Conceptual Framework Flashcards
First Level of Conceptual Framework
The Objective - the “why” or purpose
Second Level of Conceptual Framework
The Qualitative Characteristics/Elements - the bridge between 1st and 3rd levels
Third Level of Conceptual Framework
Recognition, Measurement, and Disclosure Concepts - the “how” or implementation
Qualitative Characteristics (14)
Relevance, Predictive, Confirmatory, Materiality, Faithful Representation, Completeness, Neutrality, Free from Errors, Comparability, Consistency, Verifiability, Timeliness, Understandability, Cost Effectiveness
Key Assumptions/Concepts (7)
Economic Entity, Going Concern, Periodicity, Monetary Unit, Revenue Recognition, Expense Recognition, Full Disclosure
Relevance
capable of making a difference in information users’ decisions
Predictive Value
help users predict future outcomes
Confirmatory Value
help users confirm or change prior assessments
Materiality
omitting it or misstating it could affect users’ decisions
Faithful Representation
agreement between a measure and a real-world phenomenon that the measure is supposed to represent
Completeness
include all information that is necessary for faithful representation
Neutrality
without bias in the selection or presentation of financial information
Free from Errors
no errors or omissions in the description of the amount or the process used to report the amount
Comparability
similar items are treated the same way and different items are treated differently
Consistency
measured and reported the same way each period
Verifiability
different measurers would reach consensus about whether it is representationally faithful
Timeliness
available to decision makers in time to be capable in influencing their decisions
Understandability
comprehensible to users
Cost Effectiveness
consideration of the costs and value of information
Economic Entity
the FS represent the business, rather than its owners
Going Concern
in the absence of evidence to the contrary, the business can be reasonably expected to operate long enough to carry out its existing commitments
Periodicity
the life of an enterprise can be divided into artificial time periods
Monetary Unit
accounting measurements for U.S. companies are reported in dollars
Revenue Recognition
criteria usually satisfied for products at point of sale
Expense Recognition
record expense in the period the related revenue is recognized
Full Disclosure
all information that could affect decisions should be reported
