1. Accounting Conceptual Framework
Statement of Financial Accounting Concepts No. 8, joint project of FASB and IASB “The Objective of General Purpose Financial Reporting,” and “Qualitative Characteristics of Useful Financial Information”

2. Framework of financial accounting theory and practice
Objectives – provide useful information to existing and potential investors, lenders, creditors Types of useful information - return on investment, risk, financial flexibility, liquidity, operating capability Qualitative Characteristics of useful accounting information –decision usefulness, relevance, faithful representation, comparability, verifiability, timeliness, understandability, cost versus benefit Accounting Assumptions and Principles – reporting entity, going concern, period of time, monetary unit, mixed-attribute measurement, recognition, accrual accounting, conservatism Generally Accepted Accounting Principles- guidelines, procedures, practices required by companies in their audited financial statements, included now in a searchable on-line data base of all GAAP called the Accounting Standards Codification Financial Reports -Balance sheet, income statement, statement of cash flows, state-ment of shareholder’s equity, management discussion and analysis MDA), supple-mentary info, notes Elements of Financial statements -accounting equation (assets, liabilities, stockholder’s equity), revenues, expenses, gains, losses; operating, investing, financing cash flows; comprehensive income, investments and rewards concerning owners
Framework of financial accounting theory and practice

3. Objectives of Financial Reporting
Provide useful information
To project expected returns, cash flows
For investors, lenders and creditors
Net cash inflows of the company-help project amount, timing, uncertainty
Resources and claims of the company
Changes in economic resources and claims
Net income, comprehensive income
Objectives of Financial Reporting
Helps investors buy, sell or hold equity investments
Helps lenders and other creditors buy, sell or hold debt instruments
Existing and potential investors, creditors

4. Qualitative Characteristics --useful accounting information (top of the chart)
Decision usefulness- main objective of financial reporting (investors, creditors), achieve with enough relevance, faithful representation
Relevance –predictive, confirmatory value in decision making, material-large enough to make a difference
Faithful representation- substance over form (numbers show economic substance), complete representation, neutral representation, accurate representation (free from error)

5. Qualitative Characteristics-enhancing
Comparability – investors, creditors comparing companies, easier with similar accounting methods, consistency--- within companies
Verifiability – measurement results can be independently duplicated (consensus, not exact), without error, bias
Timeliness -- information when needed, at least yearly
Understandability – reasonably knowledgable users can learn info if study diligently

6. Qualitative Characteristics
Cost versus Benefit – (Benefits > Costs)
Worthwhile benefits to investors, creditors
must justify financial cost of developing and disclosing costs
if immaterial, no need to follow the rules! Examples – small tools
Qualitative Characteristics
Cost constraint

7. Accounting Assumptions and Principles
reporting entity – separate records/reports for each business enterprise, owner versus business, industry, U.S., world going concern- continuity assumption, plan to continue so historical cost valuation ok, depreciation, depletion, amortization --matching, current value not needed (versus quitting concern) period of time- annual reporting (calendar, fiscal year) consistent comparision period monetary unit- use currency of reporting entity – stable dollar
Accounting Assumptions and Principles

8. Accounting Assumptions and Principles (continued)
mixed-attribute measurement – US GAAP historical cost main value asset valuation rule to start, other measurements more relevant later- fair value, present value, net realizable value, additional concepts --conservatism recognition – includes revenue recognition – recording revenues when earned. Can also be used to describe recording expenses, assets, etc. accrual accounting – earned revenues, incurred expenses, not tied to cash flows. Timing is important. conservatism – use lower of asset values, use approach giving lowest net income, not misleading but practical -- Losses early, gains later, impairments not appreciation, US GAAP, fiduciary role
Accounting Assumptions and Principles (continued)