1. Chapter 2: The ConceptualChapter 2: The Conceptual
FrameworkFramework
Intermediate Accounting, 11th Edition
Kieso, Weygandt, and Warfield
Prepared by
Jep Robertson and Renae Clark
New Mexico Sate University
Las Cruces, New Mexico

2. 1. Describe the usefulness of a conceptual
framework.
2. Describe the FASB's efforts to construct a
conceptual framework.
3. Understand the objectives of financial
reporting.
4. Identify the qualitative characteristics of
accounting information.
After studying this chapter, you should be able
to:
Chapter 2: The ConceptualChapter 2: The Conceptual
FrameworkFramework

3. 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 constraints have on
reporting accounting information.
Chapter 2: The ConceptualChapter 2: The Conceptual
FrameworkFramework

4. • The Framework was to be the
foundation for building a set of
coherent accounting standards and
rules.
• The Framework is to be a reference of
basic accounting theory for solving
emerging practical problems of
reporting.
Objectives of the ConceptualObjectives of the Conceptual
FrameworkFramework

5. • The FASB has issued seven Statements of
Financial Accounting Concepts (SFACs) to
date (Statements 1 through 7.)
• These statements set forth major recognition
and reporting issues.
• Statement 4 pertains to reporting by non-
business entities.
• The other six statements pertain to reporting
by business enterprises.
Statements of FinancialStatements of Financial
Accounting ConceptsAccounting Concepts

6. • Statement 1
• Statement 2
• Statement 6
• Statement 4
• Statement 5
• Statement 7
• Objectives of Financial
Reporting (Business)
• Qualitative
Characteristics
• Elements of Financial
Statements (replaces 3)
• Objectives of Financial
Reporting (Non-business)
• Recognition and
Measurement Criteria
• Using Cash Flows
Brief TitleStatement
Statements of FinancialStatements of Financial
Accounting ConceptsAccounting Concepts

7. The Framework has three different
levels,comprised of:
• The first level consists of objectives.
• The second level explains financial elements
and characteristics of information.
• The third level incorporates recognition and
measurement criteria.
Overview of the ConceptualOverview of the Conceptual
FrameworkFramework

8. Conceptual Framework forConceptual Framework for
Financial ReportingFinancial Reporting

9. To provide information:
• about economic resources, the claims on
those resources and changes in them.
• that is useful to those making investment
and credit decisions.
• that is useful to present and future
investors, creditors in assessing future cash
flows.
• to individuals who reasonably understand
business and economic activities.
Basic Objectives of FinancialBasic Objectives of Financial
ReportingReporting

10. Hierarchy of Accounting QualitiesHierarchy of Accounting Qualities

11. • Primary qualities of accounting information
are relevance and reliability.
• Secondary qualities are comparability and
consistency of reported information.
Qualitative Characteristics ofQualitative Characteristics of
Accounting InformationAccounting Information

12. “Relevance of information means information
ccapable of making a difference in a decision
context.”
Ingredients of relevant information are:
• Timeliness
• Predictive value
• Feedback value
Primary Characteristic ofPrimary Characteristic of
Accounting Information:Accounting Information:
RelevanceRelevance

13. Information is reliable when it can be relied on
to represent the true, underlying situation.
The ingredients of reliable information are:
• verifiability
• representational faithfulness
• neutrality (unbiased)
Primary Characteristic ofPrimary Characteristic of
Accounting Information:Accounting Information:
RelevanceRelevance

14. Comparability: the similar measurement and
reporting for different enterprises.
Consistency: application of the same
accounting treatment to similar events by an
enterprise period to period.
Secondary Characteristics ofSecondary Characteristics of
Accounting InformationAccounting Information

15. • Assets
• Liabilities
• Equity
• Investment by
Owners
• Distributions to
Owners
• Comprehensive
Income
• Revenues
• Expenses
• Gains
• Losses
Basic Elements of FinancialBasic Elements of Financial
StatementsStatements

16. Basic
Assumptions
1. Economic
entity
2. Going
concern
3. Monetary
unit
4. Periodicity
Principles
1. Historical
cost
2. Revenue
recognition
3. Matching
4. Full
disclosure
Constraints
1. Cost benefit
2. Materiality
3. Industry
practices
4. Conservatism
Recognition and MeasurementRecognition and Measurement
CriteriaCriteria

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