Download - Conceptual Framework (Finacc-TOA)
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 1/55
2-1
Prepared by
Coby Harmon
University of California, Santa Barbara
Intermediate
Accounting
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 2/55
2-2
Intermediate Accounting
14th Edition
2 Conceptual Framework forFinancial Accounting
Kieso, Weygandt, and Warfield
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 3/55
2-3
1. Describe te usefulness of a conceptual frame!or".
#. Describe te $ASB%s efforts to construct a conceptual
frame!or".
&. Understand te ob'ectives of financial reporting.
(. Identify te )ualitative caracteristics of accounting information.
*. Define te basic elements of financial statements.
+. Describe te basic assumptions of accounting.
. -plain te application of te basic principles of accounting.
/. Describe te impact tat constraints ave on reporting
accounting information.
Learning ObjectiveLearning Objective
Learning ObjectiveLearning Objective
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 4/55
2-!
Conceptual
Framework
Firt Level"
#aic Objective
$econ% Level"
Fun%amental
Concept
&'ir% Level"
(ecognition an%
)eaurement
0eed
Development
vervie!
2ualitative
caracteristics
Basic elements
Basic assumptions
Basic principles
Constraints
Summary of testructure
Conceptual Framework ForConceptual Framework For
Financial AccountingFinancial Accounting
Conceptual Framework ForConceptual Framework For
Financial AccountingFinancial Accounting
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 5/55
2-*
&'e +ee% for a Conceptual Framework
3o develop a coerent set of standards and rules.
3o solve ne! and emerging practical problems.
Conceptual FrameworkConceptual Framework
Conceptual FrameworkConceptual Framework
LO 1 Describe the usefulness of a conceptual framework.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 6/55
2-,
(eview uetion 4true or false5"
A conceptual frame!or" underlying financial accounting is
important because it can lead to consistent standards and
it prescribes te nature, function, and limits of financial
accounting and financial statements.
Conceptual FrameworkConceptual Framework
Conceptual FrameworkConceptual Framework
LO 1 Describe the usefulness of a conceptual framework.
&rue
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 7/55
2-.
(eview uetion 4true or false5"
A conceptual frame!or" underlying financial accounting is
necessary because future accounting practice problems
can be solved by reference to te conceptual frame!or"
and a formal standard6setting body !ill not be necessary.
Conceptual FrameworkConceptual FrameworkConceptual FrameworkConceptual Framework
LO 1 Describe the usefulness of a conceptual framework.
Fale
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 8/55
2-/
3e FA$# as issued seven $tatement of FinancialAccounting Concept 4S$AC5 for business enterprises.
0evelopment of Conceptual Framework0evelopment of Conceptual Framework0evelopment of Conceptual Framework0evelopment of Conceptual Framework
$FAC +o1 6 b'ectives of $inancial 7eporting.
$FAC +o2 6 2ualitative Caracteristics of Accounting Information.
$FAC +o3 6 -lements of $inancial Statements.
$FAC +o* 6 7ecognition and 8easurement in $inancial Statements.
$FAC +o, 6 -lements of $inancial Statements 4replaces S$AC 0o. &5.
$FAC +o. 6 Using Cas $lo! Information and Present 9alue in Accounting 8easurements.
$FAC +o/ 6 3e b'ective of :eneral Purpose $inancial 7eporting and
2ualitative Caracteristics of Useful $inancial Information
4replaces S$AC 0o. 1 and 0o. #5
LO 2
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 9/55
2-
Firt Level ; Basic b'ectives
$econ% Level ; 2ualitative
Caracteristics and -lements
&'ir% Level ; 7ecognition,
8easurement, and Disclosure
Concepts.
Conceptual FrameworkConceptual FrameworkConceptual FrameworkConceptual Framework
LO 2 Describe the FASB’s efforts to construct a conceptual framework.
Overview of t'e Conceptual Framework
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 10/55
2-1 LO 2
4llutration 2-.
Conceptual Framework
for Financial (eporting
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 11/55
2-11
<at are te Statements of $inancial Accounting Concepts intended to
establis=
a. :enerally accepted accounting principles in financial reporting
by business enterprises.
b. 3e meaning of >Present fairly in accordance !it generally
accepted accounting principles.?
c. 3e ob'ectives and concepts for use in developing standards of
financial accounting and reporting.
d. 3e ierarcy of sources of generally accepted accounting
principles.
