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    Summary Chapter 2

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    Ahmad Rifkii
    The conceptual framework provides the foundational principles for financial reporting. It identifies the objectives of financial reporting as providing useful information to investors and creditors for decision making. The framework outlines key qualitative characteristics like relevance and faithful representation. It also defines the elements of financial statements such as assets, liabilities, and equity. Measurement principles like historical cost and fair value are discussed along with recognition criteria for revenues, expenses, and disclosures.

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    Summary Chapter 2

    Uploaded by

    Ahmad Rifkii
    28 views5 pages
    The conceptual framework provides the foundational principles for financial reporting. It identifies the objectives of financial reporting as providing useful information to investors and creditors for decision making. The framework outlines key qualitative characteristics like relevance and faithful representation. It also defines the elements of financial statements such as assets, liabilities, and equity. Measurement principles like historical cost and fair value are discussed along with recognition criteria for revenues, expenses, and disclosures.

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    The conceptual framework provides the foundational principles for financial reporting. It identifies the objectives of financial reporting as providing useful information to investors and creditors for decision making. The framework outlines key qualitative characteristics like relevance and faithful representation. It also defines the elements of financial statements such as assets, liabilities, and equity. Measurement principles like historical cost and fair value are discussed along with recognition criteria for revenues, expenses, and disclosures.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    28 views5 pages

    Summary Chapter 2

    Uploaded by

    Ahmad Rifkii
    The conceptual framework provides the foundational principles for financial reporting. It identifies the objectives of financial reporting as providing useful information to investors and creditors for decision making. The framework outlines key qualitative characteristics like relevance and faithful representation. It also defines the elements of financial statements such as assets, liabilities, and equity. Measurement principles like historical cost and fair value are discussed along with recognition criteria for revenues, expenses, and disclosures.

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    Conceptual Framework for Financial Reporting

    Conceptual Framework was to be the foundation for building a set of coherent accounting
    standards and rules. It is to be a reference of basic accounting theory for solving emerging
    practical problelms of reporting

    Obejectives :

    1. Identifying the boundaries of financial reporting


    2. Selecting the transaction, other events, and circumstances to be represented
    3. How they should be reorganized and measured
    4. How they should be summarized and reported

    First level identifies objective of financial reporting

    Second level provides the qualitative characteristic and the element of financial statements

    Third level identifes the recognition, measurement, and disclosure


    Objectives of Financial Reporting

    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

    Hierarchy of Accounting Qualities

    Fundamental Quality – Relevance

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


    Information with no bearing on a decision is irrelevant. Financial information is capable of
    making a difference when it has predictive value, confirmatory value, or both.
    Fundamental Quality – Faithful Representation

    means that the numbers and descriptions match what really existed or happened. Faithful
    representation is a necessity because most users have neither the time nor the expertise to
    evaluate the factual content of the information

    Enhancing Qualities

    Enhancing qualitative characteristics are complementary to the fundamental qualitative


    characteristics. These characteristics distinguish more-useful information from less-useful
    information.

    Elements of Financial Statements

    ASSET. A resource controlled by the entity as a result of past events and from which future
    economic benefi ts are expected to fl ow to the entity.
    LIABILITY. A present obligation of the entity arising from past events, the settlement of which
    is expected to result in an outfl ow from the entity of resources embodying economic benefi ts.
    EQUITY. The residual interest in the assets of the entity after deducting all its liabilities. The
    elements of income and expenses are defi ned as follows.
    INCOME. Increases in economic benefi ts during the accounting period in the form of in fl ows
    or enhancements of assets or decreases of liabilities that result in increases in equity, other than
    those relating to contributions from equity participants.
    EXPENSES. Decreases in economic benefi ts during the accounting period in the form of outfl
    ows or depletions of assets or incurrences of liabilities that result in decreases in equity, other
    than those relating to distributions to equity participants.

    Basic Assumptions
    Economic Entity : economic activity can be identified with a particular unit of accountability
    Going concern
    Monetary Unit : the money is the common dominatior of eocnomic activity and provides an
    appropriate basis for accounting measurement and analysis
    Periodicity : to measure the results of a company activity accurately it would need to wait until it
    liquidates.
    Accrual Basis of Accounting : transactions are recorded in the periods in which events occurs

    Basic Principle of Accounting


    Measurement : most commonly used is historical value and fair value (price that would be
    received to sell an asset or paid to transfer a liability in an orderly transaction between market
    participant at the measurement date
    Revenue Recognition
    Expeses Recognition :
    Full Disclosure : it recognizes that the nature and amount of information included in financial
    reports reflects a series of judgmental trade-offs.

    cost constraint.
    In providing information with the qualitative characteristics that make it useful, companies must
    consider an overriding factor that limits (constrains) the reporting.

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