The document provides an overview and learning objectives for a chapter on the conceptual framework for financial reporting. It discusses the need for a conceptual framework to establish consistent concepts to underlie financial reporting standards. It describes efforts to construct a conceptual framework, which comprises chapters on the objective of financial reporting, qualitative characteristics of accounting information, and basic concepts related to recognition, measurement and disclosure. The chapter objectives cover understanding the usefulness of the conceptual framework, its development, the financial reporting objective, qualitative characteristics, basic elements of financial statements, accounting assumptions, and how the cost constraint affects reporting.
Conceptual Framework for Financial Reportingreskino1
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the usefulness of a conceptual framework and the objective of financial reporting.
Identify the qualitative characteristics of accounting information and the basic elements of financial statements.
Review the basic assumptions of accounting.
Explain the application of the basic principles of accounting.
Conceptual Framework for Financial Reportingreskino1
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the usefulness of a conceptual framework and the objective of financial reporting.
Identify the qualitative characteristics of accounting information and the basic elements of financial statements.
Review the basic assumptions of accounting.
Explain the application of the basic principles of accounting.
Intermediate Accounting Chapter 1 about Financial Reporting
and Accounting Standards
After studying this chapter, you should be able to:
Describe the growing importance of global financial markets and its relation to financial reporting.
Explain the objective of financial reporting.
Identify the major policy-setting bodies and their role in the standard-setting process.
Discuss the challenges facing financial reporting.
Lecture 21 expenditure cycle part i - accounting information systesm james ...Habib Ullah Qamar
the expenditure cycle, the physical phase, financial phase, the purchases system, the cash disbursement system, conceptual revenue cycle, manual revenue cycle and computer based accounting information systems
Intermediate Accounting Chapter 1 about Financial Reporting
and Accounting Standards
After studying this chapter, you should be able to:
Describe the growing importance of global financial markets and its relation to financial reporting.
Explain the objective of financial reporting.
Identify the major policy-setting bodies and their role in the standard-setting process.
Discuss the challenges facing financial reporting.
Lecture 21 expenditure cycle part i - accounting information systesm james ...Habib Ullah Qamar
the expenditure cycle, the physical phase, financial phase, the purchases system, the cash disbursement system, conceptual revenue cycle, manual revenue cycle and computer based accounting information systems
Bentleys is proud to offer you the slides from our Financial Reporting Bootcamp 2015, for all financial statement preparers, designed specifically to address the current hot issues & new developments facing our profession.
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CHAPTER 1: IAS, IAS STANDARD, IAS ADAPTION, CONCEPTUAL FRAMEWORK AND CHAPTER ...Anamika Hore
This assignment is of 2 chapters. They are: CHAPTER 1: IAS, IAS STANDARD, IAS ADAPTION, CONCEPTUAL FRAMEWORK AND
CHAPTER 2: CURRENT LIABILITY, PROVISIONS
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
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USDA Loans in California: A Comprehensive Overview
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how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
What website can I sell pi coins securely.DOT TECH
Currently there are no website or exchange that allow buying or selling of pi coins..
But you can still easily sell pi coins, by reselling it to exchanges/crypto whales interested in holding thousands of pi coins before the mainnet launch.
Who is a pi merchant?
A pi merchant is someone who buys pi coins from miners and resell to these crypto whales and holders of pi..
This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
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3. 2-3
1. Describe the usefulness of a
conceptual framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
4. 2-4
Need for a Conceptual Framework
► Rule-making should build on and relate to an established
body of concepts.
► Enables IASB to issue more useful and consistent
pronouncements over time.
Conceptual Framework establishes the concepts that
underlie financial reporting.
LO 1
CONCEPTUAL FRAMEWORK
5. 2-5
The need for a conceptual framework is highlighted by accounting scandals
such as those at Royal Ahold (NLD), Enron (USA), and Satyan Computer
Services (IND). To restore public confidence in the financial reporting process,
many have argued that regulators should move toward principles-based rules.
