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Intermediate accounting 17e by kieso ch02

Intermediate Accounting
Seventeenth Edition
Kieso ● Weygandt ● Warfield

Chapter 2

Conceptual Framework for Financial Reporting
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Learning Objectives
After studying this chapter, you should be able to:

1.

Describe the usefulness of a conceptual framework and the objective of financial reporting.

2.

Identify the qualitative characteristics of accounting information and the basic elements of
financial statements.


3.

Review the basic assumptions of accounting.

4.

Explain the application of the basic principles of accounting.

Copyright ©2019 John Wiley & Sons, Inc.

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Preview of Chapter 2 (1 of 3)
Conceptual Framework for Financial Reporting
Conceptual Framework



Need



Development



Overview



Basic Objective

Copyright ©2019 John Wiley & Sons, Inc.

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Preview of Chapter 2 (2 of 3)
Fundamental Concepts



Qualitative characteristics



Basic elements

Assumptions



Economic entity



Going Concern



Monetary Unit



Periodicity
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Preview of Chapter 2 (3 of 3)
Measurement, Recognition, and Disclosure Concepts



Basic principles of accounting



Cost constraint



Summary of the structure

Copyright ©2019 John Wiley & Sons, Inc.

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Learning Objective 1
Describe the Usefulness of a Conceptual Framework and the
Objective of Financial Reporting

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Conceptual Framework
The Need for a Conceptual Framework

LO 1



Enables the FASB to issue more useful and consistent pronouncements over time



To solve new and emerging practical problems

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Development of a Conceptual Framework

The FASB has issued seven Statements of Financial Accounting Concepts (SFAC) for business enterprises.

SFAC No. 1

Objectives of Financial Reporting (superseded by S FAC No. 8)

SFAC No. 2

Qualitative Characteristics of Accounting Information. (superseded by SFAC No. 8)

SFAC No. 3

Elements of Financial Statements. (superseded by S FAC No. 6)

SFAC No. 5

Recognition and Measurement in Financial Statements.

SFAC No. 6

Elements of Financial Statements (replaces S FAC No. 3).

SFAC No. 7

Using Cash Flow Information and Present Value in Accounting Measurements.

SFAC No. 8

The Objective of General Purpose Financial Reporting and Qualitative Characteristics of Useful Financial Information (replaces S FAC
Nos. 1 and 2)

LO 1

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Overview of the Conceptual Framework

LO 1



First Level = Objective of Financial Reporting



Second Level = Qualitative Characteristics and Elements



Third Level = Recognition, Measurement, and Disclosure Concepts

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Overview of the
Conceptual
Framework chart

LO 1

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Conceptual Framework
Basic Objective

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.

LO 1

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Conceptual Framework
Review Question

What are the Statements of Financial Accounting Concepts intended to establish?
a.

Generally accepted accounting principles in financial reporting by business enterprises.

b.

The meaning of “Present fairly in accordance with generally accepted accounting principles.”

c.

The objectives and concepts for use in developing standards of financial accounting and
reporting.

d.

LO 1

The hierarchy of sources of generally accepted accounting principles.

Copyright ©2019 John Wiley & Sons, Inc.

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Conceptual Framework
Review Question Answer

What are the Statements of Financial Accounting Concepts intended to establish?
a.

Generally accepted accounting principles in financial reporting by business enterprises.

b.

The meaning of “Present fairly in accordance with generally accepted accounting principles.”

c.

The objectives and concepts for use in developing standards of financial accounting and
reporting.

d.

LO 1

The hierarchy of sources of generally accepted accounting principles.

Copyright ©2019 John Wiley & Sons, Inc.

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Learning Objective 2
Identify the Qualitative Characteristics of Accounting Information
and the Basic Elements of Financial Statements

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Fundamental Concepts
Qualitative Characteristics
of Accounting Information

“The FASB identified the qualitative characteristics of accounting information that distinguish better
(more useful) information from inferior (less useful) information for decision-making purposes.”

LO 2

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Qualitative Characteristics

LO 2

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Fundamental Quality
—Relevance
(1 of 5)

LO 2

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Fundamental Quality—Relevance (2 of 5)

To have relevance, accounting information must be capable of making a difference in a decision.

LO 2

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Fundamental Quality—Relevance (3 of 5)

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.

LO 2

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Fundamental Quality—Relevance (4 of 5)

Relevant information also helps users confirm or correct prior expectations.

LO 2

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Fundamental Quality—Relevance (5 of 5)

Information is material if omitting it or misstating it could influence decisions that users make on the basis of the
reported financial information.

LO 2

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Fundamental Quality—
Faithful Representation
(1 of 5)

LO 2

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Faithful Representation (2 of 5)

Faithful representation means that the numbers and descriptions match what really existed or happened.

LO 2

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Faithful Representation (3 of 5)

Completeness means that all the information that is necessary for faithful representation is provided.

LO 2

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Faithful Representation (4 of 5)

Neutrality means that a company cannot select information to favor one set of interested parties over another.

LO 2

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