After studying this chapter, you should be able to: Describe the usefulness of a conceptual framework, describe efforts to construct a conceptual framework, understand the objective of financial reporting, identify the qualitative characteristics of accounting information. | 1 CHAPTER 2 Wiley 2 2 After studying this chapter, you should be able to: Indicate the usefulness and describe the main components of a conceptual framework for financial reporting. Identify the qualitative characteristics of accounting information. Define the basic elements of financial statements. Describe the foundational principles of accounting. Explain the factors that contribute to choices and/or bias in financial reporting decisions. Discuss current trends in standard setting for the conceptual framework. 3 Chapter 2: Conceptual Framework Underlying Financial Reporting 3 Conceptual Framework Underlying Financial Reporting 4 4 Usefulness of a Conceptual Framework The framework is like a constitution; it is a “coherent system of interrelated objectives” Aids in creation of standards for the accounting profession Increases financial statement users’ understanding of and confidence in financial reporting Enhances comparability of financial statements of different companies 5 LO1 5 Objectives of the Conceptual Framework The framework is the foundation for building a set of accounting concepts and objectives The framework is a reference of basic accounting theory for solving new and emerging practical problems of reporting 6 LO1 6 Conceptual Framework for Financial Reporting 7 LO1 7 Objective of Financial Reporting The overall objective of financial reporting is to provide information that is: useful to users (. investors, creditors, etc.), and decision relevant (resource allocation) Resource allocation decisions are assumed to include assessment of management stewardship (. management role in maximizing shareholder value) Conceptual building blocks (second level) include: qualitative characteristics, and elements of financial statements 8 LO1 8 Fundamental Qualitative Characteristics The Fundamental Qualitative Characteristics are: Relevance Makes a difference in a decision Has predictive and feedback/confirmatory value Includes all material information . | 1 CHAPTER 2 Wiley 2 2 After studying this chapter, you should be able to: Indicate the usefulness and describe the main components of a conceptual framework for financial reporting. Identify the qualitative characteristics of accounting information. Define the basic elements of financial statements. Describe the foundational principles of accounting. Explain the factors that contribute to choices and/or bias in financial reporting decisions. Discuss current trends in standard setting for the conceptual framework. 3 Chapter 2: Conceptual Framework Underlying Financial Reporting 3 Conceptual Framework Underlying Financial Reporting 4 4 Usefulness of a Conceptual Framework The framework is like a constitution; it is a “coherent system of interrelated objectives” Aids in creation of standards for the accounting profession Increases financial statement users’ understanding of and confidence in financial reporting Enhances comparability of financial statements of different companies 5 LO1 5