They believe that companies exploited the detailed provisions in rules-based
pronouncements to manage accounting reports, rather than report the
economic substance of transactions. For example, many of the off–balance-
sheet arrangements of Enron avoided transparent reporting by barely achieving
3 percent outside equity ownership, a requirement in an obscure accounting
rule interpretation. Enron’s financial engineers were able to structure
transactions to achieve a desired accounting treatment, even if that accounting
treatment did not reflect the transaction’s true nature. Under principles-based
rules, hopefully top management’s financial reporting focus will shift from
demonstrating compliance with rules to demonstrating that a company has
attained financial reporting objectives.
WHAT’S YOUR PRINCIPLE?
LO 1
6. 2-6
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a
conceptual framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
7. 2-7
Development of a Conceptual Framework
CONCEPTUAL FRAMEWORK
Presently, the Conceptual Framework is comprises of the following.
• Chapter 1: The Objective of General Purpose Financial Reporting
• Chapter 2: The Reporting Entity (not yet issued)
• Chapter 3: Qualitative Characteristics of Useful Financial
Information
• Chapter 4: The Framework, comprised of the following:
1. Underlying assumption—the going concern assumption;
2. The elements of financial statements;
3. Recognition of the elements of financial statements;
4. Measurement of the elements of financial statements; and
5. Concepts of capital and capital maintenance.
LO 2
8. 2-8
Three levels:
Overview of the Conceptual Framework
CONCEPTUAL FRAMEWORK
First Level = Objectives of Financial Reporting
Second Level = Qualitative Characteristics and
Elements of Financial Statements
Third Level = Recognition, Measurement, and
Disclosure Concepts.
LO 2
9. 2-9
ASSUMPTIONS
1. Economic entity
2. Going concern
3. Monetary unit
4. Periodicity
5. Accrual
PRINCIPLES
1. Measurement
2. Revenue recognition
3. Expense recognition
4. Full disclosure
CONSTRAINTS
1. Cost
OBJECTIVE
Provide information
about the reporting
entity that is useful
to present and potential
equity investors,
lenders, and other
creditors in their
capacity as capital
providers.
ELEMENTS
1. Assets
2. Liabilities
3. Equity
4. Income
5. Expenses
ILLUSTRATION 2-7
Conceptual Framework
for Financial Reporting
First level
The "why"—purpose
of accounting
Second level
Bridge between
levels 1 and 3
Third level
The "how"—
implementation
QUALITATIVE
CHARACTERISTICS
1. Fundamental
qualities
2. Enhancing
qualities
10. 2-10
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
11. 2-11
“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.
FIRST LEVEL: BASIC OBJECTIVE
LO 3
OBJECTIVE
Provided by issuing general-purpose financial statements.
Assumption is that users need reasonable knowledge of business
and financial accounting matters to understand the information.
12. 2-12
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics
of accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
13. 2-13
IASB 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
Qualitative Characteristics of Accounting
Information
LO 4
16. 2-16
Fundamental Quality—Relevance
To be relevant, accounting information must be capable of making
a difference in a decision.
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
17. 2-17
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.
Fundamental Quality—Relevance
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
18. 2-18
Relevant information also helps users confirm or correct prior
expectations.
Fundamental Quality—Relevance
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
19. 2-19
Information is material if omitting it or misstating it could influence
decisions that users make on the basis of the reported financial
information.
Fundamental Quality—Relevance
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
22. 2-22
Completeness means that all the information that is necessary for
faithful representation is provided.
Fundamental Quality—Faithful Representation
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
23. 2-23
Neutrality means that a company cannot select information to favor
one set of interested parties over another.
Fundamental Quality—Faithful Representation
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
24. 2-24
An information item that is free from error will be a more accurate
(faithful) representation of a financial item.
Fundamental Quality—Faithful Representation
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
25. 2-25
Enhancing Qualities
Information that is measured and reported in a similar manner for
different companies is considered comparable.
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
27. 2-27
Enhancing Qualities
Timeliness means having information available to decision-makers
before it loses its capacity to influence decisions.
