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Why accounting conceptual framework
Conceptual framework of accounting
Conceptual framework of accounting
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Midterm Exam Accounting 598 Part 2 2. A critical component of any accounting theory course is an understanding of the conceptual framework. 2a. The conceptual framework identifies the primary users of accounting information as investors, creditors, and those who advise them. It also assumes a “prudent” investor; that is, an investor who takes the time to become reasonably well informed with respect to accounting theory and practice. Discuss this concept with respect to the current economic environment. Are different groups of investors “prudent?” According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment. One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward... ... middle of paper ... ...ant that FASB maintain a careful balance between cost and effectiveness. As Wolk carefully pointed out, “the FASB’s primary objective is providing useful information for external users subject to the benefits > costs constraint. Neutrality means being concerned primarily with decision usefulness rather than distributive effects” (Wolk, Dodd, & Tearney, 2003). It is for all of these reasons that I believe the identification, of the primary users, does not have an impact on the concept of neutrality. Neutrality is entirely independent of who the users are. References Financial Accounting Standards Board. (2006, July 6). Conceptual Framework for Financial Reporting. Financial Accounting Series , 1-55. Wolk, H., Dodd, J., & Tearney, M. (2003). Accounting Theory: Conceptual Issues in a Political and Economic Environment (6th edition ed.). South-Western College Pub.
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
The Conceptual Framework (CF) is not a standard or interpretation and does not override any specific standard or interpretation (CF discussion paper). A CF is a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements. The CF was formed with the intention of providing the backbone for principle-based accounting standards (...
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
It suggested that people use information cues to make decisions about future events. The issue of how and whether information cues are used in decision making is very important to accounting professions. The model was being used as an analytical framework and the basis for most judgement studies: prediction and evaluation (Slideshare.net) In 1970, Paul and Virgil found that earnings and sales information were always obtained by financial analysts to predict financial returns on particular shares. This investigation was further agreed by Mear and Firth in 1987. Furthermore, there was also studies on addressing whether decision makers will make different decisions if relevant information are provided with the within the financial statements. A loan officer can make different judgments about an entity’s ability to repay a loan depending on if the accounting professions include footnote that provides details on liability account on the statement. Another disclosure issues that Stallman (1969) found that providing information about industry segments can reduce decision maker’s reliance on past share prices when they make choices to select particular securities. Therefore, knowing what and how information will be used by readers will help the accounting professions to determine what and how to present relevant information in a financial report, and this will
The NZ Framework is an accounting conceptual framework based on the International Accounting Standards Board (IASB) Conceptual Framework. The key objective of the framework is to provide a complete and updated set of accounting concepts to use ...
Gibson, C. H. (2011). Financial reporting & analysis: Using financial accounting information. (12th ed.). Mason, OH: South-Western Cengage Learning.
Albrecht, W. S., Stice, J. D., Stice, E. K., & Skousen, k. F. (2002). Accounting Concepts and Applications. Cincinnati: South-Western.
These varying standards have created inconsistencies between the reporting of financial statements. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) collaborated to develop a compatible set of accounting standards that would provide one framework to solve this problem. The team introduces initial drafts of new revenue recognition standard during 2010 and 2011. The final standard was issued on May 28th, 2014.
The introduction of International Financial Reporting Standards, users of financial statements are facing a wide range of information on financial instruments yet it is becoming increasingly difficult to understand what is most important.
Accounting gives companies, investors, regulators and others with a standardized way to explain the financial performance of an entity. Accounting standards present preparers of financial statements with a set of rules that they have to follow when preparing an entity’s accounts, making sure this standardization is across the market (Robert 2008). Many Companies are required to publish their financial statements in accordance with the relevant accounting standards. To simply International Financial Reporting Standards (IFRS) is one set of accounting standards, which have been established and maintained by the IASB with the purpose of those standards being efficient of being useful consistently. Financial statements are a structured representation of the financial positions and financial performance of an entity. The role of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.
(i) Judgement and materiality play a significant role in helping to ensure that the selection of accounting policies in presenting the financial statements for a true and fair picture of the company’s financials. This means that entities should provide the financial statements with comparability, consistency and clarity to users of these statements. Entities must follow accounting policies required by IFRS and AASB should be relevant to particular circumstance.
Change is inevitable. Yogi Berra once said “The future ain’t what it used to be.” It is clear that the future of the accounting profession ain’t what it used to be (Gormon and Hargadon 1). The changes occurring are happening fast, they are dynamic and they are completely and undeniably real. Since the world around the accountant is changing, the accountant has no option but to change as well. The field of accounting has always been one to know change and to know adjustment, but within the recent past and certainly within the next few decades, the changes that are occurring and will occur absolutely are the most dramatic and exponential yet. Obvious changes lie in the expanding scope of services performed by accountants, the increased use of
If we look at the contribution of Accounting to Financial Economic Thought, the initial idea of an individual, a firm or an economy is obtained on the basis of Financial Accounting information provided. An in-depth understanding of the financial accounting information provided will guide the decisions towards an optimal resource allocation.
The FASB and the SEC, historically, worked exclusively on developing and implementing United States Generally Accepted Accounting Principles (US GAAP) for public and private companies and not-for-profit organizations. The SEC was formed through the 1934 Securities Exchange Act due to the 1929 stock market crash, which instilled it as a regulatory agency. The SEC previously set US GAAP accounting standards until it transferred authority to the FASB, but maintains legislative jurisdiction and is a key component in overseeing the FASB accounting standards. The SEC’s purpose is to ensure regulatory compliance of financial accounting reporting by protecting US and foreign investors of securities sold in the US (Palmon, Peytcheva & Yezegel,
Accounting is so important in our modern society. It serves a variety range of place in our society. It serves a variety range of place in our soceity, from school to hospital, from business firm to government agencies. It's also the main force in regulation of taxation and industrial activity. It serves a great aspects on the development of mass-production systems, any way, it's a very important term in our modern soceity.