AMA201_Questions_Chapter_2 - Jesica Islas Intermediate...

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Jesica Islas Intermediate Accounting 1 January 22, 2007 Professor A. Wu Chapter 2 Questions – Chapter 2 1. -What is a conceptual framework? Why is a conceptual framework necessary in financial accounting? A conceptual framework is 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 necessary in financial accounting for the following reasons: 1. It will enable the FASB to issue more useful and consistent standards in the future. 2. New issues will be more quickly soluble by reference to an existing framework of basic theory. 3. It will increase financial statement users’ understanding of and confidence in financial reporting. 4. It will enhance comparability among companies’ financial statements. 2. -What are the primary objectives of financial reporting as indicated in Statement of Financial Accounting Concepts No. 1? The primary objectives of financial reporting are as follows: 1. Provide information useful in investment and credit decisions for individuals who have a reasonable understanding of business. 2. Provide information useful in assessing future cash flows. 3. Provide information about enterprise resources, claims to these resources, and changes in them. 3. -What is meant by the term “qualitative characteristics of accounting information? “Qualitative characteristics of accounting information” are those characteristics which contribute to the quality or value of the information. The overriding qualitative characteristic of accounting information is usefulness for decision making. 4. -Briefly describe the two primary qualities of useful accounting information. Relevance and reliability are the two primary qualities of useful
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This note was uploaded on 01/11/2012 for the course ACCOUNTING 550 taught by Professor Ellen during the Spring '11 term at Keller Graduate School of Management.

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AMA201_Questions_Chapter_2 - Jesica Islas Intermediate...

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