Chapter 7 l.jpg
This presentation is the property of its rightful owner.
Sponsored Links
1 / 33

Chapter 7 PowerPoint PPT Presentation


  • 416 Views
  • Uploaded on
  • Presentation posted in: General

Chapter 7. FASB’s Conceptual Framework. FASB’s Conceptual Framework Conceptual Framework as a Codificational Document Empirical Research Assessing the Conceptual Framework . Lecture. Conceptual Framework Discussion Memorandum.

Download Presentation

Chapter 7

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Chapter 7 l.jpg

Chapter 7

FASB’s Conceptual Framework


Lecture l.jpg

FASB’s Conceptual Framework

Conceptual Framework as a Codificational Document

Empirical Research

Assessing the Conceptual Framework

Lecture


Conceptual framework discussion memorandum l.jpg

Conceptual Framework Discussion Memorandum

  • Accompanied by another document pertaining to conclusions of Trueblood Report

  • Brought up two new basic issues

    • Three views of financial accounting and financial statements

    • An outline of various approaches to capital maintenance


Conceptual framework consists of 7 sfacs statement of financial accounting concept l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 1 objectives of financial reporting by business enterprises l.jpg

SFAC 1: Objectives of Financial Reporting by Business Enterprises

  • A cautious invocation of the Trueblood Committee objectives

  • Financial statements

    • User orientation

    • Users assumed to be knowledgeable about financial information and reporting

    • Must be general purpose in nature, aimed at a common core of information needs


Conceptual framework consists of 7 sfacs statement of financial accounting concept6 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 2 qualitative characteristics of accounting information l.jpg

SFAC 2: Qualitative Characteristics of Accounting Information

  • Specific qualitative characteristics addressed can be classified as under the heading of ”decision usefulness”

  • The characteristics are defined within two constraints

    • Benefits > Costs

    • Materiality


Slide8 l.jpg

Decision Makers

Understandability

Decision Usefulness

Relevance

Comparability

Reliability


Slide9 l.jpg

Decision Makers

Benefits > Costs

Understandability

Decision Usefulness

Relevance

Comparability

Reliability

Materiality


Slide10 l.jpg

Decision Makers

Benefits > Costs

Understandability

Decision Usefulness

Relevance

Comparability

Reliability

Materiality


Slide11 l.jpg

Benefits > Costs

Materiality


Slide12 l.jpg

Decision Makers

Benefits > Costs

Understandability

Decision Usefulness

Relevance

Comparability

Reliability

Materiality


Slide13 l.jpg

Decision Makers

Benefits > Costs

Understandability

Decision Usefulness

Relevance

Comparability

Reliability

Materiality


Slide14 l.jpg

Benefits > Costs

Materiality


Slide15 l.jpg

Decision Makers

Benefits > Costs

Understandability

Decision Usefulness

Relevance

Comparability

Reliability

Materiality


Conceptual framework consists of 7 sfacs statement of financial accounting concept16 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 3 elements of financial statements of business enterprises l.jpg

SFAC 3: Elements of Financial Statements of Business Enterprises

  • Defines 10 elements of financial statements

  • Later amended in SFAC 6

  • Does not include

    • Type of capital maintenance concept to use

    • Matters of recognition (realization)

  • Reversal of terminology

    • SFAC 1 used the term earnings

    • Official term: income


Conceptual framework consists of 7 sfacs statement of financial accounting concept18 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 4 objectives of financial reporting by nonbusiness organizations l.jpg

SFAC 4: Objectives of Financial Reporting by Nonbusiness Organizations

  • Nonbusiness organizations

    • Receipts of resources without expectation of repayment or economic benefits

    • Operating purposes that are primarily not to provide goods or services at a profit

    • Absence of defined ownership...

