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Chapter 2: Q1CA. (page 69)

Wayne Cooper has some questions regarding the theoretical framework in which GAAP is set. He knows that the FASB and other predecessor organizations have attempted to develop a conceptual framework for accounting theory formulation. Yet, Wayne鈥檚 supervisors have indicated that these theoretical frameworks have little value in the practical sense (i.e., in the real world). Wayne did notice that accounting rules seem to be established after the fact rather than before. He thought this indicated a lack of theory structure but never really questioned the process at school because he was too busy doing the homework. Wayne feels that some of his anxiety about accounting theory and accounting semantics could be alleviated by identifying the basic concepts and definitions accepted by the profession and considering them in light of his current work. By doing this, he hopes to develop an appropriate connection between theory and practice.Instructions

(a) Help Wayne recognize the purpose of and benefit of a conceptual framework.

(b) Identify any Statements of Financial Accounting Concepts issued by the FASB that may be helpful to Wayne in developing his theoretical background.

Short Answer

Expert verified

(a) The purpose of a conceptual framework is to help the users of the financial statements in analyzing the information included in the financial statements, as well as the benefit of it is to authorize a standard-setting body to present more helpful and uniform pronouncements over time.

(b) Statement of Financial Accounting Concepts issued by the FASB that may be helpful to Wayne in developing his theoretical background are 鈥淥bjectives of Financial Reporting by Business Enterprise鈥�.

Step by step solution

01

Meaning of Conceptual Framework

A conceptual framework is a system of concepts and purposes that result in the formation of a uniform set of principles and conventions. A conceptual framework is needed so that establishing standards can be correct and helpful.

02

Purpose and benefit of a conceptual framework

A conceptual framework is identical to the constitution. Its purpose is to supply a logical system of interconnected fundamentals and objectives that describes the nature, purpose, and curbs of financial statements and accounting. A well-developed conceptual framework helps the Financial Accounting Standards Board (FASB) to present more uniform and beneficial standards in the future.

The benefit of a conceptual framework is that it increases the confidence and confidence of the users of the financial statements. It assists professional accountants in more rapidly solving rising practical problems. It helps in comparing the financial statements of one company with the other. It provides support to the body responsible for creating accounting standards.

03

Statements of Financial Accounting issued by the FASB

Statements issued by Financial Accounting Standards Board (FASB) that are associated with the concern include:

  • 鈥淨ualitative Characteristics of Accounting Information鈥� Inspects the features that make accounting information beneficial.
  • 鈥淓lements of Financial Statements of Business Enterprises鈥� gives an illustration of the broad groups of financial statement items.

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Most popular questions from this chapter

How is materiality (or immateriality) related to the proper presentation of financial statements? What factors and measures should be considered in assessing the materiality of a misstatement in the presentation of a financial statement?

Question: Companies that use IFRS:

(a) must report all their assets on the statement of financial position (balance sheet) at fair value.

(b) may report property, plant, and equipment and natural resources at fair value.

(c) may refer to a concept statement on estimating fair values when market data are not available.

(d) may only use historical cost as the measurement basis in financial reporting.

What is the definition of fair value?

Identify which basic assumption of accounting is best described in each item below.

a)The economic activities of FedEx Corporation are divided into 12-month periods for the purpose of issuing annual reports.

b)Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation.

c)Walgreen Co. reports current and non-current classifications in its balance sheet.

d)The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes.

BE2-1 (L03) Match the qualitative characteristics below with the following statements. 1. Relevance 5. Comparability 2. Faithful representation 6. Completeness 3. Predictive value 7. Neutrality 4. Confirmatory value 8. Timeliness (a) Quality of information that permits users to identify similarities in and differences between two sets of economic phenomena. (b) Having information available to users before it loses its capacity to influence decisions. (c) Information about an economic phenomenon that has value as an input to the processes used by capital providers to form their own expectations about the future. (d) Information that is capable of making a difference in the decisions of users in their capacity as capital providers. (e) Absence of bias intended to attain a predetermined result or to induce a particular behavior.
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