Accounting 312- ch 2 - Accounting 312 Chapter 2- Conceptual...

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Accounting 312 Chapter 2- Conceptual Framework Underlying Financial Accounting Conceptual Framework is a coherent system of interrelated objectives and fundamentals that can lead to consistent standards that prescribes the nature, function and limits of financial accounting and financial statements FIRST LEVEL: objectives of financial reporting- decision usefulness SECOND LEVEL: bridge between two levels- qualitative characteristics of acctg info and elements of financial statements THIRD LEVEL: the “how” implementation- recognition and measurement concepts (assumptions, principles, constraints) First Level: The objective of financial reporting are to provide info that is useful to those making investment and credit decisions, helpful to present and potential investors and creditors, and about econ resources, the claims to those resources, and changes in them ***decision usefulness Second Level: How does a company choose an acceptable acctg method, the amt and types of info to disclose, etc? By determining which alternative provides the most useful info for decision making purposes: DECISION USEFULNESS *connection btwn users and decisions they make- understandability *Primary Qualities: relevance and reliability necessary for acctg info to be useful to decision making •to be relevant, acctg info must be capable of making a difference in a decision- has predictive value or feedback value (confirm or correct prior expectations) and it has timeliness •reliability- verifiable , is a faithful representation and is reasonably free of error and bias *Secondary Qualities: •comparability: info that is measured and reported in a similar manner for different companies •consistency: apply same acctg treatment to similar events from period to period Third Level: (see below for basic assumption, principles and constraints) Basic Elements 1. Assets- probable future economic benefits obtained or controlled by a particular entity as
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Accounting 312- ch 2 - Accounting 312 Chapter 2- Conceptual...

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