By John M. (Neel) Foster, FASB Member, and L. Todd Johnson, Senior Project Manager Although some of the FASB’s constituents—especially those that interact with the Board on a regular basis—are quite familiar with the FASB’s conceptual framework, many others either are The FASB’s conceptual framework influence the development of new standards as they help inter formulate accounting standards. 2. SFAC # 6 is one of a series of publications in the FASB conceptual framework for financial accounting and reporting. 2 - What are the two primary qualities of useful... Ch. Consider a broom factory that permanently closes because of foreign competition. r����\&� ��/�d� �7�=��~�h����P(�a-{����ږ� �����c��nj�{uk#l!s%}�X�b��D(&��{���W�[,6��no��HL�L�5t5蚶����#�7�F����{�����[� 2 - The valuation of a promise to receive cash in the... Ch. 2 - A friend, who is not an accounting major, is... Ch. 2 - What is the most general objective of financial... Ch. At their joint meeting in October 2004, the IASB and the US FASB decided to add to their re­spec­tive agendas a joint project to develop a common conceptual framework, based on and built on both the existing IASB Frameworkand the FASB Conceptual Framework, that both Boards would use as a basis for their accounting standards. 2 - List the reasons why external stakeholders use... Ch. The framework provides the Board with both a basis for setting standards and a set of concepts to use as tools to resolve any accounting and reporting questions that may arise. Why Does the FASB Have a Conceptual Framework? higher in the "hierarchy" of accounting standards, and expressly designed its Conceptual Framework not only for its own use, but also for preparers and users of financial statements (Heffes 2005). The most direct beneficiary of the conceptual framework is actually the FASB itself. Ch. Which of the following are factors of production? What are the... Ch. 2 - What is the going-concern assumption, and why is... Ch. endstream endobj 310 0 obj <>stream 2, Qualitative Characteristics of Accounting Information. The FASB uses a conceptual framework, which is a set of concepts that guide financial reporting. The framework provides the FASB with a foundation for setting standards and concepts to use as tools … Journalize the December 31 adjusting... Should organizations fear websites where consumers post negative messages about products and services? The main reason for developing a conceptual framework are that gives a framework for setting accounting standards, a basis for resolving accounting disputes and fundamental principles which then do not have to be repeated in accounting standards. The Nielsen Company surveyed consumers in 47 markets from Europe, Asia-Pacific, the Americas, and the Middle Ea... Segregation of duties consists of separating what four basic functions? IPSASBs implicit framework is that of the IASB ; IASB/FASB work will be a key reference source for the IPSASB (Note that IPSASB is considering its strategy for a Conceptual Framework at its meeting this month) 5 Overview of the IASB/FASB Project - Objective. 2 - Compare and contrast comparability and... Ch. 2 - What are the primary sources of useful information... Ch. Gross profit percent and markup percent Deere & Company (DE) produces and sells tractors, loaders, combines, la... To what extent are cash tips treated as remuneration subject to federal income tax withholding? 2 - A friend, who is not an accounting major, is not... Ch. The conceptual framework of FASB has laid foundation of objectives, concepts, principles and definitions which helps in leading a high –quality financial accounting standards and the appropriate application of those standards in accounting practice. 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Ch. What'... What is a mutually exclusive project? Consider whether the proposed standard possesses the qualitative characteristics that make accounting information useful. according to the fasb conceptual framework which of the following statements conforms to the realization concept. The companys website enable... What is the natural rate of unemployment? The price of a good rises from 8 to 12, and the quantity demanded falls from 110 to 90 units. This project was undertaken because the Board believes that their standards must be based on ‘‘consistent principles.’’ What does it mean to run a deficit in the merchandise... What are the approaches to obtaining an RFP? RESIDUAL DIVIDEND MODEL Buena Terra Corporation is reviewing its capital budget for the upcoming year. The Financial Accounting Standards Board (FASB) produced most of its Conceptual Frame-work (CFW) more than 20 years ago in a project that began in the 1970s. Ch. Concepts Statement 2 emphasizes that providing comparable information enables users of financial statements to identify similarities in and differences between two sets of economic events. The definitions and recognition criteria of these elements are very important and these are considered in detail below. Financial Accounting Standards Board (FASB): The Financial Accounting standards Board (FASB) is the primary standard-setting body in the Country U. The main intent of the conceptual framework of the FASB is to establish objectives and fundamental concepts so as to help in development of the financial accounting and their reporting guidance. Average rate of return Determine the average rate of return for a project that is estimated to yield total inco... Mays Beauty Store records sales and purchase transactions in the general journal. Disclosure Framework. The FASB’s Conceptual Framework helps the Board in setting sound financial accounting and reporting standards. 