1. Chapter 2: The Conceptual
Chapter 2: The Conceptual
Framework
Framework
Intermediate Accounting, 11th Edition
Kieso, Weygandt, and Warfield
Prepared by
Jep Robertson and Renae Clark
New Mexico Sate University
Las Cruces, New Mexico
2. 1. Describe the usefulness of a conceptual
framework.
2. Describe the FASB's efforts to construct a
conceptual framework.
3. Understand the objectives of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
After studying this chapter, you should be able
to:
Chapter 2: The Conceptual
Chapter 2: The Conceptual
Framework
Framework
3. 5. Define the basic elements of financial
statements.
6. Describe the basic assumptions of accounting.
7. Explain the application of the basic principles
of accounting.
8. Describe the impact that constraints have on
reporting accounting information.
Chapter 2: The Conceptual
Chapter 2: The Conceptual
Framework
Framework
4. • The Framework was to be the
foundation for building a set of
coherent accounting standards and
rules.
• The Framework is to be a reference of
basic accounting theory for solving
emerging practical problems of
reporting.
Objectives of the Conceptual
Objectives of the Conceptual
Framework
Framework
5. • The FASB has issued seven Statements of
Financial Accounting Concepts (SFACs) to
date (Statements 1 through 7.)
• These statements set forth major recognition
and reporting issues.
• Statement 4 pertains to reporting by non-
business entities.
• The other six statements pertain to reporting
by business enterprises.
Statements of Financial
Statements of Financial
Accounting Concepts
Accounting Concepts
6. • Statement 1
• Statement 2
• Statement 6
• Statement 4
• Statement 5
• Statement 7
• Objectives of Financial
Reporting (Business)
• Qualitative
Characteristics
• Elements of Financial
Statements (replaces 3)
• Objectives of Financial
Reporting (Non-business)
• Recognition and
Measurement Criteria
• Using Cash Flows
Brief Title
Statement
Statements of Financial
Statements of Financial
Accounting Concepts
Accounting Concepts
7. The Framework has three different
levels,comprised of:
• The first level consists of objectives.
• The second level explains financial elements
and characteristics of information.
• The third level incorporates recognition and
measurement criteria.
Overview of the Conceptual
Overview of the Conceptual
Framework
Framework
9. To provide information:
• about economic resources, the claims on
those resources and changes in them.
• that is useful to those making investment and
credit decisions.
• that is useful to present and future investors,
creditors in assessing future cash flows.
• to individuals who reasonably understand
business and economic activities.
Basic Objectives of Financial
Basic Objectives of Financial
Reporting
Reporting
11. • Primary qualities of accounting information
are relevance and reliability.
• Secondary qualities are comparability and
consistency of reported information.
Qualitative Characteristics of
Qualitative Characteristics of
Accounting Information
Accounting Information
12. “Relevance of information means information
c
capable of making a difference in a decision
context.”
Ingredients of relevant information are:
• Timeliness
• Predictive value
• Feedback value
Primary Characteristic of
Primary Characteristic of
Accounting Information:
Accounting Information:
Relevance
Relevance
13. Information is reliable when it can be relied on
to represent the true, underlying situation.
The ingredients of reliable information are:
• verifiability
• representational faithfulness
• neutrality (unbiased)
Primary Characteristic of
Primary Characteristic of
Accounting Information:
Accounting Information:
Relevance
Relevance
14. Comparability: the similar measurement and
reporting for different enterprises.
Consistency: application of the same
accounting treatment to similar events by an
enterprise period to period.
Secondary Characteristics of
Secondary Characteristics of
Accounting Information
Accounting Information
15. • Assets
• Liabilities
• Equity
• Investment by
Owners
• Distributions to
Owners
• Comprehensive
Income
• Revenues
• Expenses
• Gains
• Losses
Basic Elements of Financial
Basic Elements of Financial
Statements
Statements
16. Basic
Assumptions
1. Economic
entity
2. Going
concern
3. Monetary
unit
4. Periodicity
Principles
1. Historical
cost
2. Revenue
recognition
3. Matching
4. Full
disclosure
Constraints
1. Cost benefit
2. Materiality
3. Industry
practices
4. Conservatism
Recognition and Measurement
Recognition and Measurement
Criteria
Criteria
