Conceptual Framework
Active
The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities
Establishes the foundational concepts, objectives, qualitative characteristics, reporting entity boundaries, elements (assets, liabilities, revenue, expense), recognition criteria, measurement bases, and presentation rules for public sector GPFRs.
Active Standard
The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities establishes the overarching concepts underpinning all accrual-basis IPSAS and RPGs. It sets out reporting objectives, qualitative characteristics, element definitions, recognition criteria, measurement bases, and presentation principles.
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Chapter 1 – Role & Authority of the Conceptual Framework (paras. 1.1–1.8)
Role – concepts, not requirements
Establishes the CONCEPTS underpinning general purpose financial reporting by public sector entities on the accrual basis. The IPSASB APPLIES these concepts in developing IPSAS and RPG (para. 1.1).
Critical distinction: the Conceptual Framework does NOT establish authoritative requirements for entities that adopt IPSAS, and does NOT override any IPSAS or RPG requirement. Authoritative recognition, measurement, and presentation requirements live in the STANDARDS themselves (para. 1.2).
Where it fills gaps, and who it applies to
The Framework CAN guide financial reporting issues not addressed by IPSAS or RPG – preparers may refer to its definitions, recognition criteria, measurement principles, and other concepts in those gaps (para. 1.3). This is the SAME role IPSAS 3 assigns it when no explicit Standard exists.
National, regional, state/provincial, and local governments Government ministries, departments, programs, boards, commissions, agencies Public sector social security funds, trusts, and statutory authorities International governmental organizations (para. 1.8)
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Chapter 2 – Objectives of Financial Reporting & Primary Users (paras. 2.1–2.6)
The stated objective
Provide information about the entity useful to GPFR users for ACCOUNTABILITY purposes AND for DECISION-MAKING purposes
Financial reporting is NOT an end in itself – its purpose is providing useful information. Objectives are therefore determined BY REFERENCE to users and their information needs (paras. 2.1–2.2).
Who counts as a "primary user" (paras. 2.3–2.5)
Service recipients and their representatives Resource providers and their representatives (taxpayers, donors, lenders) The legislature (or similar body) and its members, acting as representatives of both groups above
CITIZENS are primary users – both receiving services AND providing resources. Others (statisticians, media, rating agencies, regulators, entity management) may find GPFRs useful, but are NOT primary users – GPFRs aren't developed to specifically meet THEIR needs (para. 2.6).
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Chapter 2 – Accountability, Decision-Making & Information Needs (paras. 2.7–2.13)
Why public sector accountability differs
Public sector services are mostly provided via NON-EXCHANGE transactions in a non-competitive environment (para. 2.7). Accountability requires information about resource management, compliance with governing legislation, service delivery achievements, AND capacity to keep delivering services in the future (para. 2.8).
Decision-making – an asymmetric relationship
VOLUNTARY resource providers (lenders, creditors, donors) decide WHETHER to provide resources – a genuine choice TAXPAYERS rarely have that choice – no voluntary provision, no alternative service provider – but they CAN influence outcomes through voting preferences and representations to elected officials (para. 2.9)
Accountability information FEEDS decision-making – e.g. cost/efficiency/effectiveness data about past service delivery informs decisions about future resource allocation (para. 2.10).
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Chapter 2 – Categories of Information Provided by GPFRs (paras. 2.14–2.29)
The core financial statement content
Financial position – resources and claims to resources at the reporting date; safekeeping/management assessment; future resource availability (para. 2.14) Financial performance – whether resources were acquired economically and used efficiently/effectively; cost recovery sources (para. 2.15) Cash flows – liquidity, solvency, borrowing/repayment, and compliance with cash-denominated spending mandates (para. 2.16)
Four categories beyond the core statements
Budget information – compliance with approved budgets and governing legislation/authority (paras. 2.18–2.21) – the conceptual root of IPSAS 24 Service delivery achievements – quantitative (cost, volume, frequency) AND qualitative (outcome, quality) measures, since financial results alone don't capture public sector performance (paras. 2.22–2.24) – the root of IPSAS 18 Prospective information – anticipated future service delivery and its resource/funding implications, given the LONGEVITY of government programs (paras. 2.25–2.27) Explanatory information – the major factors underlying performance, and the assumptions behind future expectations (para. 2.28)
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Chapter 3 – Relevance & Faithful Representation (paras. 3.6–3.16)
Relevance – confirmatory AND predictive value
Information is relevant if capable of making a difference in achieving financial reporting's objectives – via CONFIRMATORY value (confirms/changes past expectations), PREDICTIVE value (helps form expectations about the future), or both. Information can be relevant even if some users already know it or choose not to use it (paras. 3.6–3.9).
