CAPITULO 2 INTERMEDIA - Chapter 2 Conceptual Framework for...

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Chapter 2 Conceptual Framework for Financial Reporting · 2–1 1 Proposed Conceptual Framework for Financial Reporting: Objective of Financial Reporting and Qualitative Characteristics of Decision-Useful Financial Reporting Information (Norwalk, Conn.: FASB, May 29, 2008), page ix. Recall from our discussion in Chapter 1 that while the conceptual framework and any changes to it pass through the same due process (discussion paper, public hearing, exposure draft, etc.) as do the IFRSs, the framework is not an IFRS. That is, the framework does not define standards for any particular measurement or disclosure issue, and nothing in the framework overrides any specific IFRS. 2 C. Horngren, “Uses and Limitations of a Conceptual Framework,” Journal of Accountancy (April 1981), p. 90. CHAPTER 2 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. CONCEPTUAL FRAMEWORK A conceptual framework establishes the concepts that underlie financial reporting. A conceptual framework is a coherent system of concepts that flow from an objective. The objective identifies the purpose of financial reporting. The other concepts provide guidance on (1) identifying the boundaries of financial reporting; (2) selecting the trans- actions, other events, and circumstances to be represented; (3) how they should be rec- ognized and measured; and (4) how they should be summarized and reported. 1 Need for a Conceptual Framework Why do we need a conceptual framework? First, to be useful, rule-making should build on and relate to an established body of concepts. A soundly developed conceptual framework thus enables the IASB to issue more useful and consistent pronouncements over time , and a coherent set of standards should result. Indeed, without the guidance provided by a soundly developed framework, standard-setting ends up being based on individual concepts developed by each member of the standard-setting body. The following observation by a former standard-setter highlights the problem. “As our professional careers unfold, each of us develops a technical conceptual framework. Some individual frameworks are sharply defined and firmly held; others are vague and weakly held; still others are vague and firmly held. . . . At one time or another, most of us have felt the discomfort of listening to somebody buttress a preconceived conclusion by building a convoluted chain of shaky reasoning. Indeed, perhaps on occasion we have voiced such thinking ourselves. . . . My experience . . . taught me many lessons. A major one was
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CAPITULO 2 INTERMEDIA - Chapter 2 Conceptual Framework for...

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