Conceptual Framework Flashcards
What are the objectives of financial reporting?
-To provide information that is useful to existing and
potential investors, lenders and other creditors.
-Information about an entity’s economic resources and and claims against the entity.
-Changes in economic resources and claims
-Financial performance reflected by accrual accounting
-Financial performance reflected by cash flows
-Changes in economic resources and claims NOT resulting from financial performance, ie stock issuance
Relevance and faithful make financial information what?
Useful
What two elements make up relevance?
Predictive value-helps decision makers predict of forecast future results.
Confirmatory value-confirm or correct prior predictions
or both (Materiality-capable of making a difference in the user’s decision making process if omitted or missed.
What three elements make up faithful representation?
Free from error
Neutrality-the info is free from bias
Completeness-info is presented in a way that users can understand.
What are the enhancing qualitative characteristics?
Comparability-same principles being used with business enterprises in similar industry
Understandability-classifying, characterizing and presenting info clearly.
Timeliness-info is available to a decision maker when it is useful to make the decision
Verifiability- different sources agree on an amount through either direct or indirect verification.
What are the 3 basic elements of financial statements?
Assets
Liabilities
Equity (net assets)
What 3 elements make up equity?
Contributions/investment by owners
Distributions to owners (dividends)
Comprehensive income (DENT)
Derivative cash flow hedges
Excess adjustment of Pension PBO and FV of plan
assets at YE
Net unrealized gains or losses on AFS securities
Translation adjustments for foreign currency
What 4 elements make up comprehensive income?
Revenues
Expenses
Gains
Losses