SECOND LEVEL: FUNDAMENTAL CONCEPTS
LO 4
29. 2-29
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
31. 2-31
A resource controlled by the entity as a
result of past events and from which
future economic benefits are expected to
flow to the entity.
Elements of Financial Statements
Asset
SECOND LEVEL: BASIC ELEMENTS
Liability
Equity
Income
Expenses
LO 5
32. 2-32
A present obligation of the entity arising
from past events, the settlement of which
is expected to result in an outflow from the
entity of resources embodying economic
benefits.
Elements of Financial Statements
Asset
SECOND LEVEL: BASIC ELEMENTS
Liability
Equity
Income
Expenses
LO 5
33. 2-33
The residual interest in the assets of the
entity after deducting all its liabilities.
Elements of Financial Statements
Asset
SECOND LEVEL: BASIC ELEMENTS
Liability
Equity
Income
Expenses
LO 5
34. 2-34
Increases in economic benefits during the
accounting period in the form of inflows or
enhancements of assets or decreases of
liabilities that result in increases in equity,
other than those relating to contributions
from equity participants.
Elements of Financial Statements
Asset
SECOND LEVEL: BASIC ELEMENTS
Liability
Equity
Income
Expenses
LO 5
35. 2-35
Decreases in economic benefits during the
accounting period in the form of outflows
or depletions of assets or incurrences of
liabilities that result in decreases in equity,
other than those relating to distributions to
equity participants.
Elements of Financial Statements
Asset
SECOND LEVEL: BASIC ELEMENTS
Liability
Equity
Income
Expenses
LO 5
36. 2-36
Exercise 2-4: Identify the qualitative characteristic(s) to be used
given the information provided.
(a) Qualitative characteristic being
displayed when companies in the
same industry are using the same
accounting principles.
(b) Quality of information that confirms
users’ earlier expectations.
(c) Imperative for providing comparisons
of a company from period to period.
(d) Ignores the economic consequences
of a standard or rule.
Characteristics
Relevance
Faithful representation
Predictive value
Confirmatory value
Neutrality
Materiality
Timeliness
Verifiability
Understandability
Comparability
LO 5
SECOND LEVEL: BASIC ELEMENTS
37. 2-37
Exercise 2-4: Identify the qualitative characteristic(s) to be used
given the information provided.
(e) Requires a high degree of consensus
among individuals on a given
measurement.
(f) Predictive value is an ingredient of this
fundamental quality of information.
(g) Four qualitative characteristics that
enhance both relevance and faithful
representation.
(h) An item is not reported because its
effect on income would not change a
decision.
Characteristics
Relevance
Faithful representation
Predictive value
Confirmatory value
Neutrality
Materiality
Timeliness
Verifiability
Understandability
Comparability
LO 5
SECOND LEVEL: BASIC ELEMENTS
38. 2-38
Exercise 2-4: Identify the qualitative characteristic(s) to be used
given the information provided.
(i) Neutrality is a key ingredient of this
fundamental quality of accounting
information.
(j) Two fundamental qualities that make
accounting information useful for
decision-making purposes.
(k) Issuance of interim reports is an
example of what enhancing
ingredient?
Characteristics
Relevance
Faithful representation
Predictive value
Confirmatory value
Neutrality
Materiality
Timeliness
Verifiability
Understandability
Comparability
LO 5
SECOND LEVEL: BASIC ELEMENTS
39. 2-39
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
40. 2-40
THIRD LEVEL: RECOGNITION, MEASUREMENT,
AND DISCLOSURE CONCEPTS
These concepts explain how companies should recognize,
measure, and report financial elements and events.
ASSUMPTIONS
1. Economic entity
2. Going concern
3. Monetary unit
4. Periodicity
5. Accrual
PRINCIPLES
1. Measurement
2. Revenue recognition
3. Expense recognition
4. Full disclosure
CONSTRAINTS
1. Cost
Recognition, Measurement, and Disclosure Concepts
ILLUSTRATION 2-7
Conceptual Framework for
Financial Reporting
LO 6
41. 2-41
Economic Entity – company keeps its activity separate from its
owners and other business unit.
