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1、Chapter 2-1Chapter 2-2C H A P T E R 2CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTINGIntermediate AccountingIFRS EditionKieso, Weygandt, and Warfield Chapter 2-3Conceptual Conceptual FrameworkFrameworkFirst Level: Basic First Level: Basic ObjectiveObjectiveSecond Level: Second Level: Fundamental Fundame
2、ntal ConceptsConceptsThird Level: Third Level: Recognition, Recognition, Measurement, and Measurement, and Disclosure Disclosure ConceptsConceptsNeedNeedDevelopmentDevelopmentOverviewOverviewQualitative Qualitative characteristicscharacteristicsBasic elementsBasic elementsBasic assumptionsBasic assu
3、mptionsBasic principlesBasic principlesConstraintsConstraintsSummary of the Summary of the structurestructureConceptual Framework For Financial ReportingChapter 2-4Need for a Conceptual FrameworkRule-making should build on and relate to an established body of concepts. Enables IASB to issue more use
4、ful and consistent pronouncements over time.Conceptual FrameworkLO 1 Describe the usefulness of a conceptual framework.LO 1 Describe the usefulness of a conceptual framework.Conceptual FrameworkConceptual Framework establishes the concepts that underlie financial reporting.Chapter 2-5Development of
5、a Conceptual FrameworkIASB and FASB are working on a joint project to develop a common conceptual framework Framework will build on existing IASB and FASB frameworks. Project has identified the objective of financial reporting (Chapter 1) and the qualitative characteristics of decision-useful financ
6、ial reporting information.Conceptual FrameworkLO 2 Describe efforts to construct a conceptual framework.LO 2 Describe efforts to construct a conceptual framework.Chapter 2-6Three levels:First Level = Basic objectiveSecond Level = Qualitative characteristics and elements of financial statementsThird
7、Level = Recognition, measurement, and disclosure conceptsConceptual FrameworkLO 2 Describe efforts to construct a conceptual framework.LO 2 Describe efforts to construct a conceptual framework.Overview of the Conceptual FrameworkChapter 2-7LO 2 Describe efforts to construct LO 2 Describe efforts to
8、construct a conceptual framework.a conceptual framework.ASSUMPTIONSASSUMPTIONS1.1.Economic entityEconomic entity2.2.Going concernGoing concern3.3.Monetary unitMonetary unit4.4.PeriodicityPeriodicity5.5.AccrualAccrualPRINCIPLESPRINCIPLES1.1.MeasurementMeasurement2.2.Revenue recognitionRevenue recogni
9、tion3.3.Expense recognitionExpense recognition4.4.Full disclosureFull disclosureCONSTRAINTSCONSTRAINTS1.1.CostCost2.2.MaterialityMaterialityOBJECTIVEOBJECTIVEProvide information Provide information about the reportingabout the reportingentity that is usefulentity that is usefulto present and potenti
10、alto present and potentialequity investors,equity investors,lenders, and otherlenders, and othercreditors in theircreditors in theircapacity as capitalcapacity as capitalProviders.Providers.ELEMENTSELEMENTS1.1.AssetsAssets2.2.LiabilitiesLiabilities3.3.EquityEquity4.4.IncomeIncome5.5.ExpensesExpenses
11、Illustration 2-7 Framework for Financial ReportingFirst levelSecond levelThird levelQUALITATIVE QUALITATIVE CHARACTERISTICSCHARACTERISTICS1.1.Fundamental Fundamental qualitiesqualities2.2.Enhancing Enhancing qualitiesqualitiesChapter 2-8“ “To provide financial information about the reporting To prov
12、ide financial information about the reporting entity that is useful to present and potential equity entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions investors, lenders, and other creditors in making decisions in their capacity as capit
13、al providers.”in their capacity as capital providers.”First Level: Basic ObjectiveLO 3 Understand the objectives of financial reporting.LO 3 Understand the objectives of financial reporting.OBJECTIVEOBJECTIVEProvided by issuing general-purpose financial statements.Assumption is that users have reaso
14、nable knowledge of business and financial accounting matters to understand the information. Chapter 2-9IASB identified the Qualitative Characteristics of accounting information that distinguish better (more useful) information from inferior (less useful) information for decision-making purposes.Seco
15、nd Level: Fundamental ConceptsLO 4 Identify the qualitative characteristics of accounting information.LO 4 Identify the qualitative characteristics of accounting information.Qualitative Characteristics of Accounting InformationChapter 2-10Illustration 2-2 Hierarchy of Accounting QualitiesSecond Leve