  • Do not have a single indicator of entity performance comparable to income measurement


Conceptual framework consists of 7 sfacs statement of financial accounting concept20 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 5 recognition and measurement in financial statements l.jpg

SFAC 5: Recognition and Measurement in Financial Statements

  • Did not meet expectations

  • Stated that changed should be gradual and evolutionary

  • Display of owners’ equity

    • Recast performance into earnings and comprehensive income

    • Inability to come to grips with the measurement problem


Sfac 5 recognition and measurement in financial statements22 l.jpg

SFAC 5: Recognition and Measurement in Financial Statements

  • Recognition criteria: When should an asset, liability, expense, revenue, gain, or loss be recorded in the accounts?

    • Definition, is an element of financial statements

    • Measurability

    • Relevance

    • Reliability

  • Greater detail needed for recognition criteria


Conceptual framework consists of 7 sfacs statement of financial accounting concept23 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 6 elements of financial statements l.jpg

SFAC 6: Elements of Financial Statements

  • A replacement of SFAC 3, not a revision

  • Definitions are virtually identical to SFAC except they are extended to nonbusiness organizations

  • Qualitative characteristics of SFAC 2 are extended to nonbusiness organizations

  • Added nothing to the conceptual framework from business enterprise perspective


Sfac 6 elements of financial statements 10 l.jpg

Assets

Liabilities

Equity

Investments by Owners

Distributions to Owners

Comprehensive Income

Revenues

Expenses

Gains

Losses

SFAC 6: Elements of Financial Statements (10)


Conceptual framework consists of 7 sfacs statement of financial accounting concept26 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Sfac 7 using cash flow information present value in accounting measurements l.jpg

SFAC 7: Using Cash Flow Information & Present Value in Accounting Measurements

  • Work began on this project in 1988

  • Concerns specific measurement issues rather than broader conceptual-type issues hence it might be viewed as a subset of SFAC No. 5

  • applies to situations where present market determined amounts such as cash received or paid and current cost or market value are not available at the point of recognition. Instead estimated future cash flows must be used for asset or liability measurement.


Sfac 7 using cash flow information present value in accounting measurements28 l.jpg

SFAC 7: Using Cash Flow Information & Present Value in Accounting Measurements

  • Present Value Asset Measurement

    • present value measurements are intended to simulate fair value

    • emphasizes the severability of the asset

  • Present Value Liability Measurement

    • discount rate must be tied to the credit standing of the firm.

    • carrying value of the original liability is tied to the firm’s credit standing

  • Subsequent Revaluations


Conceptual framework consists of 7 sfacs statement of financial accounting concept29 l.jpg

1

Objectives of Financial Reporting by Business Enterprises

1978

2

Qualitative Characteristics of Accounting Information

1980

3

Elements of Financial Statements of Business Enterprises

1980

4

Objectives of Financial Reporting by Nonbusiness Organizations

1980

5

Recognition and Measurement in Financial Statements

1984

7

6

Elements of Financial Statements

Using Cash Flow Information & PV in Accounting Measurements

1985

2000

Conceptual Framework Consists of 7 SFACs (Statement of Financial Accounting Concept)


Conceptual framework as a codificational document l.jpg

Conceptual Framework as a Codificational Document

  • Codification approach, the process is key

    • Seen as rational

    • Good reasons for the choice of accounting standards, although they may not be the ”best” possible standards

    • Differs from the foundational standard setting used with ARSs 1 and 3

  • Jurisprudential approach


Empirical research on the conceptual framework l.jpg

Empirical Research on the Conceptual Framework

  • Hudack and McAllister (1994) did a content analysis examination of the first 117 SFAS finding that they emphasized, more or less evenly, both relevance and reliability from SFAC No. 2.

  • Importance of the qualitative characteristics to three groups: preparers, auditors, and users.

    • Auditors, reliability

    • Users and preparers, relevance


Assessing the conceptual framework l.jpg

Assessing the Conceptual Framework

  • is an evolutionary framework because the objectives were rooted in

    • the Trueblood Report and

    • the qualitative characteristics that stemmed from ASOBAT via APB Statement 4

  • can certainly be improved


Lecture33 l.jpg

FASB’s Conceptual Framework

Conceptual Framework as a Codificational Document

Empirical Research

Assessing the Conceptual Framework

Lecture


  • Login