CH 2 Flashcards
Define conceptual framework
a. A coherent system of concepts that flow from an objective
What does a soundly developed conceptual framework accomplish?
a. Enable FASB to issue useful and consistent pronouncements overtime
b. Solve problems by referring to existing framework of basic theory
What are four concepts of guidance for financial reporting
a. Identifying the boundaries of financial reporting
b. Selecting the transactions, other events, and circumstances of be represented
c. How they should be recognized and measured
d. How they should be summarized and reported
Why is “ standard setting” important for financial reporting
a. It will lead to different results from identical issues
b. It can be easy for users and creditors to compare results
What is first level of financial reporting
a. Objective of financial reporting
i. Purpose of financial reporting
What is second level of financial reporting
a. Qualitative characteristics
i. Accounting info is useful and user-friendly
What is third level of financial reporting
a. Recognition, measurement, and disclosure concepts
Define decision useful
a. Useful to present for creditors
Define qualitative characteristics
a. To distinguish from useful and inferior information
Define relevance
a. Capable of making difference in a decision
Define Predictive value
a. Predictive process to determine the future results
Define confirmatory value
a. Relevant information also helps users confirm or correct prior expectations
Define Materiality
a. Company specific aspect of relevance (must make a difference).
Does Materiality only depend on qualitative accounts?
a. No, both qualitative and quantitative accounts.
Define Faithful representation
a. Numbers and descriptions match what really existed or happened.
Define completeness
a. Information is necessary for faithful representation
Define neutrality
a. Company cannot select information to favor one set of interested parties
Define free from error
a. Financial item is precise
What characteristic distinguish from more useful to less.
a. Enhancing qualities
i. Comparability
ii. Verifiability
iii. Timeliness
iv. Understandability
Define comparability
a. Enables users to identify the real similarities and differences in economic events
b. Financial forms must be consistent
Define consistency
a. Present when a company applies the same accounting treatment to similar events from period to period
Can a company change accounting methods
a. Yes, it must improve accounting and demonstrate the purpose and nature of applying it.
Define Verifiability
a. Independent measures with same methods that results in similar results
Define timeliness
a. Having information available to decision makers before it loses its capacity to influence decisions.