Conceptual framework of accounting

1. A PRESENTATION
ON
CONCEPTUAL FRAMEWORK OF
ACCOUNTING,
OBJECTIVES OF FINANCIAL
REPORTING, QUALITATIVE
CHARACTERISTICS OF
ACCOUNTING INFORMATION
AND AAA

2.  A conceptual framework is a statement of generally
accepted theoretical principles which form the frame of
reference for financial reporting.
These theoretical principles provide the basis for the
development of new accounting standards and the
evaluation of those already in existence
Conceptual Framework of
Accounting

3. The Elements of Conceptual
Framework
1) Objectives of financial
reporting.
2) Qualitative
characteristics of
accounting information.
3) Elements of financial
statements.
4) Recognition and
measurement in
financial statements-
assumption, principles
and constraints.
Conceptual
Framework
for Financial
Reporting

4. Objectives of Financial
Reporting
Set of general purpose financial information meeting different
needs
Different External
Users
Creditors, Investors,
Lenders
Other parties-
Regulators, Tax
Authorities
1.Decision making about providing
resources.
2.Identifing resources and claims.
3.Assessing the prospects of future
cash flows.
4.Influencing management actions.
5.Estimating the value of an entity.
6.Getting all the possible
information.
Decision making
about may company
rules, tax laws etc.

5. Qualitative Characteristics of
Accounting Information
Fundamental
Qualitative
characteristics
• Helps users in predicting future outcomes.Predictive
value
• Enables users to check and confirm earlier
predictions or evaluations.Confirmatory
value
• Information is material if it is significant
enough to influence the decision of users.Materiality
Relevance:
Requires financial
information to be
related to an
economic
decision.
Faithful
Representation :
Requires to
represent what it
purports to
represent.
• Adequate or full disclosure of all
necessary information.Completeness
• Fairness and freedom from biasNeutrality
• No inaccuracies and omissionsFree From
error

6. Qualitative Characteristics of
Accounting Information
Enhancing
Qualitative
characterist
ics
Comparability: Comparable information enables
comparisons within the entity and across entities.
Consistency: Closely related to comparability is the notion
that consistency of accounting practices over time permits
valid comparisons between different periods.
Verifiability: Helps to assure users that information
represents faithfully what it purports to represent.
Timeliness: Means providing information to decision-
makers in time to be capable of influencing their decisions.
Understandability: Requires financial information to be
understandable or comprehensible.

7. Elements of Financial
Statements
 Assets: Asset is a resource from which future economic benefits are expected to
flow to the entity.
 Liabilities: A liability is an obligation result in an outflow from the enterprise'
resources.
 Equity: Equity is the residual interest in the assets of an entity that remains after
deducting liabilities.
 Investment by Owners: Increases in equity to obtain or increase ownership
interests (or equity) in a business enterprise.
 Distributions to Owners: Decreases in equity resulting from transferring
assets, rendering services, or incurring liabilities by an enterprise to owners.

8. Elements of Financial
Statements
 Revenues: Inflows from activities that constitute an entity's ongoing major or
central operations.
 Expenses: Decreases in economic benefits during an accounting period in the
form of outflows.
 Gains: Increases in equity except those that result from revenues or
investments by owners.
 Losses: Decreases in equity except those that result from expenses or
distributions to owners.
 Comprehensive Income: The change in equity by transactions from nonowner
sources.

9. Recognition and Measurement in Financial
Statements- Assumption, Principles and
Constraints
Assumptions
Economic Entity – Company keeps its activity separate
from its owners and other businesses.
Going Concern - Company to last long enough to fulfill
objectives and commitments.
Monetary Unit - Money is the common denominator.
Periodicity - Company can divide its economic activities
into time periods.

10. Recognition and Measurement in Financial
Statements- Assumption, Principles and
Constraints
Principles
The Cost Principle- Indicates that assets and liabilities be recorded
at their equivalent cost.
The Revenue Principle- Requires that companies recognize
revenue in the accounting period in which the performance obligation is
satisfied.
The Matching Principle- Requires that all expenses incurred in
generating the revenue also be recognized.
The Full-Disclosure Principle- Providing information that is of
sufficient importance to influence the judgment and decisions of an
informed user.

11. Recognition and Measurement in Financial
Statements- Assumption, Principles and
Constraints
Constraints:
Materiality- Inclusion and disclosure of financial transactions in
financial statements hinge on their size and effect on the company
performing them.
Conservatism- Financial statements should be prepared with a
downward measurement bias. Assets and revenues should not be
overstated, while liabilities and expenses should not be understated.