CHAPTER 2 Conceptual FrameworkUnderlying Financial Accounting

CHAPTER 2 Conceptual FrameworkUnderlying Financial Accounting

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Unformatted text preview: 2-1CHAPTER 2Conceptual FrameworkUnderlying Financial Accounting2-2LECTURE OUTLINEThe material in this chapter can usually be covered in two class sessions. The firstclass session can be used for lecture and discussion of the concepts presented in thechapter. The second class session can be used to develop student’s understanding ofthese concepts by applying them to specific accounting situations. Students frequentlybelieve that they understand the concepts but have difficulty correctly identifyingimproper accounting procedures in practical situations. Apparently students are notalone in this difficulty. See Joyce, Libby, and Sunder, bibliography reference 25, whichindicates that former APB and FASB members disagreed as to which accounting policyprovided more relevance.Several of the bibliography references provide useful background material on the FASBand the conceptual framework. (See Miller and Mosso, reference 22; Pacter, reference24; Miller, reference 19; Rubin, reference 10; and Daley and Tranter, reference 7.)The conceptual framework structure described in the chapter includes SFAC No. 5,"Recognition and Measurement in Financial Statements." SFAC No. 5indicates that aninformation item should meet four fundamental recognition criteria to be recognized inthe financial statements:(1)Definitions.The item meets the definition of an elementof financial statements.(2)Measurability.It has a relevant attribute (e.g., historical cost, current cost, etc.)which is measurable with sufficient reliability.(3)Relevance.The information is capable of making a difference in user decisions.(4)Reliability.The information is representationally faithful, verifiable, and neutral.Because current practice is generally consistent with these criteria, the overallapproach of Chapter 2 remains unchanged. We have incorporated SFAC No. 5intothe third level of Illustrations 2-1 and 2-2. This was done by grouping the assumptions,principles, and constraints of the third level under the heading "Recognition andMeasurement Concepts."2-3TEACHING TIPThe issues discussed in the chapter can be integrated by using the followingillustrations. Illustration 2-1might be put up first to show the relationship betweenobjectives, characteristics, elements, assumptions, principles, and constraints. Therelationship between the three levels could be emphasized. The Illustration 2-2could be used to fill in the details of the six categories of items by listing the...
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This note was uploaded on 01/10/2011 for the course FSD 201 taught by Professor Huong during the Spring '10 term at Beacon FL.

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CHAPTER 2 Conceptual FrameworkUnderlying Financial Accounting

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