Going Concern - company to last long enough to fulfill
objectives and commitments.
Monetary Unit - money is the common denominator.
Periodicity - company can divide its economic activities into
time periods.
Accrual Basis of Accounting – transactions are recorded in the
periods in which the events occur.
THIRD LEVEL: ASSUMPTIONS
Basic Assumptions
LO 6
42. 2-42
BE2-8: Identify which basic assumption of accounting is best
described in each item below.
(a) The economic activities of FedEx Corporation
(USA) are divided into 12-month periods for the
purpose of issuing annual reports.
(b) Total S.A. (FRA) does not adjust amounts in its
financial statements for the effects of inflation.
(c) Barclays (GBR) reports current and non-current
classifications in its statement of financial
position.
(d) The economic activities of Tokai Rubber
Industries (JPN) and its subsidiaries are
merged for accounting and reporting purposes.
Periodicity
Going Concern
Monetary
Unit
Economic
Entity
THIRD LEVEL: ASSUMPTIONS
LO 6
43. 2-43
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost constraint
has on reporting accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
44. 2-44
Measurement Principles
Historical Cost is generally thought to be a faithful
representation of the amount paid for a given item.
Fair value is defined as “the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.”
IASB has given companies the option to use fair value as the
basis for measurement of financial assets and financial
liabilities.
THIRD LEVEL: BASIC PRINCIPLES
LO 7
45. 2-45
Measurement Principles
IASB established a fair value hierarchy that provides insight into
the priority of valuation techniques to use to determine fair value.
THIRD LEVEL: BASIC PRINCIPLES
ILLUSTRATION 2-4
LO 7
46. 2-46
Revenue Recognition
When a company agrees to perform a service or sell a product to
a customer, it has a performance obligation.
Requires that companies recognize revenue in the accounting
period in which the performance obligation is satisfied.
THIRD LEVEL: BASIC PRINCIPLES
LO 7
47. 2-47
ILLUSTRATION 2-5
The Five Steps of
Revenue Recognition
THIRD
LEVEL:
BASIC
PRINCIPLES
Illustration: Assume
the Airbus (DEU) signs
a contract to sell
airplanes to British
Airways (GRB) for
€100 million. To
determine when to
recognize revenue,
Airbus uses the five
steps for revenue
recognition shown at
right.
48. 2-48
Expense Recognition - Outflows or “using up” of assets
or incurring of liabilities during a period as a result of delivering
or producing goods and/or rendering services.
ILLUSTRATION 2-6
Expense Recognition
“Let the expense follow the revenues.”
THIRD LEVEL: BASIC PRINCIPLES
LO 7
49. 2-49
Full Disclosure
Providing information that is of sufficient importance to
influence the judgment and decisions of an informed user.
Provided through:
Financial Statements
Notes to the Financial Statements
Supplementary information
THIRD LEVEL: BASIC PRINCIPLES
LO 7
50. 2-50
BE2-9: Identify which basic principle of accounting is best
described in each item below.
(a) Parmalat (ITA) reports revenue in its income
statement when it delivered goods instead of when
the cash is collected.
(b) Google (USA) recognizes depreciation expense for
a machine over the 2-year period during which that
machine helps the company earn revenue.
(c) KC Corp. (USA) reports information about pending
lawsuits in the notes to its financial statements.
(d) Fuji Film (JPN) reports land on its statement of
financial position at the amount paid to acquire it,
even though the estimated fair market value is
greater.
Revenue
Recognition
Expense
Recognition
Full
Disclosure
Measurement
THIRD LEVEL: BASIC PRINCIPLES
LO 7
51. 2-51
1. Describe the usefulness of a conceptual
framework.
2. Describe efforts to construct a conceptual
framework.
3. Understand the objective of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
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 the cost
constraint has on reporting
accounting information.
