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Chapter 2

RSM220H1 Chapter Notes - Chapter 2: Financial Statement, Income Statement, Conceptual Framework


Department
Rotman Commerce
Course Code
RSM220H1
Professor
Dragan Stojanovic
Chapter
2

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Chapter 2: Conceptual Framework Underlying Financial Reporting
Lecture 2
Conceptual Framework
Conceptual framework: coherent system of interrelated objectives and fundamentals that can lead to consistent
standards that prescribes the nature, function, and limits of financial accounting and financial statements
Rationale for Conceptual Framework
Framework increases financial statement users understanding, and confidence, can enhance the comparability
By referring to existing framework, it is possible to solve new and emerging practical problems more quickly
Universally accepted conceptual framework will help accountants decide against certain alternative quickly and
focus instead on logical and acceptable treatment
Development of Conceptual Framework
Information Asymmetry Revisited
Conceptual framework based on sound principles may help address information asymmetry concerns
Objective of Financial Reporting
Objective: to communicate info that is useful to users
Useful info: help make decisions about how to allocate resources, assessing management stewardship
Qualitative Characteristics of Useful Information
Decision usefulness: deciding which alternative gives the most useful info for decision making purposes
Qualitative characteristics: distinguish between more useful info from inferior information
Fundamental Qualitative Characteristics
Relevance: making a difference in a decision,
oPredictive value: help users make predictions about past, present, future
oFeedback/confirmatory value: helps confirm or correct previous expectations
oMateriality: how important a piece of information ; must consider the amount
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