Faithful representation – three components
Complete – includes everything needed to depict the phenomenon, including necessary descriptive/explanatory detail Neutral – free from bias, not selected/presented to attain a predetermined result – supported by the exercise of PRUDENCE (caution under uncertainty: assets/revenue not overstated, liabilities/expense not understated – and the reverse misstatements are equally barred) Free from material error – no individually or collectively material errors/omissions; estimates are free from error if clearly labeled as estimates, with the estimation process explained (paras. 3.10–3.16)
Faithful representation depicts SUBSTANCE, which isn't always the same as legal form (para. 3.10) – the conceptual root of "substance over form," invoked throughout IPSAS 20, 23, and elsewhere in this library.
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Chapter 3 – Understandability, Timeliness, Comparability & Verifiability (paras. 3.17–3.31)
Understandability & timeliness
UNDERSTANDABILITY: information presented in a manner responding to users' needs and knowledge base (para. 3.17). TIMELINESS: information available before it loses capacity to be useful – though some information (trend data, program outcomes) stays useful for years (paras. 3.19–3.20).
Comparability & verifiability
COMPARABILITY ≠ consistency (same policies applied), and ≠ uniformity (making unlike things look alike REDUCES comparability, just as making like things look different does) (paras. 3.21–3.23) VERIFIABILITY (or "supportability" for explanatory/prospective information): different knowledgeable, independent observers could reach general consensus that information faithfully represents what it purports to, without material error or bias – DIRECT verification (counting cash) or INDIRECT verification (recalculating from inputs) (paras. 3.26–3.29)
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Chapter 3 – Constraints on Information: Materiality, Cost-Benefit & Balance (paras. 3.32–3.42)
Materiality
Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence accountability discharge or user decisions
Depends on BOTH nature and amount, judged in each entity's circumstances. Compliance/non-compliance disclosures may be material by NATURE alone, irrespective of the magnitude involved (paras. 3.32–3.34).
Cost-benefit & balancing the characteristics
The BENEFITS of financial reporting should justify its COSTS – collecting, processing, verifying, presenting, and disseminating information all carry costs; so does OMITTING useful information (paras. 3.35–3.36) PREPARERS bear the effort; service recipients/resource providers ultimately bear the cost (resources diverted from service delivery); USERS reap most of the benefit, though management also benefits internally (paras. 3.37–3.38) The qualitative characteristics WORK TOGETHER – a faithful depiction of an irrelevant phenomenon is no more useful than an unfaithful depiction of a relevant one. Trade-offs between characteristics are sometimes necessary (paras. 3.41–3.42)
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Chapter 4 – The Reporting Entity (paras. 4.1–4.11)
The two-part test (para. 4.3)
An entity that RAISES resources from, or on behalf of, constituents AND/OR USES resources to undertake activities for their benefit There are SERVICE RECIPIENTS or RESOURCE PROVIDERS dependent on the entity's GPFRs for accountability or decision-making information
A GROUP REPORTING ENTITY is two or more separate entities presenting GPFRs as if a single entity (para. 4.2).
Signaling factors & the judgment zone
Larger resource-raising/deployment capacity, greater liabilities, and greater economic/social impact → MORE likely dependent users exist (para. 4.7). Since GPFR preparation isn't cost-free, only entities where such users genuinely exist should be REQUIRED to prepare them (para. 4.8). National/state/local governments and international organizations clearly qualify; individual departments, agencies, or programs require professional JUDGMENT (paras. 4.9–4.10). A reporting entity need NOT have separate legal identity (para. 4.11).