Conceptual FrameworkConceptual FrameworkConceptual FrameworkConceptual Framework
LO 2 Describe the FASB’s efforts to construct a conceptual framework.
(eview
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 12/55
2-12
Firt Level" #aic ObjectiveFirt Level" #aic ObjectiveFirt Level" #aic ObjectiveFirt Level" #aic Objective
LO 3 n!erstan! the ob"ecti#es of financial reportin$.
Objective of general6purpose financial reporting is@
3o provide financial information about te reporting entity
tat is ueful to preent an% potential e5uity invetor6
len%er6 an% ot'er cre%itor in making %eciionabout provi%ing reource to t'e entity.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 13/55
2-13
According to te $ASB conceptual frame!or", te ob'ectives
of financial reporting for business enterprises are based on=
a. :enerally accepted accounting principles
b. 7eporting on management%s ste!ardsip.
c. 3e need for conservatism.
d. 3e needs of te users of te information.
Firt Level" #aic ObjectiveFirt Level" #aic ObjectiveFirt Level" #aic ObjectiveFirt Level" #aic Objective
(eview
LO 3 n!erstan! the ob"ecti#es of financial reportin$.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 14/55
2-1!
>3e FA$# identified te ualitative C'aracteritic of
accounting information tat distinguis better 4more useful5
information from inferior 4less useful5 information fordecision6ma"ing purposes.?
$econ% Level" Fun%amental Concept$econ% Level" Fun%amental Concept$econ% Level" Fun%amental Concept$econ% Level" Fun%amental Concept
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
ualitative C'aracteritic
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 15/55
2-1*
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
4llutration 2-2
Hierarc'y of
Accounting ualitie
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 16/55
2-1, LO %
4llutration 2-.
Conceptual Framework
for Financial (eporting
(elevance(elevance(elevance(elevance
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 17/55
2-1.
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7(elevance
3o be relevant, accounting information must be capable of
making a %ifference in a %eciion.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 18/55
2-1/
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7(elevance
$inancial information as pre%ictive value if it as value as an
input to predictive processes used by investors to form teir o!n
epectations about te future.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 19/55
2-1
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7(elevance
7elevant information also elps users confirm or correct prior
epectations.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 20/55
2-2
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7(elevance
Information is material if omitting it or misstating it could
influence decisions tat users ma"e on te basis of te reported
financial information.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 21/55
2-21 LO %
4llutration 2-.
Conceptual Framework
for Financial (eporting
Fait'ful (epreentationFait'ful (epreentationFait'ful (epreentationFait'ful (epreentation
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 22/55
2-22
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7Fait'ful (epreentation
Fait'ful repreentation means tat te numbers and
descriptions matc !at really eisted or appened.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 23/55
2-23
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7Fait'ful (epreentation
Completene means tat all te information tat is necessary
for faitful representation is provided.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 24/55
2-2!
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7Fait'ful (epreentation
+eutrality means tat a company cannot select information to
favor one set of interested parties over anoter.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 25/55
2-2*
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
Fun%amental uality7Fait'ful (epreentation
An information item tat is free from error !ill be a more
accurate 4faitful5 representation of a financial item.
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 26/55
2-2,
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
8n'ancing ualitie
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
Information tat is measured and reported in a similar manner
for different companies is considered comparable.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 27/55
2-2.
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
8n'ancing ualitie
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
9erifiability occurs !en independent measurers, using te
same metods, obtain similar results.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 28/55
2-2/
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
8n'ancing ualitie
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
&imeline means aving information available to decision6
ma"ers before it loses its capacity to influence decisions.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 29/55
2-2
$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic$econ% Level" ualitative C'aracteritic
8n'ancing ualitie
LO % &!entif' the (ualitati#e characteristics of accountin$ information.
:n%ertan%ability is te )uality of information tat lets
reasonably informed users see its significance.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 30/55
2-3 LO )
4llutration 2-.
Conceptual Framework
for Financial (eporting
#aic 8lement#aic 8lement#aic 8lement#aic 8lement
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 31/55
2-31
Investment by o!ners
Distribution to o!ners
Compreensive income
7evenue -penses
:ains
osses
$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement
Concept $tatement +o ,
defines ten interrelatedelements tat relate to measuring te performance and
financial status of a business enterprise.
