FASB's Conceptual Framework
FASB's Conceptual Framework
FASB's Conceptual Framework
Understandability
Decision Usefulness
Understandability
Decision Usefulness
Materiality
Benefits > Costs
Relevance
Materiality
Decision Makers
Understandability
Decision Usefulness
Materiality
Benefits > Costs
Reliability
Materiality
Decision Makers
Understandability
Decision Usefulness
Materiality
SFAC 3: Elements of Financial
Statements of Business Enterprises
Defines 10 elements of financial statements
Later amended in SFAC 6
Does not include
Type of capital maintenance concept to use
Matters of recognition (realization)
Reversal of terminology
SFAC 1 used the term earnings
Official term: income
SFAC 4: Objectives of Financial
Reporting by Nonbusiness Organizations
Nonbusiness organizations
Receipts of resources without expectation of repayment
or economic benefits
Operating purposes that are primarily not to provide
goods or services at a profit
Absence of defined ownership...
Do not have a single indicator of entity
performance comparable to income measurement
SFAC 5: Recognition and
Measurement in Financial Statements
Did not meet expectations
Stated that changed should be gradual and
evolutionary
Display of owners equity
Recast performance into earnings and
comprehensive income
Inability to come to grips with the measurement
problem
SFAC 5: Recognition and
Measurement in Financial Statements
Recognition criteria: When should an asset,
liability, expense, revenue, gain, or loss be
recorded in the accounts?
Definition, is an element of financial statements
Measurability
Relevance
Reliability
Greater detail needed for recognition criteria
SFAC 6:
Elements of Financial Statements
A replacement of SFAC 3, not a revision
Definitions are virtually identical to SFAC
except they are extended to nonbusiness
organizations
Qualitative characteristics of SFAC 2 are
extended to nonbusiness organizations
Added nothing to the conceptual framework
from business enterprise perspective
SFAC 6:
Elements of Financial Statements (10)
1. Assets 6. Comprehensive
2. Liabilities Income
3. Equity 7. Revenues
4. Investments by 8. Expenses
Owners 9. Gains
5. Distributions to 10. Losses
Owners
Conceptual Framework Consists of 6 SFACs
(Statement of Financial Accounting Concept)
1 Objectives of Financial Reporting by Business Enterprises 1978