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Chapter 2: The Conceptual Framework

. The Framework was to be the foundation for building a set of coherent accounting standards and rules. The Framework is to be a reference of basic accounting theory for solving emerging practical problems of reporting. . Objectives of the Conceptual Framework. . The FASB has issued seven Statement

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Chapter 2: The Conceptual Framework

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    2. The Framework was to be the foundation for building a set of coherent accounting standards and rules. The Framework is to be a reference of basic accounting theory for solving emerging practical problems of reporting. Objectives of the Conceptual Framework

    3. The FASB has issued seven Statements of Financial Accounting Concepts (SFACs) to date (Statements 1 through 7.) These statements set forth major recognition and reporting issues. Statement 4 pertains to reporting by non-business entities. The other six statements pertain to reporting by business enterprises. Statements of Financial Accounting Concepts

    4. Statement 1 Statement 2 Statement 6 Statement 4 Statement 5 Statement 7 Objectives of Financial (FIN) Reporting Qualitative Characteristics Elements of FIN Statements Objectives of FIN Reporting (Non-business) Recognition and Measurement Criteria Using Cash Flows Statements of Financial Accounting Concepts

    5. The Framework has three different levels,comprised of: Overview of the Conceptual Framework

    6. Conceptual Framework for Financial Reporting

    7. Conceptual Framework for Financial Reporting

    8. Primary qualities of accounting information are relevance and reliability. Secondary qualities are comparability and consistency of reported information. Qualitative Characteristics of Accounting Information

    9. “Relevance of information means information capable of making a difference in a decision context.” Ingredients of relevant information are: Timeliness Predictive value - Feedback value – allows users to confirm or correct prior expectations Primary Characteristic of Accounting Information: Relevance

    10. Information is Reliable when it can be relied on to represent the true, underlying situation. The ingredients of reliable information are: verifiability representational faithfulness neutrality (unbiased) Primary Characteristic of Accounting Information: Relevance

    11. Comparability: the similar measurement and reporting for different enterprises. Consistency: application of the same accounting treatment to similar events by an enterprise from period to period. Secondary Characteristics of Accounting Information

    12. Conceptual Framework for Financial Reporting

    13. Assets Liabilities Equity Investment by Owners Distributions to Owners Comprehensive Income Revenues Expenses Gains Losses Basic Elements of Financial Statements

    14. Conceptual Framework for Financial Reporting

    15. Recognition and Measurement Criteria

    16. Periodicity Assumption Assumptions

    17. Full Disclosure Principle Principals

    18. Conservatism Constraints

    19. Summary

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