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Chapter 5 – Elements: Assets (paras. 5.6–5.13)
The definition – rights, not physical objects
An asset = a resource presently controlled by the entity as a result of past events
A resource = a right to service potential or the capability to generate economic benefits, or both
Conceptually, the resource IS the set of rights, not the physical object – though describing the rights AS the physical object often gives the most concise, faithful representation (paras. 5.6, 5.7F).
Three tests: rights, benefit, control
RIGHTS take many forms – corresponding to another party's obligation (right to cash, goods/services, favorable exchange) OR not (rights over physical objects, intellectual property) To be an ASSET, rights must have service potential/economic benefits BEYOND those available to all other parties – public rights of way, or public-domain know-how, generally aren't assets (para. 5.7D) CONTROL indicators: legal ownership; ability to permit/deny/restrict access; means to ensure the resource achieves the entity's objectives; an enforceable right to the benefits (para. 5.12)
SERVICE POTENTIAL enables an entity to achieve objectives WITHOUT necessarily generating net cash inflows – the conceptual root distinguishing IPSAS 21 (non-cash-generating) from IPSAS 26 (cash-generating) impairment (paras. 5.8–5.9). An agent holding a principal's resources does NOT have an asset (para. 5.12A).
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Chapter 5 – Elements: Liabilities (paras. 5.14–5.17D)
The definition – three required criteria (para. 5.14A)
A liability = a present obligation of the entity to transfer resources as a result of past events
The entity has an OBLIGATION The obligation is to TRANSFER RESOURCES It is a PRESENT obligation arising from one or more PAST events
Legal vs non-legally-binding obligations
TypeTest
LegalEnforceable in law (or an equivalent alternative process, where an entity can't formally contract) (para. 5.15C)
Non-legally bindingEstablished pattern of past practice, published policy, or sufficiently specific statement → creates a valid expectation in others → little/no realistic alternative to avoid settling (para. 5.15F) – the conceptual root of IPSAS 19's "constructive obligation"
An entity CANNOT be obligated to itself, even via public communication (para. 5.15A). Political promises/electoral pledges rarely create obligations; a budget becoming effective, or claimants meeting eligibility criteria, is more likely to (paras. 5.17B–5.17C). Even "economic coercion" or "political necessity," without legal obligation, MAY still create a liability (para. 5.17D).
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Chapter 5 – Unit of Account & Binding Arrangements Equally Unperformed (paras. 5.26A–5.26J)
Unit of account – grouping for relevance and faithful representation
The unit of account is the right (or group of rights), obligation (or group), or combination, to which recognition and measurement concepts are APPLIED. Different units may be selected for recognition vs. measurement of the same item (paras. 5.26A–5.26B).
Grouping into ONE unit may be more relevant when rights/obligations can't be separately transacted, expire similarly, share risk characteristics, or are used together operationally (para. 5.26D) Cost-benefit matters: costs generally RISE as unit-of-account size decreases – separate only when the resulting information is genuinely more useful (para. 5.26E)
Grouping into a single unit of account is DIFFERENT from offsetting – offsetting nets two SEPARATELY recognized/measured items into one line; a single unit of account was never separate to begin with (para. 5.26H).
Binding arrangements equally unperformed
Where NEITHER party (or both equally partially) has performed, the combined right and obligation to exchange resources is INSEPARABLE – a single asset (if terms are currently FAVORABLE) or single liability (if UNFAVORABLE) (para. 5.26I). Once EITHER party performs first, the arrangement's character CHANGES: the reporting entity performing first converts its position into a right to receive (an asset); the counterparty performing first converts it into an obligation to transfer (a liability) (para. 5.26J).
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Chapter 5 – Net Financial Position, Revenue, Expense, Surplus/Deficit & Ownership Movements (paras. 5.27–5.37)
Net financial position & the results elements
Net financial position
Assets minus liabilities, plus other resources, minus other obligations – can be positive or negative.
