Introduction to Accounting Preparing for a User’s Perspective What is the Conceptual Framework and how does it provide guidance and structure to financial reporting? Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store

2004 FASB IASB New Accounting Standards Framework Conceptual Framework- Joint Project

Phases of the Conceptual Framework-Joint Project We’re out of here. We’re still in this. FASB IASB Phases of the Conceptual Framework-Joint Project

FASB FASB Conceptual Framework Phase A: Objectives and Qualitative Characteristics (completed Sept 28, 2010) FASB Conceptual Framework Statement of Financial Accounting Concepts No. 8 September 2010 Conceptual Framework for Financial Reporting Chapter 1, The Objective of General Purpose Financial Reporting, and Chapter 3, Qualitative characteristics of Useful Financial Information Framework should benefit: FASB Standard setters World economies Users

Benefits to standard setters Consistent guidance Common foundation & basic reasoning FASB IASB Noncontradictory

Benefits to world economies and markets

Statement of Cash Flows Benefits to users’ of financial statements Purpose Intent Income Statement Statement of Equity Balance Sheet Statement of Cash Flows Framework Footnote disclosures Users

FASB Conceptual Framework Statement of Financial Accounting Concepts No. 8 September 2010 Conceptual Framework for Financial Reporting Chapter 1, The Objective of General Purpose Financial Reporting, and Chapter 3, Qualitative characteristics of Useful Financial Information FASB – Accounting Standards Codification 100 General Principles 200 Presentation of Financial Statements 300 Assets 400 Liabilities 500 Equity 600 Revenue 700 Expenses 800 Broad Transactions 900 Industry x x x x x x x x x x x x x x x x x x x x x US GAAP is enforceable Conceptual Framework is not enforceable

Phases of the Conceptual Framework-Joint Project We’re out of here. We’re still in this. FASB IASB Phases of the Conceptual Framework-Joint Project

Phase A FASB Conceptual Framework Who is it for? What are its goals? Statement of Financial Accounting Concepts No. 8 September 2010 Conceptual Framework for Financial Reporting Chapter 1, The Objective of General Purpose Financial Reporting, and Chapter 3, Qualitative characteristics of Useful Financial Information Who is it for? What are its goals? What makes it helpful?

Chapter 1, The Objective of General Purpose Financial Reporting Investors Creditors Fair market value

Chapter 1, The Objective of General Purpose Financial Reporting Resources Claims Assets Liabilities & Equity

Faithfully Represented Chapter 3, The Qualitative Characteristics of Useful Information Relevant Faithfully Represented Predict Future Confirm Past It is what it says it is

Relevance Your reports show you will soon be out of cash You were right about the costs. Cash Predictive Value Confirmatory Value

Faithful Representation Free from Error Neutral Does not mean perfectly accurate Complete

$1 B Materiality A B $100 M error in Did you know A’s CEO fraudulently included $5 M? $100 M Net Income I didn’t know that. I think I’ll lend to B now. Probably Is Quantitatively Material I’ll lend to A. $5 M $1 B error in A B Net Income Probably is Not Quantitatively Material Qualitatively Material

A Year 1 B Year 1 A Year 1 A Year 2 We have a consensus. A Year 1 B Year 1 clear Comparability Verifiability Timeliness Understandable concise A Year 1 A Year 2 Enhancing Qualitative Characteristics of Useful Financial Information (Comparability, Verifiability, Timeliness, Understandability) Fundamental Qualitative Characteristics of Useful Financial Information (Relevant & Faithful Representation) Material Objective of General Purpose Financial Reporting

Introduction to Accounting Preparing for a User’s Perspective What is the Conceptual Framework and how does it provide guidance and structure to financial reporting? Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store