CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Financial statements are needed for decision making. In order to make informed decisions, a financial statement user must understand both the financial information conveyed and how it is derived. To be useful, financial statements must be clearly understandable and comparable so that users may compare the performance of one business with the performance of the same business for a prior period or with the performance of another similar business. Therefore, all general purpose financial statements should be prepared in accordance with the same uniform guidelines. In this chapter, we will examine basic accounting principles.
SUMMARY OF LEARNING OBJECTIVES
- Describe the usefulness of a conceptual framework. The accounting profession needs a conceptual framework to: (1) build on and relate to an established body of concepts and objectives, (2) provide a framework for solving new and emerging practical problems, (3) increase financial statement users' understanding of and confidence in financial reporting, and (4) enhance comparability among companies' financial statements.
- Describe the FASB's efforts to construct a conceptual framework. The FASB has issued seven Statements of Financial Accounting Concepts that relate to financial reporting for business enterprises. These concepts statements provide the basis for the conceptual framework. They include objectives, qualitative characteristics, and elements. In addition, measurement ...