Conceptual Framework
Guides the FASB in establishing accounting standards
What is the FASB Conceptual Framework?
Information that is capable of making a difference in decisions made by financial statement users
What is relevance?
Provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity
What is the primary objective of financial reporting?
A business enterprise is a legally and economically distinct entity, so that financial statements can be prepared and reported specifically for that entity.
What is the economic entity or reporting entity assumption?
Enables users of accounting information to identify and explain similarities and differences between two or more sets of economic facts
What is comparability?
Establish the authoritative guidance on how companies should account for and report specific transactions, events, and arrangements in their financial statements
What are accounting standards/GAAP?
Information that should help users form expectations about the future
What is predictive value?
When economic effects are recognized in the current period even though the cash flows will occur in a later period
What is an accrual?
Assumes that the company will continue to operate in the foreseeable future.
What is the going concern/continuity assumption?
Accounting methods and procedures are applied in the same manner from period to period
What is consistency?
General proclamations that establish:
•Fundamental principles of accounting
•Objectives of financial reporting
•Qualities of useful financial accounting information
•Definitions of basic elements like assets and liabilities
•Types of economic transactions, events, and arrangements to be recognized in financial statements
•Measurement attributes to use to measure and report these transactions, events, and arrangements
•How transactions, events, and arrangements should be presented and classified in financial statements
What are the FASB's Statements of Financial Accounting Concepts?
Information that provides feedback to confirm or correct prior predictions and expectations
What is confirmatory value?
When cash flows occur in the current period but economic effects will be recognized in a later period
What is a deferral?
The annual reporting period is often referred to as the accounting period or fiscal year which may or may not be the calendar year.
What is the period-of-time assumption?
Different knowledgeable and independent observers can reach consensus that a particular representation is faithful
What is verifiability?
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The nature and magnitude of an omission or misstatement of accounting information that would influence the judgment of a reasonable person relying on that information
What is materiality?
Determines the appropriate period in which a company creates economic benefits, which occurs when a company satisfies its performance obligations, or promises within the contract with a customer
What is the revenue recognition principle?
Accountants generally use the national currency of the reporting entity when preparing financial statements.
What is the monetary unit assumption?
Information is available to decision makers in time to influence their decisions
What is timeliness?
The fundamental theories, truths, and propositions that serve as the practical foundation for financial accounting and financial reporting.
What are accounting principles?
When the words and numbers accurately predict the economic substance of what they purport to represent
What is faithful representation?
Measures assets, liabilities, revenues, expenses, and other elements of the financial statements with the most relevant and faithful measurement available
Yearly period from lowest sales through highest sales and back to lowest sales
What is the business cycle?
Comprehensible to users who have a reasonable knowledge of business and economic activities and who are willing to study the information carefully
What is understandability?