Assets
iabilities
-)uity
;)oment in &ime< ;=erio% of &ime<
LO ) Define the basic elements of financial statements.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 32/55
2-32
Assets
iabilities
-)uity
Investment by o!ners
Distribution to o!ners
Compreensive income
7evenue
-penses
:ains
osses
$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement
8>ercie 2-*" Identify te element or elements associated !it
items belo!.
4a5 Arises from periperal or
incidental transactions.
4b5 bligation to transfer resources
arising from a past transaction.
4c5 Increases o!nersip interest.
4d5 Declares and pays cas
dividends to o!ners.
4e5 Increases in net assets in a
period from nono!ner sources.
4a5
8lement
4b5
4c5
4d5
4c5
4a5
4e5
LO )
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 33/55
2-33
4g5
$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement
8>ercie 2-*" Identify te element or elements associated !it
items belo!.
4f5 Items caracteried by future
economic benefit.
4g5 -)uals increase in net assets
during te year, after adding
distributions to o!ners and
subtracting investments by
o!ners.
45 Arises from income statementactivities tat constitute te
entity%s ongoing ma'or or
central operations.
LO )
8lement
4f5
45
45
Assets
iabilities
-)uity
Investment by o!ners
Distribution to o!ners
Compreensive income
7evenue
-penses
:ains
osses
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 34/55
2-3!
4i5 7esidual interest in te net
assets of te enterprise.
4'5 Increases assets troug sale
of product.
4"5 Decreases assets by
purcasing te company%s
o!n stoc".
4l5 Canges in e)uity during te
period, ecept tose from
investments by o!ners and
distributions to o!ners.
$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement
8>ercie 2-*" Identify te element or elements associated !it
items belo!.
LO )
4i5
4'5
4"5
4l5
Assets
iabilities
-)uity
Investment by o!ners
Distribution to o!ners
Compreensive income
7evenue
-penses
:ains
osses
8lement
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 35/55
2-3*
(eview"
$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement$econ% Level" #aic 8lement
According to te $ASB conceptual frame!or", an entity%s
revenue may result from
a. A decrease in an asset from primary operations.
b. An increase in an asset from incidental transactions.
c. An increase in a liability from incidental transactions.
d. A decrease in a liability from primary operations.
LO ) Define the basic elements of financial statements.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 36/55
2-3, LO )
4llutration 2-.
Conceptual Framework
for Financial (eporting
&'ir% Level" (ecognition an% )eaurement&'ir% Level" (ecognition an% )eaurement&'ir% Level" (ecognition an% )eaurement&'ir% Level" (ecognition an% )eaurement
3e $ASB sets fort most of tese concepts in its $tatement ofFinancial Accounting Concept +o *, >7ecognition and
8easurement in $inancial Statements of Business -nterprises.?
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 37/55
2-3.
8conomic 8ntity company "eeps its activity separate fromits o!ners and oter businesses.
?oing Concern 6 company to last long enoug to fulfill
ob'ectives and commitments.
)onetary :nit 6 money is te common denominator.
=erio%icity 6 company can divide its economic activities into
time periods.
&'ir% Level" #aic Aumption&'ir% Level" #aic Aumption&'ir% Level" #aic Aumption&'ir% Level" #aic Aumption
LO * Describe the basic assumptions of accountin$.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 38/55
2-3/
&'ir% Level" Aumption&'ir% Level" Aumption&'ir% Level" Aumption&'ir% Level" Aumption
LO * Describe the basic assumptions of accountin$.
#rief 8>ercie 2-." Identify !ic basic assumption ofaccounting is best described in eac item belo!.
4a5 3e economic activities of C Corporation are
divided into 1#6mont periods for te purpose of
issuing annual reports.
4b5 Solectron Corporation, Inc. does not ad'ust
amounts in its financial statements for te
effects of inflation.
4c5 <algreen Co. reports current and noncurrent
classifications in its balance seet.
4d5 3e economic activities of :eneral -lectric and
its subsidiaries are merged for accounting and
reporting purposes.
+erio!icit' +erio!icit'
,oin$ -oncern,oin$ -oncern
onetar' onetar'
nit nit
/conomic/conomic
/ntit' /ntit'
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 39/55
2-3
)eaurement =rinciple 3e most commonly usedmeasurements are based on 'itorical cot and fair value.
4ue"
Hitorical cot provides a reliable bencmar" for
measuring istorical trends.
Fair value information may be more useful.
