Conceptual Framework Review: A conceptual framework underlying financial accounting is necessary because future accounting practice problems can be solved by reference to the conceptual framework and a formal standard-setting body will not be necessary. False Chapter 2-6 LO 1 Describe the usefulness of a conceptual framework
Chapter 2-6
Development of Conceptual Framework The FASB has issued six Statements of Financial Accounting Concepts(SFAC)for business enterprises. SFAC No.1-Objectives of Financial Reporting SFAC No.2-Qualitative Characteristics of Accounting Information SFAC No.3-Elements of Financial Statements(superceded by SFAC No.6) SFAC No.4-Nonbusiness Organizations SFAC No.5-Recognition and Measurement in Financial Statements SFAC No.6-Elements of Financial Statements(replaces SFAC No.3) SFAC No.7-Using Cash Flow Information and Present Value in Accounting Measurements Chapter 2-7 LO 2 Describe the FASB's efforts to construct a conceptual framework
Chapter 2-7 The FASB has issued six Statements of Financial Accounting Concepts (SFAC) for business enterprises. SFAC No.1 - Objectives of Financial Reporting SFAC No.2 - Qualitative Characteristics of Accounting Information SFAC No.3 - Elements of Financial Statements (superceded by SFAC No. 6) SFAC No.4 - Nonbusiness Organizations SFAC No.5 - Recognition and Measurement in Financial Statements SFAC No.6 - Elements of Financial Statements (replaces SFAC No. 3) SFAC No.7 - Using Cash Flow Information and Present Value in Accounting Measurements
Conceptual Framework The Framework is comprised of three levels: First Level Basic Ob.jectives Second Level Qualitative Characteristics and Basic Elements Third Level Recognition and Measurement Concepts. Chapter 2-8 LO 2 Describe the FASB's efforts to construct a conceptual framework
Chapter 2-8 The Framework is comprised of three levels: First Level = Basic Objectives Second Level = Qualitative Characteristics and Basic Elements Third Level = Recognition and Measurement Concepts
ASSUMPTIONS PRINCIPLES CONSTRAINTS 1.Economic entity 1.Historical cost 1.Cost-benefit 2.Going concern 2.Revenue recognition 2.Materiality Third 3.Monetary unit 3.Matching 3.Industry practice level 4.Periodicity 4.Full disclosure 4.Conservatism QUALITATIVE CHARACTERISTICS ELEMENTS Relevance Assets,Liabilities,and Equity Reliability Investments by owners Distribution to owners Second level Comparability Comprehensive income Revenues and Expenses Consistency Gains and Losses Illustration 2-6 Conceptual OBJECTIVES Framework for 1.Useful in investment Financial and credit decisions 2.Useful in assessing Reporting future cash flows First level 3.About enterprise resources,claims to resources,and changes in them LO 2 Describe the FASB's Chapter efforts to construct a 2-9 conceptual framework
Chapter 2-9 Conceptual Framework for Financial Reporting First level Second level Third level
Conceptual Framework Review: What are the Statements of Financial Accounting Concepts intended to establish? a. Generally accepted accounting principles in financial reporting by business enterprises. b. The meaning of "Present fairly in accordance with generally accepted accounting principles." The objectives and concepts for use in developing standards of financial accounting and reporting. d.The hierarchy of sources of generally accepted accounting principles. (CPA adapted) Chapter 2-10 LO 2 Describe the FASB's efforts to construct a conceptual framework
Chapter 2-10