Conceptual Framework Flashcards
What is the objective of the FASB Conceptual Framework?
To provide information that is useful to others.
What are the Qualitative Characteristics of the conceptual framework?
Fundamental and Enhancing Qualities
What does the Qualitative Characteristic of Fundamental Qualities consist of?
Relevance and Faithful Representation
What does the Qualitative Characteristic of Enhancing Qualities consist of?
Comparability, Verifiability, Timeliness, Understandability
What does relevance mean?
Information is helpful in decision making.
What are the 3 categories of relevance?
Predictive Value, Confirmatory Value, Materiality
What is predictive value?
Relevant information is used by investors to form their own expectations about the future.
What is confirmatory value?
Relevant information also helps users confirm or correct prior expectations.
What is materiality?
Information is material if omitting it or misstating it could influence decisions that users make on the basis of reported financial information.
What does the Qualitative Characteristic of Faithful Representation consist of?
Completeness, Neutrality, Free From Error
What does faithful representation mean?
The numbers and descriptions match what actually existed or happened.
What does completeness mean?
All the information that is necessary for faithful representation is provided.
What does neutrality mean?
A company cannot select information to favor one set of interested parties over another.
What does free from error mean?
More accurate representation of a financial item.
What does the Qualitative Characteristic of Enhancing Qualities consist of?
Comparability, Verifiability, Timeliness, Understandability
What is comparability?
Information that is measured and reported in a similar matter for different companies is considered comparable.
What is verifiability?
Occurs when independent measures, using the same methods, obtain similar results.
What is timeliness?
Having information available to decision makers before it looses its capacity to influence decisions.
What is understandability?
The quality of information that lets reasonably informed users see its significance.
What are the Elements of the Conceptual Framework?
Assets, Liabilities, Equity, Investments by Owner, Distributions to Owners, Comprehensive Income, Revenue, Expenses, Gains and Losses
What are the Assumptions of the conceptual framework?
Economic Entity, Going Concern, Monetary Unit Periodicity
What are the Principals of the Conceptual Framework?
Measurement, Revenue and Expense Recognition, Full Disclosure
What are the Constraints of the conceptual framework?
Cost and Industry Practice
What does Economic Entity mean?
Company keeps its activity separate from its owners and other businesses.
