Intermediate Accounting 2 Concepts Underlying Financial Accounting.doc

Intermediate Accounting 2 Concepts Underlying Financial Accounting
Concepts Underlying
Financial Accounting
Chapter
2
Conceptual Framework
Conceptual Framework
Need
Development
First Level: Basic Objectives
Second Level: Fundamental Concepts
Third Level: Recognition and Measurement
Basic assumptions
Basic principles
Constraints
Qualitative characteristics
Basic elements
Conceptual Framework
The Need for a Conceptual Framework
To develop a coherent set of standards and rules
A conceptual framework underlying financial accounting is important because it can lead to consistent standards and it prescribes the nature, function, and limits of financial accounting and financial statements1>.
To solve new and emerging practical problems
LO 1 Describe the usefulness of a conceptual framework.
Development of Conceptual Framework
Objective 2
The FASB has issued six Statements of Financial Accounting Concepts (SFAC) for business enterprises.
SFAC - Objectives of Financial Reporting
SFAC - Qualitative Characteristics of Accounting Information
SFAC - Elements of Financial Statements (superceded by SFAC No. 6)
SFAC - anizations
SFAC - Recognition and Measurement in Financial Statements
SFAC - Elements of Financial Statements (replaces SFAC No. 3)
SFAC - Using Cash Flow Information and Present Value in Accounting Measurements
LO 2 Describe the FASB’s efforts to construct a conceptual framework.
Conceptual Framework
The Framework prised of three levels:
First Level = Basic Objectives
Second Level = Qualitative Characteristics and Basic Elements
Third Level = Recognition and Measurement Concepts.
LO 2 Describe the FASB’s efforts to construct a conceptual framework.
ASSUMPTIONS
Economic entity
Going concern
ary unit
Periodicity
PRINCIPLES
Historical cost
Revenue recognition
Matching
Full disclosure
CONSTRAINTS
Cost-benefit
Materiality
Industry practice
Conservatism
OBJECTIVES
1. Useful in in