Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Chapter 2. THE FRAMEWORK OF FINANCIAL ACCOUNTING CONCEPTS AND STANDARDS

Reed K. Storey, PhD, CPA

Financial Accounting Standards Board^[4]

FINANCIAL ACCOUNTING AND REPORTING

The principal role of financial accounting and reporting is to serve the public interest by providing information that is useful in making business and economic decisions. That information facilitates the efficient functioning of capital and other markets, thereby promoting the efficient and equitable allocation of scarce resources in the economy. To undertake and fulfill that role, financial accounting in the twentieth century has evolved from a profession relying almost exclusively on the experience of a handful of illustrious practitioners into one replete with a set of financial accounting standards and an underlying conceptual foundation.

An underlying structure of accounting concepts was deemed necessary to provide to the institutions entrusted with setting accounting principles or standards the requisite tools for resolving accounting problems. Financial accounting now has a foundation of fundamental concepts and objectives in the Financial Accounting Standards Board's (FASB) "Conceptual Framework for Financial Accounting and Reporting," which is intended to provide a basis for developing the financial accounting standards that are promulgated to guide accounting practice.

The FASB's conceptual framework and its antecedents constitute the major subject matter of this chapter. Some significant terms, organizations, ...