Class Notes (836,274)
Canada (509,725)
Accounting (778)
ACC 414 (25)
Amy Aubin (2)

Chapter 2

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ACC 414
Amy Aubin

Ch 2 Conceptual Framework Underlying Financial Reporting Usefulness of Conceptual Framework - Creates standards for accounting profession - L ZZ]LL ]oZKLZZ[understanding & confidence in financial reporting - Enhances comparability of financial statements of different companies Conceptual Framework Objectives To provide info that is: useful to users & decision relevant Fundamental Qualitative Characteristics 1. Relevance J makes a difference, has predictivefeedback value 2. Representational Faithfulness (Reliability) J complete, neutral, reasonably free from errorbias N Completeness J include all info necessary to portray underlying events & transactions N Neutrality J favor one set of stakeholders over another N Freedom from material errorbias J reliable, convert economic events into fs Predictive value J use info to assess future potential of entity ConfirmatoryFeedback value J users use info to confirm their prior expectations & to assess management performance Enhancing Qualitative Characteristics 1. Comparability N Info measured & reported in similar way (company to company, & year to year) N Allows users to identify real economic similarities & differences 2. Verifiability J similar results achieved if same methods used 3. Timeliness J info available to decision makers before lose ability to influence 4. Understandability N Users need to have reasonable knowledge to see significance of info N 9}]Z^enough _]L}Z}Z]]Z o 5. Trade-offs J identify all relevant info, presented to reflect economic substance (representational faithfulness) 6. Constraints J materiality J ]K]K }L]K[Z}oo]LL ]o}]}LZ Basic Elements Balance Sheet - Assets J present economic resource, right of access to those resources where others do not o Economic resources J scarce & capable to produce cash flows, enforceable right (access)
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