Revenue
Increases in net financial position, OTHER than increases from ownership contributions.
Expense
Decreases in net financial position, OTHER than decreases from ownership distributions.
Surplus or deficit
The difference between revenue and expense on the statement of financial performance.
Ownership contributions & distributions – kept OUT of revenue/expense
Ownership contributions – inflows from external parties AS OWNERS, establishing or increasing an interest in net financial position Ownership distributions – outflows to external parties AS OWNERS, returning or reducing that interest
Public sector ownership interests may take forms with NO equity instrument at all – often transfers of assets/liabilities linked to government restructuring, rather than cash transactions (para. 5.36). Distributions may be a return ON investment, a return OF investment (full/partial), or a residual-resource return on wind-up (para. 5.37).
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Chapter 6 – Recognition in Financial Statements (paras. 6.1–6.10)
Two recognition criteria (para. 6.2)
The item satisfies the DEFINITION of an element (Chapter 5) It can be MEASURED in a way that achieves the qualitative characteristics, taking constraints into account
Recognition = incorporating an item that meets these criteria into the AMOUNTS displayed on the face of the appropriate financial statement (para. 6.1). Every item meeting the criteria IS recognized – though a specific IPSAS may separately require recognition of a resource/obligation that does NOT meet an element definition (an "other resource"/"other obligation") if it's measurable and helps meet financial reporting's objectives (para. 6.3).
Uncertainty, and derecognition
EXISTENCE uncertainty is addressed by weighing available evidence for a NEUTRAL judgment on whether all essential characteristics of the element definition are met (para. 6.5) MEASUREMENT uncertainty is addressed via the measurement basis selection (Chapter 7) – using ranges of outcomes, point estimates, and available evidence about conditions at the reporting date (paras. 6.7–6.8) Uncertainty is REASSESSED at each reporting date, since underlying conditions can change (para. 6.4)
Derecognition (para. 6.10) is addressed briefly in the Framework, with detailed guidance left to standards level.
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Chapter 7 – The Objective & Framework of Measurement (paras. 7.2–7.24)
The objective – three lenses
Select measurement bases that most fairly reflect COST OF SERVICES, OPERATIONAL CAPACITY, and FINANCIAL CAPACITY, useful for accountability and decision-making
No SINGLE measurement basis best serves this objective for every circumstance – the Framework provides guidance for SELECTING among bases, rather than mandating one universally (para. 7.15).
Initial measurement, then three subsequent levels
INITIAL measurement = transaction price ± transaction costs (historical cost), unless no reliable price data exists or another basis is more faithful – then DEEMED COST is used (paras. 7.5–7.7) Measurement MODELS – broad approaches: historical cost (no price-change reflection except impairment/onerous liabilities) vs. current value (updated to reflect price changes) (paras. 7.9–7.11) Measurement BASES – specific ways of measuring within the selected model Measurement TECHNIQUES – methods to estimate the amount under the selected basis, detailed at standards level (para. 7.14)
Entity-specific vs non-entity-specific, entry vs exit
BasisEntity-specific?Entry or exit
Historical cost (assets & liabilities)Entity-specificEntry
Current operational value (assets)Entity-specificEntry
Cost of fulfillment (liabilities)Entity-specificExit
Fair value (assets & liabilities)Non-entity-specificExit
Entity-specific bases reflect the entity's OWN economic/legal constraints and opportunities; non-entity-specific bases reflect general MARKET opportunities and risks (paras. 7.20–7.23).
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Chapter 7 – Measurement Bases for Assets (paras. 7.25–7.62)
Historical Cost
Consideration given to acquire/construct/develop the asset, PLUS transaction costs
Best where transaction data is reliable and readily available – generally verifiable, understandable, timely. Does NOT reflect price changes (except impairment). Comparable only between assets acquired at similar dates (paras. 7.26–7.34).
