Summary Financial Accounting Powers
Chapter 5
LO1: Describe the objective of financial reporting and identify the qualitative characteristics, conventions, and ethical considerations of accounting information.
The objective of financial reporting is: To provide financial information that is useful in making decisions in assessing; Cash flow prospects, Stewardship. * Cash flow prospects: the information needed to make judgments about the entity's ability to generate cash flows. * Stewardship: the information about the company's assets, liabilities, owner's equity and any possible claims against these.
To facilitate interpretation of accounting information, the FASB has established standards, or qualitative characteristics, by which to judge the information. * Relevance: the information has direct bearing on a decision. Predictive Value: helps current and potential investors make future decisions. Confirmative Value: determines if expectations have been met. * Faithful representation: report must be a reliable depiction of what it purports to represent. Complete: all information necessary for a reliable decision. Neutral: the absence of bias intended to attain a predetermined result or behavior. Free from material error: meets a minimum level of accuracy. * Complimentary qualities: Comparability: the quality that enables users to identify similarities and differences between 2 sets of economic phenomena. Verifiability: the quality that helps assure users that the information faithfully represents what it purports to depict. Timeliness: the quality that enables users to receive information in time to influence a decision. Understandability: the quality that enables users to comprehend the meaning of the information they receive.
LO2: Define and describe the conventions of consistency, full disclosure, materiality, conservatism and cost-benefit. * Consistency: once a company has adopted an accounting procedure, it must use it from one period to the next
LO1: Describe the objective of financial reporting and identify the qualitative characteristics, conventions, and ethical considerations of accounting information.
The objective of financial reporting is: To provide financial information that is useful in making decisions in assessing; Cash flow prospects, Stewardship. * Cash flow prospects: the information needed to make judgments about the entity's ability to generate cash flows. * Stewardship: the information about the company's assets, liabilities, owner's equity and any possible claims against these.
To facilitate interpretation of accounting information, the FASB has established standards, or qualitative characteristics, by which to judge the information. * Relevance: the information has direct bearing on a decision. Predictive Value: helps current and potential investors make future decisions. Confirmative Value: determines if expectations have been met. * Faithful representation: report must be a reliable depiction of what it purports to represent. Complete: all information necessary for a reliable decision. Neutral: the absence of bias intended to attain a predetermined result or behavior. Free from material error: meets a minimum level of accuracy. * Complimentary qualities: Comparability: the quality that enables users to identify similarities and differences between 2 sets of economic phenomena. Verifiability: the quality that helps assure users that the information faithfully represents what it purports to depict. Timeliness: the quality that enables users to receive information in time to influence a decision. Understandability: the quality that enables users to comprehend the meaning of the information they receive.
LO2: Define and describe the conventions of consistency, full disclosure, materiality, conservatism and cost-benefit. * Consistency: once a company has adopted an accounting procedure, it must use it from one period to the next