1. GAAP PowerPoint #2

2. Understandability Decision Usefulness Relevance Predictive Value Feedback Value Timeliness Reliability Verifiability Neutrality Representational Faithfulness Comparability and Consistency Cost/Benefit (discussed in PPT #3) Materiality (discussed in PPT #3) www.fasb.org

3.  To provide useful, understandable information to users of financial statements for decision making  For present and potential investors and creditors and other users in making rational investment, credit, and similar decisions

4.  To help present and potential investors and creditors and other users to assess the amounts, timing, and uncertainty of prospective cash receipts  To inform users about the ◦ economic resources of an enterprise; ◦ the claims to those resources (obligations); ◦ the effects of transactions, events, and ◦ circumstances that cause changes in resources and claims to those resources

5.  Decision usefulness ◦ the quality of being useful to decision making  Understandability ◦ users must understand the information within the context of the decision being made

6.  Relevance  Reliability

7. ◦ Definition: relating to the matter at hand ◦ Capable of making a difference in the decision making of the user

8.  Must have predictive or feedback value ◦ Predicts or forecasts for users about the outcome of events of a company ◦ Provides feedback value for users to confirm or correct prior expectations of a company  Must be presented in a timely manner ◦ Provides current information to users to help with decision making

9. ◦ Definition: the quality or state of being reliable; and the extent to which an experiment, test, or measuring procedure yields the same results on repeated trials http://www.merriam- webster.com http://www.merriam- webster.com ◦ Information must be verifiable, a faithful representation, & reasonably free of error & bias (neutral)

10.  Must be verifiable ◦ Able to be proven; not subject to opinion  Must be a faithful representation ◦ Agreement between the accounting numbers and supporting documentation  Must be reasonably free from error ◦ No mistakes or inaccuracies should be found in the financial statements  Must be reasonably free from bias; should be neutral ◦ Accounting information should not favor any groups or companies but be a true and factual representation of a company’s financial position.

11.  Comparability  Consistency

12. Definition: The quality of information that enables users to identify similarities in and differences between two sets of economic phenomena.  The purpose of comparison is to detect and explain similarities and differences.  Accounting information should be comparable across different companies and over different time periods.  www.fasb.org www.fasb.org

13. ◦ Definition: Conformity from period to period with unchanging policies and procedures.  Information about a particular enterprise gains greatly in usefulness if it can be compared with similar information.  Consistent use of accounting principles from one accounting period to another enhances the utility of financial statements to users.  A quality of the relationship between two accounting numbers  www.fasb.org www.fasb.org

14.  Explain the concept of the FASB’s conceptual framework. (Slide 2)  What is the primary objective of financial accounting?  Explain relevance and reliability of financial statements.  What are the components of relevant information?  What are the components of reliable information?  Why should financial statements be both comparable and consistent?