Ch02 Notes - Chapter 2 Conceptual Framework Objective 1....

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2- Chapter 2 Conceptual Framework Objective 1. Describe the usefulness of a conceptual framework. Conceptual Framework is “a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting and financial statements.” A Conceptual Framework is like a constitution . A conceptual framework in accounting is important because it can lead to consistent standards new rules will be built on same foundation users will understand and have confidence in financial reporting enhance comparability among companies financial statements can lead to quick solutions to new and emerging practical problems by reference to an existing framework of basic theory. Objective 2. Describe the FASB's efforts to construct a conceptual framework. Over the years many organizations, committees and individuals published their own set of conceptual frameworks - - confusion None were universally accepted and relied on. The FASB recognized the need for a generally accepted framework Began work in 1976 FASB has issued six Statements of Financial Accounting Concepts for businesses. First Level – Objectives the “why” – goals and purposes of accounting SFAC No. 1. " Objectives of Financial Reporting by Business Enterprises" presents the purposes and goals of accounting . Second Level - Qualitative Characteristics and Elements - the bridge between 1 & 3 SFAC No. 2. " Qualitative Characteristics of Accounting Information" examines the characteristics that make accounting information useful . SFAC No. 3. " Elements of Financial Statements of Business Enterprises" defines the broad clas sifications of items found in fin ancial statements. Third Level - Measurement Concepts – the “how” - implementation SFAC No. 5. " Recognition and Measurement in Financial Statements of Business Enterprises" gives guidance on what information should be formally incorporated into financial statements and when . SFAC No. 6. " Elements of Financial Statements" replaces SFAC No. 3 and expands its scope to include not-for-profit organizations. Defines the broad classifications of items found in financial statements SFAC No. 7. "Using Cash Flow Information and Present Value in Accounting Measurements," provides a framework for using expected future cash flows and present value as a basis for measurement.
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2- Conceptual Framework for Financial Reporting - Relationship SFAC#5 Recognition & Measurement SFAC#2 SFAC#6 Qualitative Char. Elements SFAC#1 Objectives
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2- Conceptual Framework for Financial Reporting - Detail – page 46
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2- Objective 3. Understand the objectives of financial reporting. Basic Objectives – SFAC No. 1 – goals and purposes of accounting First Level: Objectives. (Recall that these were discussed in Chapter 1). Objectives of financial reporting is to provide information that is
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Ch02 Notes - Chapter 2 Conceptual Framework Objective 1....

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