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NBJ11e_IM_ch02_update - 2 FINANCIAL REPORTING ITS...

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2 FINANCIAL REPORTING: ITS CONCEPTUAL FRAMEWORK CHAPTER OBJECTIVES After careful study of this chapter, students will be able to: 1. Explain the FASB conceptual framework. 2. Understand the objective of financial reporting. 3. Identify the capital providers of a company. 4. Explain the decision-usefulness of financial reporting. 5. List the specific information that a company should provide in its financial reports. 6. Discuss the types of useful information for investment and lending decision making. 7. Explain the qualitative characteristics of useful financial information. 8. Understand the accounting assumptions and principles that influence GAAP. 9. Define the elements of financial statements. 2-1
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2-2 SYNOPSIS FASB Conceptual Framework 1. The FASB has been charged with developing a conceptual framework of accounting theory and with establishing standards for financial accounting practice. The conceptual framework, is intended to provide a theoretical foundation for consistent financial accounting and reporting standards. The FASB and IASB are also developing, in stages, a joint conceptual framework. 2. The FASB divided its conceptual framework activities into projects: (a) objectives of financial reporting, (b) qualitative characteristics of accounting information, (c) accounting projects (accounting elements, recognition, and measurement), (d) reporting projects (financial statements and financial reporting, income, and cash flow and liquidity). 3. The FASB and IASB have been working on a joint project to develop a common Conceptual Framework for Financial Reporting. They decided to split this project into eight phases: (1) objective and qualitative characteristics, (2) elements and recognition, (3) measurement, (4) reporting entity, (5) presentation and disclosure, (6) framework for a GAAP hierarchy, (7) applicability to the not-for-profit sector, and (8) remaining issues. The Boards have completed the first phase dealing with the objective of financial reporting and the qualitative characteristics of useful financial reporting information. Objective of Financial Reporting 4. In FASB Statement of Concepts No. 8 , the FASB states that the objective of general purpose financial reporting is to provide financial information about a company that is useful to present and potential investors, lenders, and other creditors in making decisions in their capacity as capital providers. Information that is useful to capital providers may also be useful to other users of financial reporting. 5. Financial reporting is general purpose because it is intended to satisfy the needs of a wide variety of external users. These external users do not have the authority to prescribe all the financial information they need from a company and therefore must rely, at least in part, on the information provided in the company’s financial reports. Capital Providers
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NBJ11e_IM_ch02_update - 2 FINANCIAL REPORTING ITS...

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