Current Operational Value
The amount the entity would PAY for the remaining SERVICE POTENTIAL of the asset, in its existing use
Entity-specific; assumes CONTINUED use for service delivery rather than sale. Best for cost-of-services and operational-capacity assessments – NOT financial capacity (paras. 7.37–7.44). Selected when an asset is primarily held for OPERATIONAL capacity, per the judgment in para. 7.36.
Fair Value
The price received to sell the asset in an ORDERLY transaction between market participants
Non-entity-specific, market-based. Best for FINANCIAL capacity, and assets held for sale or surplus to operational needs. Orderly markets need: no transacting barriers, sufficient transaction frequency/volume, many well-informed willing participants (paras. 7.45–7.56).
Value in Use – impairment-only
Cash-generating asset – present value of estimated future cash flows from continuing use plus eventual disposal (para. 7.58) Non-cash-generating asset – the asset's remaining SERVICE POTENTIAL at the measurement date (para. 7.59)
Both are complex and subjective – group-asset allocations can be arbitrary, undermining faithful representation. This is WHY value in use is applicable almost exclusively to impairment losses/reversals (paras. 7.60–7.62) – directly underpinning IPSAS 21 and IPSAS 26's dual value-in-use definitions.
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Chapter 7 – Measurement Bases for Liabilities (paras. 7.63–7.75)
Historical Cost
Consideration RECEIVED to assume the obligation, MINUS transaction costs, at the time incurred
Adjusted over time for interest accrual, discount accretion, or premium amortization. Appropriate where liabilities settle at stated terms – NOT applicable to liabilities not arising from a transaction (e.g. tort damages), or liabilities that vary in amount (e.g. defined benefit pensions) (paras. 7.64–7.67).
Cost of Fulfillment
Costs the entity will incur fulfilling the obligation, in the LEAST COSTLY manner, at the measurement date
Where outcomes are uncertain, all possible outcomes are weighted unbiasedly. EXCLUDES any contractor's profit margin when the entity does the work itself; INCLUDES it when a contractor is genuinely the least-costly option (paras. 7.68–7.73) – the conceptual root of IPSAS 19's best-estimate provisioning approach.
Fair Value
The price PAID to transfer the liability in an orderly transaction between market participants
Appropriate where the liability tracks a specified market rate/price/index. Weaker case where transfer is restricted or terms unclear – especially for NON-EXCHANGE obligations, which rarely have an orderly market (paras. 7.74–7.75).
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Chapter 8 – Presentation in General Purpose Financial Reports (paras. 8.1–8.44)
Presentation = selection + location + organization
Presentation is the SELECTION, LOCATION, and ORGANIZATION of information reported in GPFRs – decisions made in response to users' needs about economic or other phenomena. These three decisions are INTERLINKED and usually considered together (paras. 8.4–8.8).
Presentation LINKS BACK to every earlier chapter: objectives, user needs, qualitative characteristics, and constraints all shape presentation choices; for financial statement content specifically, the element definitions, recognition criteria, and measurement bases (Chapters 5–7) also drive presentation (para. 8.2).
Display vs disclosure – not interchangeable
CategoryRole
DISPLAYED informationCommunicates KEY MESSAGES – kept concise and understandable so it isn't obscured by detail; presented prominently (clear labeling, borders, tables, graphs)
DISCLOSED informationMakes displayed information MORE USEFUL by adding detail – accounting policies/methodologies, disaggregations, and items meeting only some element/recognition characteristics
Disclosure is NOT a substitute for display (para. 8.15) – a distinction this poster library invokes constantly through its own "Statement / Process Mapping" sections, which route each concept to the specific statement or notes.
