4     (a)   Two important and interrelated aspects of relevance  are its confirmatory and predictive roles. The Framework specifically states that to have predictive value, information need not be in the form of an explicit forecast. The serious drawback of forecast information is that it does not have (strong) confirmatory value; essentially it will be an educated guess.

IFRS examples of enhancing the predictive value of historical financial statements are:

(i)   The   disclosure   of   continuing   and   discontinued   operations.   This   allows   users   to   focus   on   those   areas   of   an   entity’s operations that will generate its future results. Alternatively it could be thought of as identifying those operations which will not yield profits or, perhaps more importantly, losses in the future.

(ii)  The separate disclosure of non-current assets held for sale. This informs users that these assets do not form part of an entity’s long-term operating assets.

(iii) The separate disclosure of material items of income or expense (e.g. a gain on the disposal of a property). These are often   ‘one   off’   items   that   may   not   be   repeated   in   future   periods.   They   are   sometimes   called   ‘exceptional’   items   or described in the Framework as ‘unusual, abnormal and infrequent’ items.

(iv)  The   presentation   of   comparative   information   (and   the   requirement   for   the   consistency   of   its   presentation   such   as retrospective application of changes in accounting policies) allows for a degree of trend analysis. Recent trends may help predict future performance.

(v)   The requirement to disclose diluted EPS is often described as a ‘warning’ to shareholders of what EPS would have been if any potential (future) equity shares such as convertibles and options had already been exercised.

(vi)  The   Framework’s   definitions   of   assets   (resources   from   which  future  economic   benefits   should   flow)   and   liabilities(obligations which will result in a future outflow of economic benefits) are based on an entity’s future prospects rather than its past costs.

Note: other examples may be acceptable.

Tutorial note: The IASB revised framework ‘The Conceptual Framework for Financial Reporting’ is not listed as an examinable document in 2011. However, candidates using this knowledge will be given equal credit.