After studying this chapter, you should be able to:
Conceptual Framework
for Financial Reporting2
LEARNING OBJECTIVES
52. 2-52
Companies must weigh the costs of providing the information
against the benefits that can be derived from using it.
Rule-making bodies and governmental agencies use cost-
benefit analysis before making final their informational
requirements.
In order to justify requiring a particular measurement or
disclosure, the benefits perceived to be derived from it
must exceed the costs perceived to be associated with it.
Cost Constraint
THIRD LEVEL: COST CONSTRAINT
LO 8
53. 2-53
BE2-11: Determine whether you would classify these
transactions as material.
(a) In the current year, Blair Co. reduces its bad
debt expense to ensure another positive
earnings year. The impact of this adjustment is
equal to 3% of net income.
(b) Damon Co. expenses all capital equipment
under €2,500 on the basis that it is immaterial.
The company has followed this practice for a
number of years.
Likely not
material
Material
THIRD LEVEL: COST CONSTRAINT
LO 8
55. 2-55
THE CONCEPTUAL FRAMEWORK
The IASB and the FASB have been working together to develop a common
conceptual framework. This framework is based on the existing conceptual
frameworks underlying U.S. GAAP and IFRS. The objective of this joint project
is to develop a conceptual framework consisting of standards that are
principles-based and internally consistent, thereby leading to the most useful
financial reporting.
GLOBAL ACCOUNTING INSIGHTS
56. 2-56
Relevant Facts
Following are the key similarities and differences between U.S. GAAP and
IFRS related to the Conceptual Framework for Financial Reporting.
Similarities
• In 2010, the IASB and FASB completed the first phase of a jointly created
conceptual framework. In this first phase, they agreed on the objective of
financial reporting and a common set of desired qualitative characteristics.
These were presented in the Chapter 2 discussion. Note that prior to this
converged phase, the Conceptual Framework gave more emphasis to the
objective of providing information on management’s performance
(stewardship).
GLOBAL ACCOUNTING INSIGHTS
57. 2-57
Relevant Facts
Similarities
• The existing conceptual frameworks underlying U.S. GAAP and IFRS are
very similar. That is, they are organized in a similar manner (objective,
elements, qualitative characteristics, etc.). There is no real need to change
many aspects of the existing frameworks other than to converge different
ways of discussing essentially the same concepts.
• The converged framework should be a single document, unlike the two
conceptual frameworks that presently exist. It is unlikely that the basic
structure related to the concepts will change.
GLOBAL ACCOUNTING INSIGHTS
58. 2-58
Relevant Facts
Similarities
• Both the IASB and FASB have similar measurement principles, based on
historical cost and fair value. In 2011, the Boards issued a converged
standard on fair value measurement so that the definition of fair value,
measurement techniques, and disclosures are the same between U.S.
GAAP and IFRS when fair value is used in financial statements.
Differences
• Although both U.S. GAAP and IFRS are increasing the use of fair value to
report assets, at this point IFRS has adopted it more broadly. As examples,
under IFRS, companies can apply fair value to property, plant, and
equipment; natural resources; and, in some cases, intangible assets.
GLOBAL ACCOUNTING INSIGHTS
59. 2-59
Relevant Facts
Differences
• U.S. GAAP has a concept statement to guide estimation of fair values when
market-related data is not available (Statement of Financial Accounting
Concepts No. 7, “Using Cash Flow Information and Present Value in
Accounting”). The IASB has not issued a similar concept statement; it has
issued a fair value standard (IFRS 13) that is converged with U.S. GAAP.
• The monetary unit assumption is part of each framework. However, the unit
of measure will vary depending on the currency used in the country in which
the company is incorporated (e.g., Chinese yuan, Japanese yen, and British
pound).
GLOBAL ACCOUNTING INSIGHTS
60. 2-60
Relevant Facts
Differences
• The economic entity assumption is also part of each framework although
some cultural differences result in differences in its application. For
example, in Japan many companies have formed alliances that are so
strong that they act similar to related corporate divisions although they are
not actually part of the same company.
