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Chapter 2: The Conceptual Framework: Intermediate Accounting, 11th Edition Kieso, Weygandt, and Warfield

The document summarizes key aspects of Chapter 2 from the textbook Intermediate Accounting. It discusses the objectives, levels, and basic concepts of the conceptual framework for financial reporting. The framework provides objectives for financial reporting, defines elements of financial statements, and establishes criteria for recognition and measurement of those elements. It also identifies relevance and reliability as the primary qualitative characteristics of accounting information.

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KAOSAR AHMED
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© © All Rights Reserved
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116 views

Chapter 2: The Conceptual Framework: Intermediate Accounting, 11th Edition Kieso, Weygandt, and Warfield

The document summarizes key aspects of Chapter 2 from the textbook Intermediate Accounting. It discusses the objectives, levels, and basic concepts of the conceptual framework for financial reporting. The framework provides objectives for financial reporting, defines elements of financial statements, and establishes criteria for recognition and measurement of those elements. It also identifies relevance and reliability as the primary qualitative characteristics of accounting information.

Uploaded by

KAOSAR AHMED
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Intermediate Accounting, 11th Edition

Kieso, Weygandt, and Warfield

Chapter 2: The Conceptual


Framework
Objectives of the Conceptual
Framework

• The Framework was to be the


foundation for building a set of
coherent accounting standards and
rules.
• The Framework is to be a reference of
basic accounting theory for solving
emerging practical problems of
reporting.
Overview of the Conceptual
Framework
The Framework has three different
levels,comprised of:
• The first level consists of objectives.
• The second level explains financial elements
and characteristics of information.
• The third level incorporates recognition and
measurement criteria.
Conceptual Framework for
Financial Reporting
Basic Objectives of Financial
Reporting
To provide information:
• about economic resources, the claims on
those resources and changes in them.
• that is useful to those making investment
and credit decisions.
• that is useful to present and future
investors, creditors in assessing future cash
flows.
• to individuals who reasonably understand
business and economic activities.
Hierarchy of Accounting Qualities
Qualitative Characteristics of
Accounting Information

• Primary qualities of accounting information


are relevance and reliability.
• Secondary qualities are comparability and
consistency of reported information.
Primary Characteristic of
Accounting Information:
Relevance
“Relevance of information means information
capable of making a difference in a decision
context.”

Ingredients of relevant information are:


• Timeliness
• Predictive value
• Feedback value
Primary Characteristic of
Accounting Information:
Relevance

Information is reliable when it can be relied on


to represent the true, underlying situation.

The ingredients of reliable information are:


• verifiability
• representational faithfulness
• neutrality (unbiased)
Secondary Characteristics of
Accounting Information

Comparability: the similar measurement and


reporting for different enterprises.

Consistency: application of the same


accounting treatment to similar events by an
enterprise period to period.
Basic Elements of Financial
Statements
• Assets • Comprehensive
• Liabilities Income
• Equity • Revenues
• Investment by • Expenses
Owners • Gains
• Distributions to • Losses
Owners
Recognition and Measurement
Criteria
Basic
Principles Constraints
Assumptions

1. Economic 1. Historical 1. Cost benefit


entity cost 2. Materiality
2. Going 2. Revenue 3. Industry
concern recognition practices
3. Monetary 3. Matching 4. Conservatism
unit 4. Full
4. Periodicity disclosure

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