A Conceptual Framework for

Financial Accounting and Reporting

Presented by
Isfanda Devi 14803241021, Kartika Bunga 14803241022,
Nur Hida Aulia 14803241029, Triyani 14803241033
 Toward a
Classification and Formulation of the
Conflicts of Objectives of
Interests Financial
Statements

Toward a
Conceptual The Other Reports
Framework
Classification and Conflicts of Interests
Toward a Formulation of the Objectives of
Financial Statements
Toward a Conceptual Framework
The Nature of Conceptual Framework

• FASB critized the following situations on Financial

reporting :
2 or more methodsa Financial statements
Less conservative Reserves are used Defferals are
of accounting are fail to wam
methods are being atificially smooth followed by “big
accepted for the impending liquidity
used earning fluctuations bath” write offs
same facts crunches

An unwarranted
Unadjusted
assertion of
optimism exists in Off balace sheet Form is relevant
immateriality has
estimates of financing over subtance
been used to justify
recoverability
non disclosure
A Conceptual Framework Object

• Constitution, a coherents system of interrelated

objectives and fundamentals that can lead to
consistent standards and that prescribes the
nature, function, and limits of financial
accounting. The objectives identify the goals and
the purpose of accounting.
The Benefits of Conceptual Framework

Guide the FASB in

Provide a frame
establishing accounting
reference
standard

Determeine the bounds

of judgment in preparing Enhance comparability
financial statements
Conceptual Framework Issues

• Wich view of earning should be adopted?

2-7

• Definitions

• Which capital maintenance or cost recovery should be adopted?

• Which measurement method should be adopted?

1. Which view of earning should be
adopted?
3 Distinct view about measuring earning are identified :

Asset / Revenue /
Liability Expense
view view

Non
articulated
view
 2-7 Definitions

Asset

Characteristic
Asset / liability Revenue/expense based on
A Third view
view view conceptual
framework

Exchangeability is
1. Represent only 4. Represent the
3. Potential not essential
economic resources 2. Represent legal binding right
benefits obtainavle characteristic off
& doesnt include potential cashflow to particular
by firm assets except for
deffered charges benefit
deffered charges
 2-7 Definitions

Liabilities

Definition based
Asset / liability Revenue/expense Characteristic in
A Third view on conceptual
view view common
framework

Future sacrifice Result from past

Represent an May be restricted
of economic or current
obligation to legal debt
resources transaction
2-7 Definitions

Earnings

Asset / liability Revenue/expense

view view
2-7 Definitions
Revenues and expense
Gain and loses

Relationship Earnings = Revenue – Expenses + Gains - Loses

between earnings Earnings = Revenue - Expenses
& component of
earnings Earnings = Revenues (including gains) – Expenses ( including loses)

Defferal
Accrual Allocation
accounting Amortization
Realization
Recognition
8. Which capital maintenance or cost
recovery should be adopted?
Four possible concepts of capital maintenance:

Financial capital
Financial capital Physical capital
measured in units
measured in units capital measured in
of the same general
of money units of money
purchasing power

Physical capital
measured in units
of the same general
purchasing power
Development of a conceptual
framework
The Objectives of Financial Reporting

Business Nonbusiness
Enterprises Enterprises
The Objectives of Financial Reporting by
Business Enterprises
• Useful to present and potential investors and creditors and other users in making
rational investment, credit, and similar decisions.
• Help present and potential investors and creditors and other users in assessing the
amounts, timing, and uncertainty of redemption, or maturity of securities or loan
• Provide information about the economic resources of an enterprise
• Provide information about an enterprise’s financial performance during a period
• Provide information about how an enterprise obtains and spends cash, about its
borrowing, and repayment of borrowing, about its capital transactions.
• Provide information about how management of an enterprise has discharged its
stewardship responsibility to owners
• Provide information that is useful to managers and directors in making decisions in the
interests of owners.
The Objectives of Financial Reporting by
Nonbusiness Enterprises

• Nonbusiness organizations differ from business organizations in at

least two respects

Nonbusiness organizations :
• Have no indicator of performance comparable to business
enterprise’s profit
• Generally are not subject to the test of competition in markets
The Objectives of Financial Reporting by
Nonbusiness Enterprises

• Four particular groups are especially interested in the information

provided by the financial reporting of nonbusiness organizations :

The resource The

providers constituents

The governing
and overseeing The managers
bodies
The Objectives of Financial Reporting by
Nonbusiness Enterprises

Inormation useful in making resource allocation decisions

Information useful in assessing services and the ability to provide service

Information useful in assessing management stewardship and performance

Information about economic

Organizations performance

Liquidity

Manager’s eplanations and interpretations

Fundamental Concepts

The Qualitative The definitions

Characteristics of the elements
of Accounting of fiancial
Information statements
The Qualitative Characteristics of Accounting
Information

Relevance Feedback Value Predictive Value Reliability

Reperesentational
Comparability and
Verifiability faithfulness and Neutrality
Consistency
Completeness

Cost-benefit
Materiality
Consideration
Exhibit 7.4
The Basic Elements of Financial Statements
of Business Enterprises

Investments Distributions
Assets Liabilities
by owners by owners

Revenues Expenses Gains Loses

The Basic Elements of Financial Statements
of Business Enterprises

• The concept of comprehensive income is more inclusive than the

traditional concept of accounting income
• The definitions of assets, liabilities, and equities relate to
amounts of resources and claims to resources at a given point
time, whereas the definitons of revenues, expenses, gains, and
losses relate to the impact of transactions, events, and
circumtances over period of time
• The values of assets, liabilities, and equities are assumed to
change as a result of revenues, expenses, gains, and losses, which
imply “articulation”.
Recognition and Measurement

• The recognition criteria include :

Definiton Measurability

Relevance Reliability
Recognition and Measurement

• The statement recognizes the five different attributes of assets

and liabilites presented in the discussion memorandum, namely :

Historical Current Current Net Present

Cost replacement Market Value realizable value of
cost future cash
flows
The Other Reports
The Other Reports

The
Corporate
Report The “Stamp
Report”
The Corporate Report

The Accounting Standards Steering Committee of the Institute of

Chartered Accountants in England and Wales published The
Corporate Report

A discussion papaer intended as a first step toward a major review of users,

purposes and methods of modern financial reporting in the United Kingdom.
How well the report??

• The basic philosophy and starting point of The Corporate Report is that
financial statement should be appropriate to their expected use by
potential users.
• The report assigns responsibility for reporting to the “economic entity”
having an impact on society
• The report defined users as those having reasonable right to information
• To satisty the fundamental objectives of annual reports established by
the basic philosophy
• The report suggests the need for the following additional statement
The “Stamp Report”

The main motivations behind this effort are:

1. The FASB conceptual frameworkis not suitable for Canada
2. The framework will provide a Canadian solution

The approach advocated in the “Stamp Report” is evolutionary

The “Stamp Report”

The objective of
Poblems faced by Conseptual issues in
corporate financial
standard setters standard setting
reporting

Criteria for
assessment of the
Users of corporate
Users’s need quality of standards
reports
and of corporate
accountability

Toward a Canadian
conceptual
framework
Thanks for your Attention