GLOBAL ACCOUNTING INSIGHTS
61. 2-61
About The Numbers
While the conceptual framework that underlies U.S. GAAP is very similar to that
used to develop IFRS, the elements identified and their definitions under U.S.
GAAP are different.
GLOBAL ACCOUNTING INSIGHTS
62. 2-62
On the Horizon
The IASB and the FASB face a difficult task in attempting to update, modify,
and complete a converged conceptual framework. There are many challenging
issues to overcome. For example, how do we trade off characteristics such as
highly relevant information that is difficult to verify? How do we define control
when we are developing a definition of an asset? Is a liability the future
sacrifice itself or the obligation to make the sacrifice? Should a single
measurement method, such as historical cost or fair value, be used, or does it
depend on whether it is an asset or liability that is being measured? We are
optimistic that the new converged conceptual framework will be a significant
improvement over its predecessors and will lead to standards that will help
financial statement users to make better decisions.
GLOBAL ACCOUNTING INSIGHTS
Assets are economic resources that provide a future benefit for a business. Most firms use the following asset accounts:
Cash: money and any medium of exchange including bank account balances, paper currency, coins, certificates of deposit, and checks.
Accounts receivable: a company sells its goods and services and receives a promise for future collection of cash. The agreement to allow customers to pay in the future is informal and usually for a short period of time. The Accounts receivable account holds these amounts.
Notes receivable: a company may receive a note receivable from a customer, who signed the note promising to pay. A note receivable is similar to an account receivable, but a note receivable is more binding because the customer signed the note. Notes receivable usually specify an interest rate.
Assets are economic resources that provide a future benefit for a business. Most firms use the following asset accounts:
Cash: money and any medium of exchange including bank account balances, paper currency, coins, certificates of deposit, and checks.
Accounts receivable: a company sells its goods and services and receives a promise for future collection of cash. The agreement to allow customers to pay in the future is informal and usually for a short period of time. The Accounts receivable account holds these amounts.
Notes receivable: a company may receive a note receivable from a customer, who signed the note promising to pay. A note receivable is similar to an account receivable, but a note receivable is more binding because the customer signed the note. Notes receivable usually specify an interest rate.
Assets are economic resources that provide a future benefit for a business. Most firms use the following asset accounts:
Cash: money and any medium of exchange including bank account balances, paper currency, coins, certificates of deposit, and checks.
Accounts receivable: a company sells its goods and services and receives a promise for future collection of cash. The agreement to allow customers to pay in the future is informal and usually for a short period of time. The Accounts receivable account holds these amounts.
Notes receivable: a company may receive a note receivable from a customer, who signed the note promising to pay. A note receivable is similar to an account receivable, but a note receivable is more binding because the customer signed the note. Notes receivable usually specify an interest rate.
Assets are economic resources that provide a future benefit for a business. Most firms use the following asset accounts:
Cash: money and any medium of exchange including bank account balances, paper currency, coins, certificates of deposit, and checks.
Accounts receivable: a company sells its goods and services and receives a promise for future collection of cash. The agreement to allow customers to pay in the future is informal and usually for a short period of time. The Accounts receivable account holds these amounts.
Notes receivable: a company may receive a note receivable from a customer, who signed the note promising to pay. A note receivable is similar to an account receivable, but a note receivable is more binding because the customer signed the note. Notes receivable usually specify an interest rate.
Assets are economic resources that provide a future benefit for a business. Most firms use the following asset accounts:
Cash: money and any medium of exchange including bank account balances, paper currency, coins, certificates of deposit, and checks.
Accounts receivable: a company sells its goods and services and receives a promise for future collection of cash. The agreement to allow customers to pay in the future is informal and usually for a short period of time. The Accounts receivable account holds these amounts.
Notes receivable: a company may receive a note receivable from a customer, who signed the note promising to pay. A note receivable is similar to an account receivable, but a note receivable is more binding because the customer signed the note. Notes receivable usually specify an interest rate.