1. Chapter 7 Conceptual Framework Project
Describe content of CF
Understand how the new view of accounting is embodied in the CF
Evaluate the CF

2. Theory V FASB Conceptual Framework Project
Background and Overview
The last and reigning theory
Initial Agenda 1973, so…
Head start?
Single Most Important Project-cast and cost of thousands

3. FASB CF
A constitution….to guide, be a frame of reference, determine bounds, help users, and improve comparability
Primary Beneficiary: FASB

4. FASB CF Contents Overview Consider each SFAC…. Ex. 7.2 Components
Ex. 7.3 Timeline
Ex. 7.7 Summary
Consider each SFAC….

5. SFAC #1
SFAC 1 Objectives 1978
Trueblood but…
SFAC #1 contradiction.

6. SFAC #1 Contradiction
Discussion teams: do you swallow the explanation of the FASB?
Evaluation of SFAC #1:

7. FASB CF Contents SFAC 2 Qualitative Characteristics 1980
Identifies qualities that make info useful; if present, report info
Ex. 7. 5
Evaluation: Tradeoffs?

8. FASB CF SFAC 6, 1985 (was 3, 1980) Elements of FS
Ex. 7.6, the 10 building blocks
A & L Primary
BS = IS?
CI?
SFAC 4 Non-Profit (N/A)

9. FASB CF SFAC 5 Recognition and Measurement 1984 Measurement criteria
Set of financial statements
Recognition criteria
Measurement criteria
No preference for measurement
SFAC 7, “Using Cash Flow Information and PV in Accounting Measurements,” Feb. 2000

10. FASB CF Flavor of the CF 1. New Accounting Model
2. Asset & Liability Income, not Income Statement and Matching
3. Current Value emphasis
4. Roots in M&S, ASOBAT, Trueblood, SATTA, etc.
1. People: changing staff, changing mix of Board members, and changes in the people on the CF project.
2. Process: the due process was open and took lots of time. Hard to gather input on concepts.
3. Constituents: stakeholders. Most wanted no change; the status quo. Saw no need for theory from their perspectives.
4. Balance of power: changed during the 12 years process.
Early 1970’s: Auditors were dominant.
Mid 1970’s saw the Big 8 under the spot light and they shrank from it.
’s: preparers dominated and SEC played important role.

11. FASB CF Reformation vs counter-Reformation in SFAC 5. Miller, AH, 6/90
reformation vs revolution vs counter-reformation
result: status quo

12. Evaluation of CF Closely Watched Evaluation and Concerns Cost and Time
Use? Class CF Project….
Expectations gap? Miller’s myths…

13. Miller’s Myths
8 myths about CF
What do they reveal?

14. CF Update
International CF?
Principles-based approach?
Revised CF?

15. FASB CF Difficulties
4 Major difficulties

16. Theory Wrap-up: Why So Hard?
Four considerations