Selection principles & information location/organization
Selection decisions weigh the objectives of financial reporting, the qualitative characteristics/constraints, and the relevant phenomena – avoiding INFORMATION OVERLOAD, which itself reduces understandability (paras. 8.25–8.26) All material items are presented reflecting SUBSTANCE over legal/other form (para. 8.29) – cost-benefit judgment applies to selection decisions just as it does to recognition (para. 8.30) LOCATION decisions determine which report, and which component of a report, information sits in – informed by the same objectives and characteristics (paras. 8.36–8.37) ORGANIZATION addresses arrangement, grouping, and ordering of information within a report (para. 8.45)
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How the Conceptual Framework Anchors Every IPSAS Standard in This Library
Concepts that surface, standard after standard
Framework conceptWhere it resurfaces
Control as the asset test (Ch. 5)IPSAS 12, 16, 23, 27, and the consolidation suite (34/35/36/37) all build on the four control indicators from para. 5.12
Service potential vs economic benefits (Ch. 5)The IPSAS 21/26 split (non-cash-generating vs cash-generating impairment) is a direct application of para. 5.8's distinction
Non-legally-binding (constructive) obligations (Ch. 5)IPSAS 19's constructive-obligation definition mirrors para. 5.15F's three attributes almost word for word
Historical cost / current operational value / fair value (Ch. 7)IPSAS 16's current value vs. historical cost model choice, and IPSAS 45's measurement bases, both trace directly to §15's three asset bases
Value in use, impairment-only (Ch. 7)IPSAS 21 and IPSAS 26 both quote the Framework's value-in-use definitions nearly verbatim
Substance over form & neutrality (Ch. 3)Invoked explicitly in IPSAS 20 (related party substance), IPSAS 23 (non-exchange transaction classification), and IPSAS 28 (financial instrument classification)
Materiality as a constraint (Ch. 3)Every Standard's disclosure package assumes and applies the para. 3.32 materiality test without re-deriving it
Budget information as a GPFR category (Ch. 2)IPSAS 24's entire subject matter is the operationalization of para. 2.18's budget-information objective
Display vs disclosure (Ch. 8)The house-style "Statement / Process Mapping" section in every poster in this library routes concepts using exactly this distinction
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Related Documents – Cross-Reference Map
How the Conceptual Framework connects across the Handbook
DocumentNature of the connection
Preface to IPSASSits immediately before the Framework in the Handbook; para. 10's footnote points here for the full range of applicable public sector entities (Ch. 1)
IPSAS 1Operationalizes Ch. 8's display/disclosure distinction into the actual required financial statement structure
IPSAS 3Directs preparers to the Framework's definitions, recognition criteria, and measurement principles when no explicit IPSAS guidance exists (Ch. 1, para. 1.3)
IPSAS 18 / 24Directly implement the service-delivery and budget-information GPFR categories introduced in Ch. 2
IPSAS 19Its present-obligation and constructive-obligation recognition tests are near-direct restatements of Ch. 5's liability definition
IPSAS 21 / 26Both Standards' value-in-use definitions and impairment logic are built directly on Ch. 7's measurement-basis guidance
IPSAS 40The binding-arrangement, control, and unit-of-account concepts in Ch. 5 underpin how a public sector combination is identified and measured
IPSAS 45 / 46The current operational value and fair value measurement bases in Ch. 7 are the direct conceptual source for IPSAS 46's measurement framework
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Quick-Reference Glossary
General purpose financial reports (GPFRs)
Reports intended to meet the needs of users unable to require reports tailored to their specific needs.
Asset
A resource presently controlled by the entity as a result of past events.
Liability
A present obligation of the entity to transfer resources as a result of past events.
Service potential
The capability of a resource to provide services contributing to an entity's objectives, without necessarily generating net cash inflows.
Historical cost
Consideration given (assets) or received (liabilities) at the time of the transaction, adjusted for transaction costs.
Fair value
The price received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants.
Current operational value
The amount the entity would pay for an asset's remaining service potential at the measurement date.
Cost of fulfillment
The costs an entity will incur fulfilling a liability, assuming it does so in the least costly manner.
Recognition
Incorporating an item meeting an element definition and measurable to the required standard into the financial statement amounts.
Unit of account
The right, group of rights, obligation, group of obligations, or combination, to which recognition and measurement concepts are applied.
Materiality
Information whose omission, misstatement, or obscuring could reasonably influence accountability discharge or user decisions.
Faithful representation
A depiction that is complete, neutral, and free from material error.