Kieso Intermediate Accounting Power Point CH 02 Conceptual Framework

Prepared by
Coby Harmon
University of California, Santa Barbara
2-1 Westmont College

,Conceptual Framework CHAPTER 2
for Financial Reporting
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the usefulness of a 3. Review the basic
conceptual framework and the assumptions of accounting.
objective of financial reporting. 4. Explain the application of the
2. Identify the qualitative basic principles of
characteristics of accounting accounting.
information and the basic
elements of financial
statements.


2-2

, PREVIEW OF CHAPTER 2




Intermediate Accounting
IFRS 3rd Edition
2-3
Kieso ● Weygandt ● Warfield

, LEARNING OBJECTIVE 1
Conceptual Framework Describe the usefulness of a
conceptual framework and the
objective of financial reporting.

Conceptual Framework establishes the concepts that
underlie financial reporting.

Need for a Conceptual Framework
► Rule-making should build on and relate to an established
body of concepts.
► Enables IASB to issue more useful and consistent
pronouncements over time.



2-4 LO 1

, Conceptual Framework

Development of a Conceptual Framework
Presently, the Conceptual Framework is comprises of the following.
• Chapter 1: The Objective of General Purpose Financial Reporting
• Chapter 2: The Reporting Entity (not yet issued)
• Chapter 3: Qualitative Characteristics of Useful Financial Information
• Chapter 4: The Framework, comprised of the following:
1. Underlying assumption—the going concern assumption;
2. The elements of financial statements;
3. Recognition of the elements of financial statements;
4. Measurement of the elements of financial statements; and
5. Concepts of capital and capital maintenance.

2-5 LO 1

, Conceptual Framework

Overview of the Conceptual Framework
Three levels:
 First Level = Objectives of Financial Reporting
 Second Level = Qualitative Characteristics and
Elements of Financial Statements
 Third Level = Recognition, Measurement, and
Disclosure Concepts.




2-6 LO 1

, ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition
Third level
3. Monetary unit 3. Expense recognition
The "how"—
4. Periodicity 4. Full disclosure implementation
5. Accrual


QUALITATIVE
CHARACTERISTICS ELEMENTS
1. Fundamental 1. Assets
qualities 2. Liabilities
Second level
3. Equity Bridge between
2. Enhancing
qualities 4. Income levels 1 and 3
5. Expenses



OBJECTIVE
Provide information
about the reporting
entity that is useful First level
ILLUSTRATION 2.7 to present and potential
Conceptual Framework for The "why"—purpose
equity investors,
Financial Reporting of accounting
lenders, and other
creditors in their
capacity as capital
2-7 providers.

, Basic Objective

“To provide financial information about the reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in making decisions about
providing resources to the entity.
 Provided by issuing general-purpose financial statements.
 Assumption is that users need reasonable knowledge of
business and financial accounting matters to understand
the information.




2-8 LO 1

, LEARNING OBJECTIVE 2
Fundamental Concepts Identify the qualitative
characteristics of accounting
information and the elements
Qualitative Characteristics of financial statements.

of Accounting Information
IASB identified the Qualitative Characteristics of
accounting information that distinguish better (more useful)
information from inferior (less useful) information for
decision-making purposes.




2-9 LO 2

, Qualitative Characteristics


ILLUSTRATION 2.2
Hierarchy of Accounting
Qualities




2-10 LO 2