ch02+Student - Chapter 2: Conceptual Framework for...

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Chapter 2: Conceptual Framework for Financial Accounting
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The Need for a Conceptual Framework u To develop a coherent set of standards and rules. u To solve new and emerging practical problems. Conceptual Framework LO 1 Describe the usefulness of a conceptual framework.
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The FASB has issued seven Statements of Financial Accounting Concepts (SFAC) for business enterprises. Development of Conceptual Framework SFAC No.1 - Objectives of Financial Reporting. SFAC No.2 - Qualitative Characteristics of Accounting Information. SFAC No.3 - Elements of Financial Statements. SFAC No.5 - Recognition and Measurement in Financial Statements. SFAC No.6 - Elements of Financial Statements (replaces SFAC No. 3). SFAC No.7 - Using Cash Flow Information and Present Value in Accounting Measurements. SFAC No.8 - The Objective of General Purpose Financial Reporting and Qualitative Characteristics of Useful Financial Information (replaces SFAC No. 1 and No. 2) LO 2
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u First Level = Basic Objectives u Second Level = Qualitative Characteristics and Elements u Third Level = Recognition, Measurement, and Disclosure Concepts. Conceptual Framework LO 2 Describe the FASB’s efforts to construct a conceptual framework. Overview of the Conceptual Framework
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LO 2 Illustration 2-7 Conceptual Framework for Financial Reporting
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First Level: Basic Objectives LO 3 Understand the objectives of financial reporting. Objective of general-purpose financial reporting is: To provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity .
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“The FASB identified the Qualitative Characteristics of accounting information that distinguish better (more useful) information from inferior (less useful) information for decision-making purposes.” Second Level: Fundamental Concepts LO 4 Identify the qualitative characteristics of accounting information. Qualitative Characteristics
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Second Level: Qualitative Characteristics LO 4 Identify the qualitative characteristics of accounting information. Illustration 2-2 Hierarchy of Accounting Qualities
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Second Level: Qualitative Characteristics Fundamental Quality—Relevance To be relevant , accounting information must be capable of making a difference in a decision . LO 4 Identify the qualitative characteristics of accounting information.
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Second Level: Qualitative Characteristics Fundamental Quality—Relevance Financial information has predictive value if it has value as an input to predictive processes used by investors to form their own expectations about the future. LO 4 Identify the qualitative characteristics of accounting information.
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Fundamental Quality—Relevance Relevant information also helps users confirm or correct prior expectations. LO 4
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ch02+Student - Chapter 2: Conceptual Framework for...

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