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    Chap 001

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    William

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    Chap 001

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    William
    96 views19 pages

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    96 views19 pages

    Chap 001

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    William

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    You are on page 1of 19

    Chapter 1

    ACCOUNTING
    CONCEPTUAL
    FRAMEWORK

    McGraw-Hill /Irwin

    2009 The McGraw-Hill Companies, Inc.

    Slide 2

    Contents
    Accounting

    Standards and Conceptual

    Framework

    1-2

    Slide 3

    The Development of Financial Accounting


    and Reporting Standards

    Concepts,
    principles, and
    procedures were
    developed to meet the
    needs of external
    users.

    Two major sets


    of accounting
    standards
    IFRS
    U.S. GAAP

    1-3

    Slide 4

    US GAAP Development
    SEC

    Role
    FASB Development

    CAP
    1939-1959

    APB

    FASB

    1959-1973

    1973- Now

    1-4

    Slide 5

    IASB Development
    International Standard Setting
    Standards set by private-sector
    Standards set by governmental body

    International Financial Reporting Standards


    IASC formed in 1973
    Members from countries such as France,
    Germany, Japan, U.K., and U.S.

    IASC reorganized to IASB in 2001.

    1-5

    Slide 6

    Establishment of Accounting Standards


    Due Process

    Understand the nuances of the economic


    transactions the standards address and the
    views of key constituents concerning how
    accounting would best capture that
    economic reality
    Steps include open hearings, deliberations,
    and requests for written comments from
    interested parties

    1-6

    Slide 7

    The Conceptual Framework


    IASB conceptual framework provides structure and

    direction to financial accounting and reporting


    IASB and FASB are working together to develop a
    common conceptual framework through 8 phases

    1-7

    Slide 8

    The Conceptual Framework


    Objectives of Financial Reporting
    (Phase A)

    Qualitative Characteristics
    of Accounting Information
    (Phase A)

    Elements of
    Financial Statements

    Underlying Assumptions
    Recognition of Elements
    Measurement of Elements
    Capital and Capital Maintenance
    1-8

    Slide 9

    Conceptual Framework
    Objectives
    To provide financial information that is useful to
    capital providers

    Qualitative
    Characteristics

    Constraints

    Elements

    Financial
    Statements

    Underlying Assumptions
    Recognition of Elements
    Measurement of Elements
    Capital and
    Capital Maintenance

    Continued
    1-9

    Slide 10

    Objective of financial reporting


    Qualitative
    Characteristics
    Understandability

    Underlying Assumptions
    Going concern

    Elements

    Fundamental
    Relevance
    Faithful representation

    Financial Position
    Assets
    Liabilities
    Equity

    Enhancing
    Comparability
    Verifiability
    Timeliness
    Understandability

    Performance
    Income
    Expenses

    Recognition of Elements
    Probability of future
    economic benefits
    Reliability of
    measurement
    Measurement of Elements
    Basis of measurement
    Capital and Capital
    Maintenance
    Concepts of capital
    Concepts of capital
    maintenance and
    determination of profit

    Financial Statements
    Constraints
    Cost effectiveness

    Statement of financial position


    Income statement
    Statement of comprehensive income
    Statement of cash flows
    Statement of changes in shareholders equity
    Notes and supplementary disclosures

    1-10

    Slide 11

    Recognition and Measurement Concepts

    1-11

    Slide 12

    Measurement of Elements of Financial Statements


    Measurement attributes in IFRS:
    1.Historical cost
    2.Net realizable value
    3.Current cost
    4.Present value of future cash flow
    5.Fair value
    The attribute chosen to measure a particular
    item should be the one that maximizes the
    combination of relevance and representational
    faithfulness.

    1-12

    Slide 13

    MC1
    Surfeet Corporation decided to capitalize its
    lease as one of the assets. Which characteristic
    is jeopardized by this change?
    A. Comparability.
    B. Representational faithfulness.
    C. Feedback value.
    D. Consistency.

    1-13

    Slide 14

    MC2
    According to the FASB conceptual framework, Neutrality is a representative of
    A. being completeness.
    B. being free from others influences.
    C. being valid.
    D. being audited by independent intermediary.

    1-14

    Slide 15

    MC3
    Mega Loan Company has very stringent credit requirements and,
    accordingly, has some losses from uncollectible accounts. The company's
    independent accountants recorded bad debt expense using allowance
    method, rather than using direct written off method. The concept
    demonstrated is:
    A.Materiality Constraint.
    B. Matching Principle.
    C. Historical Cost Principle.
    D.Conservatism Principle.

    1-15

    Slide 16

    For each of the following situations, state whether you agree or disagree with the
    financial reporting practice employed, and state the basic assumption, or accounting
    principle that is applied (if you agree) or violated (if you disagree) :
    Cantor Corporation's accountant increased the book value of a patent from its
    original cost of $1 million to its recently appraised value of $6 million.
    (1).

    (2). Stanton Corporation paid for the personal travel of its chief financial officer
    and charged travel expense.
    (3). At the end of its 2011 fiscal year, Dower, Inc. received an order from a
    customer for $60,000. The merchandise will ship early in 2012. Because the sale
    was made to a long-time customer and the invoice was paid in 2011, the
    controller recorded the sale in 2011.

    1-16

    Slide 17

    For each of the following situations, state whether you agree or disagree with the
    financial reporting practice employed, and state the basic assumption, or accounting
    principle that is applied (if you agree) or violated (if you disagree) :

    (4). The Churchill Pharmaceutical Company included a note in its financial


    statements that described a pending lawsuit against the company.
    (5). The Daily Corporation, a company whose securities are publicly traded,
    prepares monthly, quarterly, and annual financial statement for internal use
    but disseminates to external users only the annual financial statements.

    1-17

    Slide 18

    Case Analysis & Discussion


    Primetoy Corporation, a merchandise company publicly traded in the
    NYSE, decided to adjust the valuation of inventory (China Toy) from
    $1,500,000 to $1,650,000. CFO explained that these Chinese goods
    imported from China are more valuable due to High China Price Index
    increased by 10% at the ending reporting date.
    Do you agree or disagree with this adjustment? Why? What effects would
    be on the final results of the financial Statements if adjusted?

    1-18

    Slide 19

    Thank you !

    1-19

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