1. Chapter 5: Conceptual Framework for Accounting and Reporting, and Accounting Standards

2. A Hierarchy of Elements in a conceptual framework for Financial Accounting and Reporting Serving as the first level The second level The third level The Fourth level Subsidiary objectivesBasic Objectives Qualitative CharacteristicsInformation Needed Accounting and reporting standards Accounting Practices Applications to specific situation by Management and Auditor Interpretations of Standards Fundamental of Accounting and reporting The Fifth level The Sixth level The Seventh level

3. Objectives The general (Basic) objectives are: a. to provide reliable information about the economic resources and obligations of a business enterprise in order to: i.evaluate its strengths and weaknesses ii.show its financing and investments iii.evaluate its ability to meet its commitments

4. Objectives b. to provide reliable information about changes in net resources resulting from a business enterprise’s profit-directed activities in order to: i.show expected dividend return to investors ii.demonstrate the operation’s ability to pay creditors and suppliers, provide jobs for employees, pay taxes and generate funds for expansion iii.provide management with information for planning and control

5. Objectives c. to provide financial information that can be used to estimate the earnings potential of the firm d. to provide other necessary information about changes in economic resources and obligations e. to disclose other information relevant to statement users’ needs

6. Advantages of a conceptual framework A conceptual framework is useful in the development of more consistent and logical standards to re-debate conceptual issues when preparing new accounting standards Can lead to better communication among accountants, auditors and users because all parties are using a common set of definitions and criteria

7. Note on a conceptual framework Conceptual framework can enable resolution of particular accounting problems, which avoids the necessity of issuing new accounting standards

8. Conflicts of interest Financial statements result from the interaction of three groups: firms, which by their operational, functional and extraordinary activities, justify the production of financial statements users, which include investors, financial analysts, bankers, creditors, consumers, employees, suppliers and government agencies the accounting profession, which acts principally as ‘auditor’ in charge of verifying that financial statements conform to generally accepted accounting principles

9. Conflicts of interest Simply stated, these are: 1. the firm-oriented approach 2. the profession-oriented approach 3. the user-oriented approach

10. Qualitative Characteristics of Accounting Information -The qualitative Characteristics accounting Information are: 1-Understandability 2- Relevance 3- Predictive value. 4- Feedback value. 5- Timeliness

11. Qualitative Characteristics of Accounting Information -The qualitative Characteristics accounting Information are: 6- Reliability. 7- Verifiability 8- Neutrality 9- Representation Faithfulness. 10- Comparability 11- Consistency. 12- Materiality.

12. Decision makers A Hierarchy of Accounting Qualities Users of Accounting Information Constraint User-specific qualities Primary Decision-specific qualities Ingredients of primary qualities The beginning for recognition UnderstandabilityDecision Usefulness Feedback value Benefits > Costs RelevanceReliability Representational Faithfulness VerifiabilityTimelinessNeutrality Comparability and ConsistencyMateriality Predictive value