Conceptual Framework Sccrober

8/11/2019 Conceptual Framework Sccrober

http://slidepdf.com/reader/full/conceptual-framework-sccrober 1/15

Chapter 2The Pursuit of theConceptual Framework

Introductionn What is the conceptualframework?

Early Authoritative andSemi-authoritativeOrganizational Attempts toDevelop the ConceptualFramewor o! Accounting

"he "rue#loodCommittee



n Committee report specified thefollowing four information needs

of users:

Statement on Accounting "heory

and "heory Acceptancen Rationale for the

committee’s approachn The approaches to

accounting theory werecondensed into

n Classicaln Decision sefulnessn !nformation "conomics#



n Criticisms of the approachesto theory

"he FAS$%sConceptualFramewor &ro'ectn The o$%ecti&es identify the goals

and purposes of financialaccounting' whereas( thefundamentals are the underlyingconcepts that help achie&e thoseo$%ecti&es#

n These concepts are designed topro&ide guidance in:

n )electing the transactions( e&ents

and circumstances to $e accountedfor



n Determining how the selectedtransactions( e&ents( andtransactions should $e measured

n Determining how to summari*e andreport the results of e&ents(transactions and circumstances#

SFAC (o) *+O#'ectives o!Financial ,eporting$y $usiness

Enterprisesn +ssess cash flow prospectsn Report on enterprise resources(

claims against resources and

changes in themn Report economic resources(

o$ligations and owners e,uity



n Report enterprise performanceand earnings

n "&aluate li,uidity( sol&ency( andflow of funds

n "&aluate managementstewardship and performance

n "-plain and interpret financialinformation

(o) 2 +.ualitative

Characteristics o! AccountingIn!ormation

n +ddresses the ,uestion:What makes accountinginformation useful?



n De&elops a .ierarchy of +ccounting /ualities

A Hierarchy of AccountingQualities

(o) / +,ecognition and0easurement inFinancial Statements o!$usiness Enterprisesn

)ets forth recognition criteria andguidance on what informationshould $e incorporated into financialstatements and when thisinformation should $e reported

n Defined comprehensi&e income as:Re&enues "arnings



0ess: "-penses Plus or minuscumulati&e accountingad%ustments

Plus: 1ains Plus or minus othernon2owner changes in

e,uity

0ess: 0osses

3 "arnings 3 Comprehensi&e !ncome

(o) / +,ecognition and0easurement inFinancial Statements o!$usiness Enterprisesn 4easurement !ssues

n Definitions . n The item meets the definition of an

element contained in SFAC No. 6 #n 4easura$ility#

n !t has a rele&ant attri$utemeasura$le with sufficient relia$ility#



n These elements arediscussedin more depth in Chapters 5and 6#

SFAC No. 7 + sing CashFlow In!ormation and&resent 3alue in Accounting0easurementsn +ccounting measurement is a &ery $road

topic#

n Conse,uently( the F+)7 focused on aseries of ,uestions rele&ant tomeasurement and amorti*ationcon&entions that employ present &aluetechni,ues# +mong these ,uestions are:

SFAC No. 7 + sing Cash FlowIn!ormation and &resent 3alue in

Accounting 0easurements



n +n estimate of the future cash flows

SFAC No. 7 + sing CashFlow In!ormation and&resent 3alue in Accounting0easurementsn +pproaches to present &alue

n Traditionaln "-pected cash flow

&rinciples $ased vs),ules $ased Accounting Standards

n Continuum ranging fromn highly rigid standards on one end



n Pre&ious practice:n 1oodwill is to $e amorti*ed o&er a 89

life until it is fully amorti*ed#

FAS$ .uestionsn Do you support the 7oard’s proposal for a

principles2$ased approach to # )# standardsetting?

n Will that approach impro&e the ,uality andtransparency of # )# financial accounting andreporting?

n )hould the 7oard de&elop an o&erall reportingframework as in !+) ?

n !f so( should that framework include a true and fairo&erride?

n nder what circumstances should interpreti&e andimplementation guidance $e pro&ided under aprinciples2$ased approach to #)# standardsetting?

n )hould the 7oard $e the primary standard setterresponsi$le for pro&iding that guidance?



n Will preparers( auditors( the )"C( in&estors(creditors( and other users of financial information$e a$le to ad%ust to a principles2$ased approach to

#)# standard setting?n !f not( what needs to $e done and $y whom?

n What other factors should the 7oard consider inassessing the e-tent to which it should adopt aprinciples2$ased approach to #)# standardsetting?

n What are the $enefits and costs ;includingtransition costs< of adopting a principles2$asedapproach to #)# standard setting?

n .ow might those $enefits and costs $e ,uantified?

&rinciples $ased vs),ules $ased

Accounting Standardsn The +++’s position



International

Convergencen F+)7 = !+)7 pledged

n +chie&e compati$ilityn 4aintain compati$ility

FAS$-IAS$ FinancialStatement&resentation &ro'ectn "sta$lish common standardn 1oals

n

nderstand past and presentfinancial positionn nderstand changes and

causes of changes



n "&aluate future cash flows

FAS$-IAS$ FinancialStatement&resentation &ro'ectn > Phases

n What constitutes complete setof statements?

n Financial positionn "arnings and comprehensi&e

incomen Cash flowsn Changes in e,uity



FAS$-IAS$ Financial

Statement&resentation &ro'ectn > Phases

n Fundamental issues for

presentation of informationn Presentation of interim financial

information in #)# 1++P

Conceptual Framework Sccrober

Documents

Transcript of Conceptual Framework Sccrober