area and U.S.
Figure 3. United States Exports Forecast (Trading economics
2019)
Figure 4. European area Exports Forecast (Trading economics
2019)
Conclusion
After conducting all these research it is safe to say that by the
end of 6 months which is on March 2020 there will be an
increase in the strength of the US dollar and a decrease in the
strength of the Euro at the rate in which both country inflation
is going.

Whereas we are able to capitalize and forecast that from
September to November the Euro currency will appreciate in
value due to its export increase of automobile before the tariff
hits. So in summary my forecast will be to that from September
to November there will be an increase in Euro currency on this
period and eventually by the end of the 180 days period starting
from early September, US will eventually catch up on its
currency value which will then cause the rates of EUR/USD to
be lower.
Reference
Andrew S. 2019, ‘China Unveils New Tariffs as Trade War
Escalates’ viewed on 12 September 2019
<https://www.usnews.com/news/world/articles/2019-08-
23/china-targets-soybeans-automobiles-and-oil-in-latest-
tariffs>Bryce B, 2019, ‘EU Trade Chief Says U.S. Car Tariff
Threat ‘Not Based on Facts’ viewed on 12 September 2019
https://www.bloomberg.com/news/articles/2019-09-04/eu-trade-
chief-says-u-s-car-tariff-threat-not-based-on-facts
Eikon EUR/USD Exhange rate, 2019, Thomson Reuters, viewed
on 11 September 2019,
https://apac1.apps.cp.thomsonreuters.com/web/Explorer/EVzCO
RPxCHARTzEIKONCHART.aspx?s=EUR%3D&st=RIC
Emanuel, Fernando, Andreas 2016 ‘BIS Working Papers No 551
When the Walk is not Random: Commodity Prices and
Exchange Rates’ pp. 2Euro Area Export Rate, 2019, Trading
Economics, viewed on 11 September 2019,
https://tradingeconomics.com/euro-area/exports
Euro Area Inflation Rate, 2019, Trading Economics, viewed on

11 September 2019, https://tradingeconomics.com/euro-
area/inflation-cpiNew Europe, 2019 ‘Euro area annual inflation
rate to lower’ viewed on 12 September 2019,
https://www.neweurope.eu/article/euro-area-annual-inflation-
rate-to-lower/United States Export Rate, 2019, Trading
Economics, viewed on 11 September 2019,
https://tradingeconomics.com/united-states/exports
United States Inflation Rate, 2019, Trading Economics, viewed
on 11 September 2019, https://tradingeconomics.com/united-
states/inflation-cpi
1
With reference to the IASB Conceptual Framework Project
website and associated resources,
as well as the relevant accounting literature, explain why the
IASB decided to revise the
conceptual framework with specific reference to:
a. Measurement, presentation and disclosure;
It was identified by the IASB board that the previous conceptual
framework did not possess a
section for measurement, presentation and for disclosure issues.

Further as per the general
accepted guideline on measurement, presentation and disclosure
were too rigid, lengthy and
detailed. Therefore the IASB board decided to arrange a single
measurement basis to be used
in measurement.Therefore two measurement bases were
identified namely historical and
current value measurement (Conceptual framework —
Presentation and disclosure; elements of
financial statements; capital maintenance (IASB only), 2020).
Earlier in order do measurements the
historical cost, revaluation cost, relevant cost, fair value etc
were used. Further when identifying
presentation requirements new definitions for assets and
liabilities were introduced to identify its
economic exposure more than it was previously used (2020).
Further with regard to disclosure
requirements in explanatory notes were widened to make it
useful for the users to understand
the financial statements more and more. (Conceptual Framework
Phase E — Presentation and
disclosure, 2020)
b. Definitions of an asset and liability and recognition criteria;
Previous definition of assets
In the previous definition an asset is viewed as just a resource
controlled by the entity and this
asset has been arised or occured as a result of a past event and
further it was stated that an
asset would bring in future economic benefits or positive
financial outcomes to the entity.
New definition on assets.
Within the new definition on assets which were introduced by
the IASB (international Accounting
Standards Board) board in March 2018, they have recognised an

asset as a economic resource
which would be controlled by the entity and further this asset is
existing within the business as a
result of a past event which has taken place. Further, a
definition on economic resources has
also been highlighted as an element which possesses the
potential to produce economic
benefits.
Previous definition on liabilities
Within the previous definition a liability was recognised as a
present obligation or a present loan
of the entity, further this obligation has arisen as a result of a
past event which has occured
within the entity and this obligation would result in future
outflow of economic resources from the
entity.
New definition on liabilities
Within the new definition on liability which were introduced by
the IASB (international
Accounting Standards Board) board in March 2018, they have
recognised a liability as a present
or currently available obligation of the entity to transfer an
economic resource or an economic
benefit to another party. Further this economic liability exists as
a result of a past event.
Subsequently a definition has been identified for an obligation
as a responsibility that cannot be
avoided by the entity.
(Revised Conceptual Framework for Financial Reporting |
Crowe Maldives LLP, 2020)
c. The roles of stewardship and prudence in financial reporting

Stewardship could be viewed as an element which could be used
as a useful tool when making
decisions and professional judgements to identify tolerable
levels of uncertainty measurement
when denoting faithful representation when preparing financial
statements.
The newly introduced Conceptual Framework highlights
specifically the importance of providing
accurate information to the management’s to identify their
stewardship in preparing and
presenting financial statements and specifically states that
faithful representation maintained
when recording a transaction reports its economic substance and
its legal substance.
Prudence identified that when measuring financial statement
elements namely the assets,
liabilities, income, expenses and capital components that those
needs to be reflected at their
actual values to abide by all the qualitative characteristics of
financial statements. In other words
these elements cannot be overstated or understated. The full
effort needs to be exerted to
identify the actual value to faithfully represent them in financial
statements.
To align the qualitative characteristics to stewardship and
prudence concepts the qualitative
characteristics are mainly divided into two sections namely
fundamental characteristics and
enhancing characteristics. Fundamental characteristics
comprises relevance and faithful
representation and further the enhancing qualitative
characteristics comprises comparability,
verifiability, timeliness and understandability.

(IFRS, 2020)
References.
Iasplus.com. 2020. Conceptual Framework — Presentation And
Disclosure; Elements Of Financial
Statements; Capital Maintenance (IASB Only). [online]
Available at:
<https://www.iasplus.com/en/meeting-notes/iasb/2013/march/cf-
2> [Accessed 9 March 2020].
Grantthornton.global. 2020. [online] Available at:
<https://www.grantthornton.global/globalassets/1.-member-
firms/global/insights/article-pdfs/2018/ifrs-new
s---a-revised-conceptual-framework-for-financial-
reporting.pdf> [Accessed 9 March 2020].
Iasplus.com. 2020. Conceptual Framework Phase E —
Presentation And Disclosure. [online] Available at:
<https://www.iasplus.com/en/projects/completed/framework/fra
mework-e> [Accessed 9 March 2020].
Crowe.com. 2020. Revised Conceptual Framework For Financial
Reporting | Crowe Maldives LLP.
[online] Available at:
<https://www.crowe.com/mv/insights/revised-conceptual-
framework-for-financial-reporting> [Accessed 9
March 2020].
Ifrs.org. 2020. IFRS. [online] Available at:
<https://www.ifrs.org/projects/2018/conceptual-framework/>

[Accessed 9 March 2020].