2 - Under Statement of Financial Accounting Concepts... Ch. 2 - What is the purpose of the FASBs Conceptual... Ch. 2 - Why does financial reporting utilize a mixed set... Ch. 2 - A company purchased a patent 4 years ago, and was... Ch. 2 - What is conservatism? The objectives serve as a guideline in accomplishing the goals and purpose of the financial reporting. Calculated with t... Tablet PC Comparison provides a wide variety of information about tablet computers. 2 - What is relevant accounting information? At its July 8, 2009, meeting, the FASB added the disclosure framework project to its technical agenda with the intent to improve the effectiveness of financial statement disclosures by more clearly aligning disclosure information required by U.S. GAAP with information most important to financial statement users. Compare the price and output policy of a purely competitive industry with the policy that would be established ... Ch. B.depreciated equipment was sold in exchange for a not receivable. Conceptual frameworks also help auditors to resolve financial reporting problems even when there are no standards for accounting. How does... Ch. The Income Statement columns of the work sheet of Dunn Company for the fiscal year ended June 30 follow. 2 - What is the Conceptual Framework of the FASB? Suppose there is an external cost, or negative externality, associated with production of a certain good. According to the FASB, the Conceptual Framework – or Concepts Statements – is comprised of interrelated objectives and fundamentals. �7J�������������2"5�9�H��2MaZ��=P���6‚��^�m�5���}���L�B~�j��$Avi�,*sd2��+�?�r�H�9.K2����Pn��x|@��#��h鋨��a�OY}�,)C�=�R���@Ir�ㅧ���'G��WA���pD;�����r����$oW�OPD��ɒ4�]�� 2 - Define (a) return on investment, (b) risk, (c)... Ch. 2 - Violations of Assumptions and Principles The... Ch. The Conceptual Framework is also a critical tool in the academic toolkit. Explain why principles-based standards require a conceptual framework. Ch. 8, Conceptual Framework for Financial Reporting, establishes the concepts that underlie financial reporting standards. revenues of an entity are usually measured by the exchange values of the asset or liability involved. The merchandise inventory was destroyed by fire on December 13. Analysis of costs for a shipping department Sales volume has been dropping at Mumford Industries. The Conceptual Framework had been left largely unchanged since its inception in 1989. The underlying  concepts  of the financial accounting  guides in selection  of the transaction and events that are to be accounted for, their recognition and measurements and the means of summarizing and  communicating  the given  information  to the financial  statement  users. The FASB’s conceptual framework is the core in which all accounting standards are derived. When should... Ch. Does it really make much difference whether ... To be meaningful, a price ceiling must be below the market price. 2 - The information provided by financial reporting... Ch. What is the Conceptual Framework of the FASB? 2. A Conceptual Framework should increase financial statement users' understanding and confidence in financial reporting. Practical problems should be more quickly solvable by reference to an existing Conceptual Framework. 2 - The concept of the reporting entity is a... Ch. 2 - Accruing net losses on obsolete inventory is an... Ch. What can cause it to change over time? The primary purpose of the conceptual framework is to provide guidance to ________. 2 - Qualitative Characteristics The following is a... Ch. The FASB is the most direct beneficiary of the framework. The Financial Accounting Standards Board (FASB) has been criticized for not requiring firms to report information that is interpretable and useful for financial statements users (CICA, 1980). 2 - What is the period-of-time assumption, and why is... Ch. The objectives identify the goals and purposes of financial reporting and the fundamentals are the underlying concepts that help achieve those objectives. If a discovery of the remarkable health benefits of hot dogs were ... (Consumer Surplus) If, toward the end of the day, some people become indifferent whether or not they go on anot... Based on the information in this section, would you choose accounting as a career? In the first distribution, nine... Should an economic model describe reality exactly? Discuss alternative strategies for selecting target markets. It also helps to limit the number of accounting standards through the provision of an umbrella theory of … 3. 4. 