IM_CH_07 - ACTG067 Introduction to Federal & California...

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Chapter 7: The FASB’s Conceptual Framework Instructor’s Manual 7 th edition Page 1 of 10 C HAPTER H IGHLIGHTS While the FASB’s conceptual framework may not be all that we would like it to be, the fact is that it is “there” and has been used by the board members—though perhaps not as much as we would like. Despite its shortcomings, the FASB’s conceptual framework has served as a model for several other nations as well as the International Accounting Standards Committee. A minor, but important point is that the FASB’s framework is intended to be used when setting standards; the IASB’s is also used by practice. The chapter contains a fairly extensive discussion of the parts of the conceptual framework, which are called Statements of Financial Accounting Concepts . These were preceded by a discussion memorandum. The discussion memorandum was a massive study of the possible valuation approaches that could be taken as well as orientations to the definitions of the main financial statement categories. SFAC No. 1 largely echoed the Trueblood Report in terms of setting out the objectives of accounting at the topmost level of the metatheoretical structure. It did, however, strongly take the position that a common core of user needs exists despite the heterogeneity of external user groups. SFAC No. 2, in effect, created a structure of the qualitative characteristics of financial accounting information. There are many difficult trade-offs that must eventually be made among the hierarchy of concepts if operating standards are to be implemented on a viable basis. SFAC No. 3 presented the definitions of ten “elements” of financial statements. These constitute a considerable advance over previous definitions, though several other important issues have not as yet been addressed. SFAC No. 4 was concerned with objectives of financial reporting by nonbusiness organizations, so it is beyond the scope of this text. Issues of recognition and measurement were to be dealt with in SFAC No. 5. The question of relevant attributes to be measured for elements such as assets, liabilities, and expenses was avoided by leaving it to future development and evolution. This largely made the question of recognition sterile if meaningful attributes were not being measured. In light of the dismal failure of SFAC No. 5, SFAC No. 6 turned out to be a slight refinement of the definitions of the elements that had previously been given in SFAC No. 3. It also extended the qualitative characteristics of SFAC No. 2 to nonbusiness organizations. After a period of fifteen years since SFAC No. 6 appeared, SFAC No. 7 came out in 2000. It is concerned with estimating fair value when this cannot be done at the point of recognition. Two particularly interesting issues that are presented in the chapter are (1) the question of
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This note was uploaded on 02/12/2012 for the course ACCOUNTING 632 taught by Professor Johnlynch during the Fall '11 term at St. John's.

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IM_CH_07 - ACTG067 Introduction to Federal & California...

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