16、l: Fundamental ConceptsLO 4 Identify the qualitative characteristics of accounting information.LO 4 Identify the qualitative characteristics of accounting information.Chapter 2-11Fundamental Quality - RelevanceRelevance is one of the two fundamental qualities that make accounting information useful
17、for decision-making.Second Level: Fundamental ConceptsLO 4 Identify the qualitative characteristics of accounting information.LO 4 Identify the qualitative characteristics of accounting information.Chapter 2-12Fundamental Quality Faithful RepresentationFaithful representation means that the numbers
18、and descriptions match what really existed or happened.Second Level: Fundamental ConceptsLO 4 Identify the qualitative characteristics of accounting information.LO 4 Identify the qualitative characteristics of accounting information.Chapter 2-13Enhancing QualitiesDistinguish more-useful information
19、from less-useful information.Second Level: Fundamental ConceptsLO 4 Identify the qualitative characteristics of accounting information.LO 4 Identify the qualitative characteristics of accounting information.Chapter 2-14ASSUMPTIONSASSUMPTIONS1.1.Economic entityEconomic entity2.2.Going concernGoing co
20、ncern3.3.Monetary unitMonetary unit4.4.PeriodicityPeriodicity5.5.AccrualAccrualPRINCIPLESPRINCIPLES1.1.MeasurementMeasurement2.2.Revenue recognitionRevenue recognition3.3.Expense recognitionExpense recognition4.4.Full disclosureFull disclosureCONSTRAINTSCONSTRAINTS1.1.CostCost2.2.MaterialityMaterial
21、ityOBJECTIVEOBJECTIVEProvide information Provide information about the reportingabout the reportingentity that is usefulentity that is usefulto present and potentialto present and potentialequity investors,equity investors,lenders, and otherlenders, and othercreditors in theircreditors in theircapac
22、ity as capitalcapacity as capitalProviders.Providers.ELEMENTSELEMENTS1.1.AssetsAssets2.2.LiabilitiesLiabilities3.3.EquityEquity4.4.IncomeIncome5.5.ExpensesExpensesIllustration 2-7 Framework for Financial ReportingFirst levelSecond levelThird levelQUALITATIVE QUALITATIVE CHARACTERISTICSCHARACTERISTIC
23、S1.1.Fundamental Fundamental qualitiesqualities2.2.Enhancing Enhancing qualitiesqualitiesBasic ElementsLO 4LO 4Chapter 2-15Second Level: Basic ElementsLO 5 Define the basic elements of financial statements.LO 5 Define the basic elements of financial statements.Chapter 2-16Second Level: Basic Element
24、sExercise 2-4: Identify the qualitative characteristic(s) to be used given the information provided.(a)(a)Qualitative characteristic being Qualitative characteristic being employed when companies in the employed when companies in the same industry are using the same same industry are using the same
25、accounting principles.accounting principles.(b)(b)Quality of information that confirms Quality of information that confirms users earlier expectations.users earlier expectations.(c)(c)Imperative for providing comparisons Imperative for providing comparisons of a company from period to period.of a co
26、mpany from period to period.(d)(d)Ignores the economic consequences Ignores the economic consequences of a standard or rule.of a standard or rule.LO 5LO 5CharacteristicsRelevanceRelevanceFaithful representationFaithful representationPredictive valuePredictive valueConfirmatory valueConfirmatory valu
27、eNeutralityNeutralityCompletenessCompletenessTimeliness Timeliness VerifiabilityVerifiabilityUnderstandabilityUnderstandabilityComparabilityComparabilityChapter 2-17Third Level: Recognition, Measurement, and Third Level: Recognition, Measurement, and Disclosure ConceptsDisclosure ConceptsThese conce
28、pts explain how companies should recognize, measure, and report financial elements and events.ASSUMPTIONSASSUMPTIONS1.1.Economic entityEconomic entity2.2.Going concernGoing concern3.3.Monetary unitMonetary unit4.4.PeriodicityPeriodicity5.5.AccrualAccrualPRINCIPLESPRINCIPLES1.1.MeasurementMeasurement
29、2.2.Revenue recognitionRevenue recognition3.3.Expense recognitionExpense recognition4.4.Full disclosureFull disclosureCONSTRAINTSCONSTRAINTS1.1.CostCost2.2.MaterialityMaterialityLO 6 Describe the basic assumptions of accounting.LO 6 Describe the basic assumptions of accounting.Recognition, Measureme
