Chapter 2 Slides - Chapter 2 Conceptual Framework...

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1 Chapter 2 Conceptual Framework Underlying Financial Reporting
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2 Conceptual Framework Why do we need it? a constitution for the accounting profession a foundation for building a set of coherent accounting standards and rules a reference for solving new and emerging practical problems Three levels of framework
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3 1 st Level: Basic Objectives (Refer to Chapter 1) To provide information: to users with reasonable knowledge of business and economic activities and accounting for making resource allocation decisions and/or assessing management stewardship
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4 2 nd Level: Fundamental Concepts Bridge between levels 1 and 3 Including: Qualitative characteristics of accounting information Elements of financial statements
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5 2 nd Level: Qualitative Characteristics 1. Relevance Predictive value vs. Feedback value Timeliness? 2. Reliability Verifiable? A faithful representation of the reality? Neutral? Examples of trade-offs?
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6 2 nd Level: Qualitative Characteristics (cont’d) 1. Understandability Information significance perceivable? 2.
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Chapter 2 Slides - Chapter 2 Conceptual Framework...

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