Conceptual Framework Flashcards
What is the objective of financial reporting?
To provide information use to present and potential equity investors, lenders, creditors in their capacity as capital providers.
What are the fundamental qualities of financial reporting?
Relevance and faithful representation
What are the enhancing qualities of financial reporting?
Comparability, verifiability, timeliness, and understandability
The concept of __________ information is that it is helpful in making decisions.
Relevant
Relevant information will have one or more of the following characteristics (3):
Predictive value, confirmatory value, materiality
Information that is used by investors to form their own expectations about the future has ________.
Predictive value
Information that helps users confirm or correct prior expectations has __________.
Confirmatory value
Information is _________ if omitting it or misstating it could influence decisions that users make on the basis of reported financial information
Material
The _____________ quality of financial reporting is fulfilled when the numbers and descriptions match what actually existed or happened.
Faithful representation
What are the three characteristics of faithful representation?
Completeness, neutrality, and free from error
__________ is satisfied when all the information that is necessary for faithful representation is provided.
Completeness
The characteristic of ________ means a company cannot select information to favor one set of interested parties over another.
Neutrality
Accurate representation of a financial item refers to information that is ________.
Free from error
Information that is measured and reported in a similar manner for different companies is considered to be _________.
Comparable
This characteristic or quality is met when independent measurers, using the same methods, obtain similar results
Verifiability
Information is ________ when information is available to decision makers before it loses capacity to influence decisions.
Timely
The quality of information that lets reasonably informed users see its significance is the concept of _______.
Understandability
What are the 4 assumptions of the conceptual framework?
Economic Entity, Going Concern, Monetary Unit, Periodicity
This concept assumes that the company keeps its activity separate from its owners and other businesses
Economic entity
This concept assumes that the business will last long enough to fulfill objectives and commitments
Going concern
This concept assumes that money is the common denominator in financial reporting
Monetary Unit
This concept assumes the company can divide its economic activities into time periods
Periodicity
The two constraints in the conceptual framework are the ___________ and _________ constraints
Cost, industry practice
The _________ states the cost of providing the information must be weighed against the benefits that can be derived from using it.
Cost constraint
The unique nature of some industries and businesses sometimes requires departure from basic accounting theory.
Industry practice