30、nt, and Disclosure ConceptsIllustration 2-7 Framework for Financial ReportingChapter 2-18Economic Entity company keeps its activity separate from its owners and other business unit. Going Concern - company to last long enough to fulfill objectives and commitments.Monetary Unit - money is the common
31、denominator.Periodicity - company can divide its economic activities into time periods.Accrual Basis of Accounting transactions are recorded in the periods in which the events occur.LO 6 Describe the basic assumptions of accounting.LO 6 Describe the basic assumptions of accounting.Third Level: Assum
32、ptionsBasic AssumptionsChapter 2-19Third Level: AssumptionsLO 6 Describe the basic assumptions of accounting.LO 6 Describe the basic assumptions of accounting.E2-8: Identify which basic assumption of accounting is best described in each item below.(a)The economic activities of FedEx Corporation (USA
33、) are divided into 12-month periods for the purpose of issuing annual reports.(b)Total S.A. (FRA) does not adjust amounts in its financial statements for the effects of inflation.(c)Barclays (GBR) reports current and non-current classifications in its statement of financial position. (d)The economic
34、 activities of Tokai Rubber Industries (JPN) and its subsidiaries are merged for accounting and reporting purposes.PeriodicityPeriodicityGoing ConcernGoing ConcernMonetaryMonetaryUnitUnitEconomic Economic EntityEntityChapter 2-20MeasurementCost is generally thought to be a faithful representation of
35、 the amount paid for a given item.Fair value is “the amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arms length transaction.”IASB has taken the step of giving companies the option to
36、use fair value as the basis for measurement of financial assets and financial liabilities.Third Level: PrinciplesLO 7 Explain the application of the basic principles of accounting.LO 7 Explain the application of the basic principles of accounting.PrinciplesChapter 2-21Revenue Recognition - revenue i
37、s to be recognized when it is probable that future economic benefits will flow to the company and reliable measurement of the amount of revenue is possible.Third Level: PrinciplesLO 7 Explain the application of the basic principles of accounting.LO 7 Explain the application of the basic principles o
38、f accounting.Illustration 2-3 Timing of Revenue RecognitionChapter 2-22Expense Recognition - outflows or “using up” of assets or incurring of liabilities (or a combination of both) during a period as a result of delivering or producing goods and/or rendering services.Third Level: PrinciplesLO 7 Expl
39、ain the application of the basic principles of accounting.LO 7 Explain the application of the basic principles of accounting.Illustration 2-4 Expense Recognition“Let the expense follow the revenues.”Chapter 2-23Full Disclosure providing information that is of sufficient importance to influence the j
40、udgment and decisions of an informed user.Provided through:Financial StatementsNotes to the Financial StatementsSupplementary informationThird Level: PrinciplesLO 7 Explain the application of the basic principles of accounting.LO 7 Explain the application of the basic principles of accounting.Chapte
41、r 2-24Cost the cost of providing the information must be weighed against the benefits that can be derived from using it. Materiality - an item is material if its inclusion or omission would influence or change the judgment of a reasonable person. Third Level: ConstraintsLO 8 Describe the impact that
42、 constraints have on LO 8 Describe the impact that constraints have on reporting accounting information.reporting accounting information.ConstraintsChapter 2-25Summary of the StructureChapter 2-26The existing conceptual frameworks underlying U.S. GAAP and IFRS are very similar.The converged framewor
43、k should be a single document, unlike the two conceptual frameworks that presently exist. Both the IASB and FASB have similar measurement principles, based on historical cost and fair value. However, U.S. GAAP has a concept statement to guide estimation of fair values when market-related data is not
44、 available (Statement of Financial Accounting Concepts No. 7, “Using Cash Flow Information and Present Value in Accounting”). The IASB is considering a proposal to provide expanded guidance on estimating fair values. Chapter 2-27Copyright 2011 John Wiley & Sons, Inc. All rights reserved. Reproductio
45、n or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.Copyright
