2_ Chpt 2 Lecture

Intermediate Accounting

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Chapter 2 Lecture The text has done a good job explaining the conceptual framework that underlines financial accounting. The conceptual framework structure described in the chapter includes SFAC No. 5, "Recognition and Measurement in Financial Statements." SFAC No. 5 indicates that an information item should meet four fundamental recognition criteria to be recognized in the financial statements: (1) Definitions. The item meets the definition of an element of 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. SFAC No. 5 is incorporated into the 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 and Measurement Concepts." . Illustration 2-1 is helpful to show the relationship between objectives, characteristics, elements, assumptions, principles, and constraints. The relationship between the three levels could be reviewed by this illustration. I would like to point out the expanding nature of this cone shaped diagram. That is, the objectives of the first level are the beginning point of the conceptual framework. The objectives describe the goals and purposes of financial accounting. The next level up includes the qualitative characteristics and the elements of financial statements. This second level serves as a bridge between the objectives and the recognition and measurement concepts of the third level. The third level consists of the recognition and measurement concepts which implement the basic objectives of this first level. The
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2_ Chpt 2 Lecture - Chapter 2 Lecture The text has done a...

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