Conceptual Framework_en

Alazhar University in Gaza

Faculty Of Economic And Administrative Science

Accounting Department

Level " 4 "

Research For

Conceptual Framework “ Phase One ”

The Objective of Financial Reporting And Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information

Prepared by :

Manar Adib Lulu

Eman Wasim Shurrab

Supervised by :

Dr. Emad Abo Sh’aban

A research submitted in partial fulfillment of the requirement of obtaining the bachelor degree of commerce , Accounting Major

May 29, 2010

Summary

CONCEPTUAL FRAMEWORK: THE OBJECTIVE OF FINANCIAL REPORTING AND QUALITATIVE CHARACTERISTICS

This project is the first of eight phases to develop a converged and improved conceptual framework common to both the IASB and FASB. The framework will be used by both Boards as a basis for setting accounting standards and is also referred to, in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, as a reference point when accounting standards do not address particular issues.

The IASB’s Exposure Draft, “An improved Conceptual Framework for Financial Reporting: Chapter 1: The Objective of Financial Reporting and Chapter 2: Qualitative Characteristics and Constraints of Decision-useful Financial Reporting Information” includes the following key proposals.

Objective of financial reporting :

v Identifies the primary user group of general purpose financial reporting as present and potential capital providers, who include equity investors, lenders and other creditors.

v Is broad enough to encompass all the decisions that primary users make in their capacity as capital providers, including resource allocation decisions as well as decisions to protect and enhance their investments (or stewardship type decisions).

v Is prepared from the perspective of the entity rather than the perspective of its owners or a class of owners.

Qualitative characteristics :

v Identifies relevance and faithful representation as two fundamental characteristics and comparability, verifiability, timeliness and understandability as enhancing characteristics.

v Fundamental characteristics distinguish information that is useful from that which is not useful and misleading. Relevant information is capable of making a difference by virtue of its predictive or confirmatory value. Faithful representation (which replaces reliability because it is a commonly misunderstood term) depicts the substance of an economic phenomenon completely, neutrally and without material error.

v Enhancing characteristics help to provide information that is more useful and should be maximized to the extent possible. Comparable (including consistent) information enables users to identify similarities in and differences between two sets of economic phenomena. Verifiable information provides credibility that the information represents what it purports to represent. Timeliness provides information when it has the capacity to influence decisions. Understandability is the quality of information that enables users to comprehend its meaning.

Constraints :

v Identifies materiality and cost as two pervasive constraints.

Part One

Conceptual Framework

Introduction :

In Part One, we will talk about Conceptual Framework,

1- What is the Conceptual Framework?,

2- Why is a Framework needed?,

3- Who benefits from it?,

4- Why the boards ( IASB and FASB ) are reconsidering their frameworks ?,

5- Aims and Objectives,

6- How Will the Project Be Conducted?,

7- Developing the common conceptual framework,

8- Due process, and

9- Authoritative status of the framework.