ACCOUNTING STANDARDS

CONCEPTUAL FRAMEWORKS UNDERLYING FINANCIAL ACCOUNTING

Three Organizations

SEC(Securities and Exchange Commission)

FASB(Financial Accounting Standards Board)

IASB(International Accounting Standards Board)

SEC(F1-3)

SEC was established by the Securities Exchange Act of 1934

SEC has the legal authority to establish GAAP

SEC relinquished the task of establishing GAAP to the private sector(FASB)

FASB(US GAAP=Codification，Rules-based)(F1-3)

In 1973 FASB was established as an independent full-time organization.

FASB determine GAAP since 1973(Relinquished by SEC)

7 full-time members

IASB(IFRS≈PRC GAAP，Principles-based)(F1-5)

The goal of the IFRS Foundation and the IASB is to develop，in the public interest，a single set of high-quality，understandable，enforceable and globally accepted financial reporting standards based upon clearly articulated principles.

European Union，PRC，HK，Brazil，Russia，Japan…

IASB/FASB Convergence(F1-6)

Goal：A single set of high-quality， international accounting standards that companies can use for both domestic and cross-border financial reporting.

Status：In progress…

In Becker materials，if no difference between IFRS and U.S. GAAP is noted， then the accounting rules are substantially the same.

Adoption of IFRS in the United States(F1-6)

-SEC supports the IASB/FASB convergence project.

U.S. GAAP = FASB ACCOUNTING STANDARDS CONDIFICATION(F1-3)

Effective July 1，2009，the FASB Accounting Standards Codification became the SINGLE source of authoritative nongovernmental U.S. GAAP.

Now U.S. GAAP=Codification Or. Codification=U.S. GAAP

What included in the Codification?(F1-4)

-“FEDPRIA”

- Relevant portions of the following authoritative pronouncements issued by the SEC.

Ongoing Standard-Setting Process(F1-5)

Exposure Drafts

Accounting Standards Updates(ASU)

Integrate into ASC

Conceptual framework provides a basis for financial accounting concepts for enterprises.

FASB conceptual framework called Statements of Financial Accounting Concepts (SFAC)。

SFAC serves as a basis for all FASB pronouncements.

The SFAC are not GAAP

FASB and IASB have a joint project to converge their financial reporting frameworks.

SFAC NO. 8 Conceptual Framework for Financial report is the result of convergence.(F1-7)

1 objective，2 Fundamental，4 Enhancing.

1 objective – Decision useful(F1-7)

2 fundamental qualitative characteristics – FAR (FAithful representation + Relevance)(F1-8)

4 enhancing qualitative characteristics – Compare and verify in time to understand(F1-9)

1 Objective：DECISION USEFUL.

SFAC NO. 8-chapter 1：The Objective of General Purpose Financial Reporting(F1-7)

Who make decision?Primary Users(existing and potential investors，lenders，and other creditors)

What decision?Whether providing resources to reporting entity.

How useful?use financial information(FI) to assess the reporting entity‘s prospects for future net cash inflows

2 fundamental qualitative characteristics – FAR(FAithful representation + Relevance)(F1-8)

SFAC NO.8-chapter 3：Qualitative Characteristics of Useful Financial Information

FAR = FAithful representation + Relevance

Relevance – “Does it related to my decision?”

“Passing Confirms Money(PCM)”

“Confirm Predictive value is Material”(PCM)

Predictive value：Help me predict future outcomes

Confirming value：Help me evaluate earlier prediction.

Materiality：Judgment. If an omission or misstatement of the information could affect the decision made by users，then it is material.

Faithful Representation - “Can I depend on it?”

“Completely Neutral is Free from error”

Completeness：All facts embedded in the information.

Neutrality：Free from bias;focus is on objectivity and balance.

Freedom from Error：Judgement. Would a sufficiently knowledgeable third party derive the same result?

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