2 - According to Statement of Financial Accounting... Ch. How would an increase in the world price of oil affect the amount of frictional unemployment? +�!�8�~k���%�p�,dT��YI/�W\�4� 1. How should managers rank mutually exclusive projects? to develop a common conceptual framework that is both complete and internally consistent The main intent of the conceptual framework of the FASB is to establish objectives and fundamental concepts so as to help in development of the financial accounting and their reporting guidance. Chapter 8 is similar to the rest of the FASB’s Conceptual Framework for Financial Reporting in that it establishes concepts for the Board to use in developing financial accounting and reporting standards. 2 - Why should financial reporting provide useful... Ch. These blemishes originate from several … 2 - Discuss the relationship among historical cost,... Ch. 2 - The following are brief descriptions of two... Ch. 2 - What is the Objective: Useful Information about... Ch. In 2004, the IASB and the FASB decided to review and revise the conceptual framework, however, changed pri­or­i­ties and the slow progress in the project led to the project being abandoned in 2010 after only Phase A of the original joint project had been finalised and in­tro­duced into the existing framework as Chapters 1 and 3 in September 2010. Identify... Ch. Define computer-integrated manufacturing. Briefly define each function. A conceptual framework has the following benefits. Ch. 2 - You have been hired as an accounting consultant by... Ch. 3�����Y�a5��*��w���4iޤ��9��� ����]�O�h%�R��-=@a�w7c��,5r�#5�����"Ոg!��B^�� M[��A-6b��2#e}8R����Vw��Ŝ��#+��` Why is the Social Security payroll tax considered regressive? 1. 2 - What drives expense recognition? Another important point is that FASB uses the word “probable” in its definition of assets and liabilities. Conversely, a meaningful price floor must be ... Construct a production possibilities curve for a hypothetical country. Purpose The purpose of this essay is to present the IASB and FASB joint conceptual framework project and to consider and evaluate its objectives. ����^��n�{E���2\����ԃD 2 - What is materiality, and how does it relate to... Ch. The FASB is the most direct beneficiary of the framework. The framework for measuring fair value considers the concepts in FASB Concepts Statement No. The main reasons for developing an agreed conceptual framework are that it provides a framework for setting accounting standards, a basis for resolving accounting disputes, fundamental principles which then do not have to be repeated in accounting standards. FASB does not allow revaluations, except for some financial instruments that need to be carried out at fair value. 2 - Accounting Assumptions The following is a list of... Ch. Faldo Company produces a single product. Describe a change in the tax code that might increase private saving. The Conceptual Framework. Is this unemploym... On the summary screen, you should sec an interactive chart. If the broom factorys workers ... A change in the labor market can change the equilibrium amount of labor employed, thus leading to a change in R... What is the risk of relying too heavily on the typical profiles of international negotiators? 2 - Describe accrual accounting. 2 - What is recognition in accounting? Provide the conceptual framework of the FASB. The IASB/FASB conceptual framework revision project The joint conceptual framework project of the IASB and the FASB was initiated in 2002 as a direct result of the Norwalk Agreement, under which the two boards agreed to work jointly on future standards and to align existing ones. The framework provides the FASB with a foundation for setting standards and concepts to use as tools … 2 - What do the FASBs Concepts Statements establish? It achieved notable positive results, yet it isn’t without flaws. recognition of revenue does not occur until. Why is it important that the IASB and FASB share a common conceptual framework? a system of interactive objectives and fundamentals which lays out a set of consistent standards in preparing financial reports Moreover, there are several important conceptual themes that are implicit at the level of individual Standards yet that are (largely) absent from the Framework. 2 - An accountant must be familiar with the concepts... Ch. 2 - How do accounting concepts, principles, standards,... Ch. When completed, the framework is expected to be a coherent system of concepts that flow from the objective of financial reporting. 2 - Conceptual Framework The FASBs Conceptual... Ch. The projected income statement for the coming year, based on sales of ... Georgia McBeal is trying to save for her retirement. 2 - Objectives of Financial Reporting The FASB has... Ch. For example, the framework provides the Board with theoretical guidance in selecting transactions, events, and circumstances to be accounted for. It establishes definitions that are precise to help in discussing accounting issues. 