Conceptual Framework (1).ppt - CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING By Abdullatif Essajee Introduction Accounting has been defined as both a

Conceptual Framework (1).ppt - CONCEPTUAL FRAMEWORK FOR...

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CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING By: Abdullatif Essajee
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Introduction Accounting has been defined as both a science as well as an art. “the art and science of recording transactions, processing the recorded transactions into a comprehensible form and communicating the information to interested parties.” (N.D. Nzomo,2002)
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Introduction The science of accounting refers to “the why” of accounting The art of accounting refers to “the how” of accounting. It is a science because it is backed by a body of knowledge ; “the conceptual framework” .
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What is a Conceptual Framework? “a constitution, a coherent * system of interrelated objectives and fundamentals that (i) can lead to consistent standards, and (ii) prescribes the nature, function and limits of financial accounting and financial accounting statements”.
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A Conceptual Framework Is not the description of fundamental truths and axioms as found in theories regarding the natural sciences which are derived from and proven by the laws of nature. Axiom a premise so evident to be accepted without contradiction. Is created, developed or decreed on the basis of environmental factors, intuition, authority and acceptability. Decreed ;once the framework there is an authority behind it
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Credibility of the Conceptual Framework rests upon its general recognition and acceptance by preparers, auditors and users of financial statements.
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Why a Conceptual Framework? Enables the development and issuance of a coherent set of standards and practices built upon the same foundation. increases financial statement users’ understanding of and confidence in financial reporting.
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Why a Conceptual Framework?... enhances comparability among financial statements of different companies. It provides a basis upon which similar transactions and events are similarly accounted for and reported.
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Why a Conceptual Framework?... assists in the resolution of new and emerging practical problems by providing a frame of reference for resolving accounting issues. defines the bounds of judgment in the preparation of financial statements.
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2-10 Three levels: Overview of the Conceptual Framework CONCEPTUAL FRAMEWORK First Level: Objectives of Financial Reporting Second Level: Qualitative Characteristics and Elements of Financial Statements Third Level: Recognition and Measurement Guidelines LO 2
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2-11 ASSUMPTIONS PRINCIPLES CONSTRAINTS OBJECTIVE Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in their capacity as capital providers. ELEMENTS 1. Assets 2. Liabilities 3. Equity 4. Income 5. Expenses ILLUSTRATION 2-7 Conceptual Framework for Financial Reporting First level The "why"—purpose of accounting Second level Bridge between levels 1 and 3 Third level The "how"— implementation QUALITATIVE CHARACTERISTICS 1.
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