Lecture Intermediate Accounting (13th edition) - Chapter 2: Conceptual framework underlying financial accounting

After studying this chapter, you should be able to: Describe the usefulness of a conceptual framework, describe efforts to construct a conceptual framework, understand the objective of financial reporting, identify the qualitative characteristics of accounting information.

Chapter 2-1

Chapter

2-2

CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL

ACCOUNTING

Intermediate Accounting

13th EditionKieso, Weygandt, and Warfield 

Chapter

2-4

Decision usefulness Information about economic

Third Level: Recognition and Measurement

Need

Development

Qualitative characteristics Basic elements

Basic assumptions Basic principles Constraints

Financial Accounting and Accounting Standards

Financial Accounting and Accounting Standards

Chapter

2-6

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 

Chapter

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A conceptual framework underlying financial accounting is  necessary because future accounting practice problems can be  solved by reference to the conceptual framework and a formal  standard­setting body will not be necessary.

Conceptual Framework

Conceptual Framework

LO 1  Describe the usefulness of a conceptual framework.

False

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

LO 2  Describe the FASB’s efforts to  construct a conceptual framework.

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

LO 4  Identify the qualitative 

characteristics of accounting  information.

Verifiable Representational faithfulness Neutral ­ free of error and bias

In the proposed converged conceptual framework, reliability will be replaced with “faithful representation” as one of the primary qualitative characteristics that must be present for information to be useful.

a difference in a decision.

True

False Second Level: Qualitative Characteristics

Second Level: Qualitative Characteristics

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

First level

Second level

Third level

LO 4  Identify the qualitative 

characteristics of accounting  information.

Second Level: Qualitative Characteristics

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

First level

Second level

Third level

Chapter

2-25

Investment by owners Distribution to owners Comprehensive income Revenue

Expenses Gains Losses

“Moment in Time” “Period of Time”

LO 5  Define the basic elements of financial statements.

(b)

(c) (d) (c)

(a) (e)

Assets Liabilities Equity  Investment by owners Distribution to owners Comprehensive income Revenue

Expenses Gains  Losses

activities that constitute the  entity’s ongoing major or central  operations.

LO 5 (a)

Elements

(b)

(d) (c)

Expenses Gains  Losses

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(g)

Assets Liabilities Equity  Investment by owners Distribution to owners Comprehensive income Revenue

Expenses Gains  Losses

LO 5 (a)

Elements

(b)

(d) (c)

Economic Entity

Recently the FASB has taken the step of giving companies the option to  use fair value as the basis for measurement of financial assets and 

Third Level: Principles

LO 7  Explain the application of the basic principles of accounting.

n Expense Recognitio

n

Full Disclosure

Measurement

Third Level: Constraints

Third Level: Constraints

Benefit

Cost-Materiality

LO 8

making.  However, others note that another objective is to provide information on  management’s performance, often referred to as stewardship.

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Copyright

Copyright