3. Do you consider that a. conceptual framework is more important for some parties than others? How does economic growth influence the living standards of people? This suggests that conceptual issues are worked through at this level, rather than being guided by, and being consistent with, an overarching conceptual framework. 2 - Which characteristic states that accounting... Ch. It facilitates the generation of useful accounting information to those making investment and credit decisions in a way that helps them understand a company's economic resources, the claims to them and the changes in them. Along with other FASB Concepts Statements, FASB Concepts Statement No. It is responsible for establishing Generally Accepted Accounting Principles (GAAP), which acts as a guide at the time of preparation of financial statements by enterprises. Adjusting entries Halm Flooring Company uses a perpetual inventory system. These concepts can help ensure information is comparable and reliable to … ... Cash flows are considered less important. 2 - Which of the following is considered a constraint... Ch. FASB has a list of topics they want to address 2. IASB uses the word “probable” in its recognition criteria, however, with a different meaning. 1. 2 - What is the reporting entity assumption? Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts! Revenue Recognition Revenue is an important indicator for users of financial reports in assessing a company’s performance and prospects. An economy produces hot dogs and hamburgers. The FASB’s goal remains improving the quality of financial reporting in the U.S. while advancing global comparability of financial reporting. b. 2 - Relevance versus Faithful Representation You are... Ch. Why do accountants sometimes... Ch. Statements in the series are intended to establish objectives and fundamentals that will be the basis for development of financial accounting and reporting standards. 2 - Objectives, Users, and Stewardship The owners of... Ch. 2 - Identify the enhancing characteristics of useful... Ch. c. A coherent set of accounting standards and rules should result. The two boards reached the following tentative decisions about the approach to the project: Q ��d9��)E�x����W�-|*��"=�Z����Df��/%-��DZr����Y\�t=�C)��. With a conceptual framework, they will be able to solve out-of-the-ordinary accounting problems. 2 - Accruals and Deferrals Generally accepted... Ch. 2 - Financial accounting and reporting provide... Ch. It is suggested that several parties can benefit from a conceptual framework. Conceptual frameworks guide those who set standards in accounting during the establishment and review of financial reporting regulations. 2 - What is the Objective: Useful Information for... Ch. One of the most important reasons to develop a conceptual framework is to be able to develop rules based on an established body of concepts. b. consider the FASB’s Concept Statements as authoritative, the FASB (2006, vi) states that ‘‘the GAAP hierarchy is under reconsideration,’’ implying that the Conceptual Framework will be included in the hierarchy. Draw a PPF that represents the production possibilities for goods X and Y if there are constant opportunity cos... Why does it matter whether a market is defined broadly or narrowly for purposes of antitrust policy? She believes she can earn 10% on average each year on her ... Insert semicolons, colons, and commas where needed, and delete them where they are unnecessary. 2 - What is the cost constraint, and how does it... Ch. Distinguish between operating mergers and financial mergers. 2 - What is faithfully represented accounting... Ch. The conceptual framework articulates fundamental principles of accounting that are expected to guide and inform the FASB in its rulemaking activities. The outputs generated by the production process transformi... What is marginal product, and what does it mean if it is diminishing? FASB staff look at the issue and figure out what needs to be addressed; the FASB issues a document and asks for input on that topic from the public (discussion paper, preliminary view paper, comments) Being unable to quickly develop standards for rare situations is one limitation of the FASB. The conceptual framework provides basic financial reporting objectives, fundamental accounting and financial statement concepts, and ways to measure accounting information, recognize financial events and report them in the accounting system. The Financial Accounting Standards Board’s (FASB) conceptual framework is an important force in shaping the nature of U.S. generally accepted accounting principles (GAAP). Suppose there are two possible income distributions in a society of ten people. The FASB Conceptual Framework was established in 1973 as a comprehensible set of standards and rules intended to address and solve new emerging issues. 2 - Describe the financial reporting model within the... Ch. a. (International Trade) Why does international trade occur? The conceptual framework underlaid financial accounting by serving as the Board's reasoning behind its standards-setting decisions. Quickly solvable by reference to an existing conceptual framework which of the framework... 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