7ecently te $ASB as ta"en te step of giving
companies te option to use fair value as te basis formeasurement of financial assets and financial liabilities.
7eporting of fair value information is increasing.
&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple
LO 0 /plain the application of the basic principles of accountin$.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 40/55
2-!
&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple
LO 0 /plain the application of the basic principles of accountin$.
4llutration 2-*
3iming of 7evenue 7ecognition
(evenue (ecognition 6 generally occurs 415 !en realiedor realiable and 4#5 !en earned.
8>ception"
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 41/55
2-!1
8>pene (ecognition 6 >et te epense follo! terevenues.?
&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple
LO 0 /plain the application of the basic principles of accountin$.
4llutration 2-,
-pense 7ecognition
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 42/55
2-!2
&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple
LO 0 /plain the application of the basic principles of accountin$.
Full 0icloure providing information tat is of sufficientimportance to influence te 'udgment and decisions of an
informed user.
Provided troug@
$inancial Statements
0otes to te $inancial Statements
Supplementary information
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 43/55
2-!3
&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple&'ir% Level" #aic =rinciple
LO 0 /plain the application of the basic principles of accountin$.
#rief 8>ercie 2-/" Identify !ic basic principle of accounting is
best described in eac item belo!.
4a5 C Corporation reports revenue in its income
statement !en it is earned instead of !en te cas is
collected.
4b5 Eaoo, Inc. recognies depreciation epense for a
macine over te #6year period during !ic tat macine
elps te company earn revenue.
4c5 racle Corporation reports information about pending
la!suits in te notes to its financial statements.
4d5 -astman oda" Company reports land on its balance
seet at te amount paid to ac)uire it, even toug te
estimated fair mar"et value is greater.
e#enuee#enue
eco$nitioneco$nition
/pense/pense
eco$nitioneco$nition
FullFull
DisclosureDisclosure
easurement easurement
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 44/55
2-!!
Cot Contraint cost of providing information must be!eiged against te benefits tat can be derived from using it.
4n%utry =ractice 6 te peculiar nature of some industries
and business concerns sometimes re)uires departure from
basic accounting teory.
&'ir% Level" Contraint&'ir% Level" Contraint&'ir% Level" Contraint&'ir% Level" Contraint
LO Describe the impact that constraints ha#e on
reportin$ accountin$ information.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 45/55
2-!*
#rief 8>ercie 2-1" <at accounting constraints are
illustrated by te items belo!=
4a5 C, Inc. reports agricultural crops on its balance
seet at mar"et value.
4b5 7afael Corporation discloses fair value information
on its loans because it already gaters tis
information internally.
4c5 <illis Company does not disclose any information
in te notes to te financial statements unless te
value of te information to users eceeds te
epense of gatering it.
4d5 A bro"er6dealer records all assets and liabilities at
fair value.
&n!ustr'&n!ustr'
+ractice+ractice
&'ir% Level" Contraint&'ir% Level" Contraint&'ir% Level" Contraint&'ir% Level" Contraint
-ost-ost
-onstraint -onstraint
LO
-ost-ost-onstraint -onstraint
&n!ustr'&n!ustr'
+ractice+ractice
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 46/55
2-!,
4llutration 2-.
Conceptual Framework
for Financial (eporting
$ummary$ummary
of t'eof t'e
$tructure$tructure
$ummary$ummary
of t'eof t'e
$tructure$tructure
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 47/55
2-!.
(8L89A+& FAC&$
In #F1F, te IASB and $ASB completed te first pase of a 'ointly
created conceptual frame!or". In tis first pase, tey agreed on te
ob'ective of financial reporting and a common set of desired
)ualitative caracteristics.
3e eisting conceptual frame!or"s underlying :AAP and I$7S are
very similar.
3e converged frame!or" sould be a single document, unli"e te
t!o conceptual frame!or"s tat presently eistG it is unli"ely tat te
basic structure related to te concepts !ill cange.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 48/55
2-!/
(8L89A+& FAC&$
Bot te IASB and $ASB ave similar measurement principles,
based on istorical cost and fair value. Altoug bot :AAP and
I$7S are increasing te use of fair value to report assets, at tis
point I$7S as adopted it more broadly.
:AAP as a concept statement to guide estimation of fair values
!en mar"et6related data is not available 4Statement of $inancial
Accounting Concepts 0o. , >Using Cas $lo! Information and
Present 9alue in Accounting?5. 3e IASB is considering a proposal to
provide epanded guidance on estimating fair values.
