Estrada Alphonsus Akee Muhammad Yazid Isa

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FASB An orderly system of interrelated objectives and fundamentals that is expected to lead to consistent standards

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CF have normative characteristics

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Eg: selecting transaction, other events and circumstances to be represented and how they should be recognised and measured (or disclosed) and how they should be summarised in financial reports.

A Joint basis between FASB and IASB A CF is an orderly system of concepts that flow from an objective. The objective of financial reporting is the foundation of the framework. The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders and creditors in making their economic decisions.

US, UK, Ireland, Canada, Australia & New Zealand

IASC

Conceptual Framework

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Developing prescriptive theories of how accounting theories should be done. Other research related to the development of descriptive theories of how accounting was generally performed. Eg: Year 1961 by Moonitz & 1962 by Sprouse & Moonitz presribes accounting practice towards system based on current value. Eg: (1965) Gradys theory based on descriptive of existing practice Accounting Principles Board (APB) Statement No. 4 Basic concepts and accounting principles underlying the financial statement of business enterprise

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APB Statement 4 has criticisms: - lack of any real theoretical framework - allowed too much diversity in accounting treatments - absence of agreement in key issues about the role & objectives of Financial reporting, appropriate definition, recognition, measurement rules and so on.

Trueblood Committees ( Named after the chairperson, Robert Trueblood) in 1971

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It is released in 1973 which listed 12 objectives and 7 qualitative characteristics that financial information should possess
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Relevance and materiality Form and substance Reliability Freedom from bias Comparability Consistency Understandability

Objective 1 The financial statements are to provide information useful for economic decisions.
Objective 2 Financial statements are primarily to serve those users who have limited authority, ability or resources to obtain information and who rely on financial statements as the principal source of information about the company. -embraced Efficient market hypothesis Trueblood considered that different valuation rules were relevant for different classes of assets.

APB (Accounting Principles Board)

1974

FASB (Financial Accounting Standard Board)

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Statement of Financial Account concepts (SFAC) No. 1: Objectives of Financial Reporting by Business Enterprises (1978)
-normative (presribe how accounting should be undertaken) - Miller (1996) explicitly put financial report user needs

Latest, SFAC No.7: Using Cash Flow information and present values in accounting measurement (2000) 3. SFAC No. 5 Recognition and measurement in FS of Business Enterprises (1984) focus on approach of descriptive of practice.
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-considered as failure

According NussBummer (1992), issuance of SFAC 5 , marked the greatest disappointment of the FASBs project for the CF because it only desribe present practice and not prescriptive at all. The recognition and measurement issues is not addressed at all.

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CF (objectives, identification of user of FS and methods) provided in Corporate Report (1975) by Accounting Standards Steering Committee of the Institute of Chartered Accountants in England and Wales) Concern with addressing the rights of the community in terms of access to financial information of entity. The corporate report was also part ot a UK Gov. Green Paper on Law Reform.
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1991, They begin to develop CF consistent with principle in FASB & IASC framework.

Did not become enshrined in law and its contents were generally not accepted by accounting profession

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Australia (1980s) developed first of four statements of Accounting concept issued in 1990. Canada (1980) incorporate in a document entitled Corporate Reporting: Its future evolution by Edward Stamp. Later known as The Stamp Report.
Rely to The Corporate Report. Further works undertaken to develop with similarities to those

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New Zealand (1990) Accounting research and Standard Boards produced CF similar with other countries. 1989, IASC publishd a CF entitled Framework for Preparation and Presentation of Financial Statements. (similar with Australia, Canada and New Zealand).

of FASB project.

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Joint venture towards development of a revised CF. Needs for revise because of convergence project, in which IASB & FASB work together to converge their two sets of accounting standards.
Ultimate aim is the CF will be comparable in

nature & therell be one set of accounting standards (IFRS) used globally.

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According to FASB and IASB (2005) their goal is issuing a common set of principles based standards. Converge only what is different in the same concept, only focus on areas that need refinement, updating, or completing, particularly on the conceptual issues.

Work on CF is done through 8 phases (begins 2009):

 General purpose financial statements (financial

statements that comply with accounting standards and other generally accepted accounting) release by reporting entity to satisfy information needs of users. However not all entities is expected to produce general purpose financial statements. According to IASC, (para. 8) Framework for the preparation and presentation of FS, (applies to all commercial, industrial and biz. Reporting entities) A reporting entity is an entity for which there are users who rely on the financial statements as their major source of financial information about entity.

According AASB (1990), an economy entity or group of entities under common control, with users who depend on its general purpose financial reports to make resource allocation decisions regarding the the collective operation of the group. An entity classified as reporting entity is determined by the information needs of the user on GFS.

Users of Financial Reports

IASB Framework (Para 9) defined users as inventors, employees, leaders, suppliers, customers, government and their agencies, and the publics.

(para 10). Investors. Accounting information needs since they are the providers of risk capital to entity.

Australias SAC 2 identifies three user of FS, Resource providers, recipients of goods & services and parties performing a review or oversight function.

In SFAC 1, users also can relate to stockbrokers, analysts, lawyers or regulatory bodies (any party that has interest or somehow related to those with a financial interest)

The Corporate Report (UK), all groups that is affected by organisations operation.

According to 2008 exposure draft release by IASB: Primary user group is present and potential equity investors, lenders and creditors, regardless of how they obtained their interest.

In IASB framework para 25, consistent with recent IASB CF project (2008, p 40)..users of financial reports are assumed to have knowledge of business and economic activities to be able to read a financial report.

Objectives refers to rational decisions

Traditional cited objectives to enable outsiders to assess the stewardship of management To assist in users economic decision making. FASB notes in SFAC 1 Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions.

IASB Framework to provide information about the financial position, performance, and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. (consistent with SAC 2 released by Australia) - To assist in stakeholders in judging likely future cash flows to aid in in economic decisions.

To enable reporting entities to demostrate accountability between the entity and parties to which the entity is deemed to be accountable. FS is prepared on accrual basis.

According to IASB Framework; Understandability

Understood by users Seen as requirement (challenge) for standard setters to ensure understandability of accounting standards and rules for the users Influences the economic decisions of users. Must have predictive value and feedback value.

Relevance

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Materiality
Para. 23 of IASB Framework an item is material if its omission or misstatements could influence the economic decision of users through the financial statements. Free from material bias and error and can be depended upon by the users. Quality of information that assures that information is reasonably free from error and bias and faitfully represents information needed. Asses reliability in terms of faithful representation, substance over form, neutrality, prudence and completeness.

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Reliability