3e monetary unit assumption is part of eac frame!or". Ho!ever,
te unit of measure !ill vary depending on te currency used in te
country in !ic te company is incorporated.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 49/55
2-!
(8L89A+& FAC&$
3e economic entity assumption is also part of eac frame!or"
altoug some cultural differences result in differences in its
application. $or eample, in apan many companies ave formed
alliances tat are so strong tat tey act similar to related corporate
divisions altoug tey are not actually part of te same company.
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 50/55
2-*
A#O:& &H8 +:)#8($
<ile te conceptual frame!or" tat underlies I$7S is very similar to tat used
to develop :AAP, te elements identified and teir definitions under I$7S are
different. 3e IASB elements and teir definitions are as follo!s.Aet A resource controlled by te entity as a result of past events and from
!ic future economic benefits are epected to flo! to te entity.
Liabilitie A present obligation of te entity arising from past events, te
settlement of !ic is epected to result in an outflo! from te entity of
resources embodying economic benefits. iabilities may be legally enforceable
via a contract or la!, but need not be, i.e., tey can arise due to normal
business practice or customs.
4nternational $tan%ar%-$etting Organi@ation"
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 51/55
2-*1
A#O:& &H8 +:)#8($
<ile te conceptual frame!or" tat underlies I$7S is very similar to tat used
to develop :AAP, te elements identified and teir definitions under I$7S are
different. 3e IASB elements and teir definitions are as follo!s.85uity A residual interest in te assets of te entity after deducting all its
liabilities.
4ncome Increases in economic benefits tat result in increases in e)uity 4oter
tan tose related to contributions from sareolders5. Income includes bot
revenues 4resulting from ordinary activities5 and gains.
8>pene. Decreases in economic benefits tat result in decreases in e)uity
4oter tan tose related to distributions to sareolders5. -penses includes
losses tat are not te result of ordinary activities.
4nternational $tan%ar%-$etting Organi@ation"
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 52/55
2-*2
<ic of te follo!ing statements about te IASB and $ASB
conceptual frame!or"s is not correct=
a. 3e IASB conceptual frame!or" does not identify te element
compreensive income.
b. 3e eisting IASB and $ASB conceptual frame!or"s are
organied in similar !ays.
c. 3e $ASB and IASB agree tat te ob'ective of financialreporting is to provide useful information to investors and
creditors.
d. I$7S does not allo! use of fair value as a measurement basis.
4F($ $8LF-&8$& :8$&4O+
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 53/55
2-*3
<ic of te follo!ing statements is false=
a. 3e monetary unit assumption is used under I$7S.
b. Under I$7S, companies may use fair value for property, plant,and e)uipment.
c. 3e $ASB and IASB are !or"ing on a 'oint conceptual
frame!or" pro'ect.
d. Under I$7S, tere are te same number of financial statementelements as in :AAP.
4F($ $8LF-&8$& :8$&4O+
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 54/55
2-*!
3e issues tat te $ASB and IASB must address in developing a
common conceptual frame!or" include all of te follo!ing ecept@
a. Sould te caracteristic of relevance be traded6off in favor of
information tat is verifiable=
b. Sould a single measurement metod be used=
c. Sould te common frame!or" lead to standards tat are
principles6based or rules6based=d. Sould te role of financial reporting focus on ste!ardsip as
!ell as providing information to assist users in decision6
ma"ing=
4F($ $8LF-&8$& :8$&4O+
7/23/2019 Conceptual Framework (Finacc-TOA)
http://slidepdf.com/reader/full/conceptual-framework-finacc-toa 55/55
Copyrigt J #F1# on <iley K Sons, Inc. All rigts reserved.7eproduction or translation of tis !or" beyond tat permitted in
Section 11 of te 1L+ United States Copyrigt Act !itout te
epress !ritten permission of te copyrigt o!ner is unla!ful.
7e)uest for furter information sould be addressed to tePermissions Department, on <iley K Sons, Inc. 3e purcaser
may ma"e bac"6up copies for isMer o!n use only and not for
distribution or resale. 3e Publiser assumes no responsibility for
errors, omissions, or damages, caused by te use of teseprograms or from te use of te information contained erein.
Copyrig'tCopyrig'tCopyrig'tCopyrig't