North South UniversityIntermediate Accounting ACT-330 Sec: 06 Group Assignment #1 “Conceptual Framework” Submitted To: Shabbir Mubin Lecturer School Of Business Administration Submitted By: Name Md. Rayhan Azad Najiba Nuren Khan Amrita Das Sufia Akter Suma Reasat Azim Zunnun Zahid ID 1210118030 1230119630 1120064030 1130043030 1130041030 Date: 25.02.14 other events. .” It is a kind of constitution.” Numerous published their own conceptual framework. In 1976 the FASB began to develop a conceptual framework that would be a basis for setting accounting rules and for resolving financial reporting controversies. The IASB’s conceptual framework is described in the document. It results a coherent set of GAAP. Developments The IASB and FASB both of these two have a conceptual framework. Roles Conceptual framework is to be useful and rule-making should build on and relate to an established body of concepts and objectives. It also helps to reorganization. These concept statements provide the basis for the conceptual framework.Conceptual Framework Introduction Conceptual framework is the sole part of financial accounting and financial reporting. It provides guidance to identify the boundaries of financial reporting. It is “a coherent system of interrelated objectives and fundamentals that can lead to consistent rules and that prescribes the nature. It is used to solve new and emerging practical problems by referring to an existing framework of basic theory. The FASB issued six Statements of Financial Accounting Concepts (SFACs) that relate to financial reporting for business enterprises. but no single framework was universally accepted and relied on the practice. It increases financial statement users’ understanding of and confidence in financial reporting. and limits of financial accounting and financial statements. summarization and the reporting of financial accounting. measurement. selects the transactions. “Framework for Preparation and Presentation of Financial Statements. function. and circumstances to be represented. SFAC No. they rely on financial reports to give summaries of this information.“Elements of Financial Statements of Business Enterprise. liabilities. 6. 1. SFAC No. SFAC No. iv. Objectives . 5.” provides definitions of items in financial statements.” provides information about the accounting for not-for-profit entities and some of the differences between for-profit and non-for-profit accounting.Objectives of Financial Reporting by Business Enterprises: First.” sets forth fundamental recognition and measurement criteria and guidance on what information should be formally incorporated into financial statements. 7.“Recognition and Measurement in Financial Statement. creditors and lenders in making decisions about the company. the section provides guidelines for how to enhance these characteristics. This section of the conceptual framework tells financial statement users that information should be relevant and faithfully represent the underlying economics of the company. SFAC No. SFAC No. the objective of financial reporting is to provide information about the company that is useful to potential investors.” provides a framework for using expected future cash flows and present values as a basis for measurement. revenues.Qualitative Characteristics of Accounting Information: The second section provides information on what makes financial information useful and how to balance usefulness with cost considerations. SFAC No. iii.i.“Using Cash Flow Information and Present Value in Accounting Measurements. Additionally. vi. and expenses. ii. Because these parties cannot require that companies provide this information about company resources and claims on the company's assets. 3.“Elements of Financial Statements. such as assets. v. This section might be the most useful for a small-business owner. 2. both Cash and Credit. 9. To find out the net profit or net loss or surplus or deficit for any particular period. To detect the various errors and to rectify those through entries in the journal proper. Specifically. To find out the positions of assets on a particular date. 2. which is to provide information that is useful for making business and economic decisions. 12. With these objectives in mind. To detect any defalcations and to check the frauds and misappropriations of money. 11. 3. liabilities. 10.The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. To maintain various Ledger Accounts to find out the exact amounts of incomes and expenses or gain and losses or receivables and payables. To find out the position of liabilities on a particular date. 4. the information should be useful to investors and lenders. These standards may be the generally accepted accounting principles of a respective country. 5. or International Financial Reporting Standards. 6. which are typically issued by a national standard setter. To maintain various other Journals for recording day-to –day non –cash transactions. 7. To find out the total capital on a particular date. which are issued by the international accounting standards Board. to help the management by supplying accounting ratios. financial accountants produce financial statements based on the accounting standards in a given jurisdiction. To maintain the cash accounts through the Cash Book and to find out the Cash balance on any particular day. and report the company's assets. 8. and owner’s equity and the changes in them. 1 states the objective of business financial reporting. To confirm about the arithmetical accuracy of the books of accounts. reports and relevant data. To calculate the cost of productions. 13. Qualitative Characteristics . The broad objects of Accounting may be briefly stated follows: 1. be helpful in determining a company's cash flows. To help the management formulate policies for controlling cost. To furnish information regarding Purchases and Sales. preparation of quotation for competitive supply etc. 14. Feedback Value: Information and opinion gathered in relation to a prior activity can help assess the past decision and assist in improving the current decision. creditors or other entities that are either associated with the organization or requires to take decision regarding the reporting institute by assessing information available in the financial report. Reliability: The information provided should be correct and dependable in order to take a good decision. It is necessary for financial reports and statements to acquire four chief characteristics: Primary Qualities Relevance: The information that is presented in a financial report must be relevant to the user’s concern and relate to the decision making. Neutrality: The reporting organization must not have any hidden agenda or biasness in preparing the report in order to provide true information to the users. A financial report or statement should include every essential data that a range of users may look for while taking decisions or evaluating the performance of the organization. Faithful Representation: The information should provide the right picture so that the user can get a true depiction about its point of concern. Secondary Qualities .The main purpose of maintaining financial reports is to provide useful information to the existing or potential investors. Timeless: The information should be obtained in the right time to take a good decision. Verifiable: The data presented should be verifiable which means it has to be attestable with information or backed up with evidence. Predictive Value: The details available in the report will assist in forecasting the possibility of a particular goal of an activity to be achieved. Mergers and Acquisitions: Nowadays companies around the world from different countries are merging together to make a single company e. liabilities. It provides a simpler and better basis for the users to make decisions. Consistency: Consistency is using the same accounting methods constantly for several periods. There are differences in issues such as when companies should recognize and measure assets. revenues and expenses.S GAAP and iGAAP by issuing a memorandum of understanding.Comparability: If different corporations use similar methods to measure and report. compatibility is maintained. The two boards agreed to use their best efforts to: Make their existing financial reporting standards fully compatible as soon as practicable. . Convergence International accounting standards converge when differences between international and U. Information Technology: Communication barriers are continuously falling which enhances the buying and selling of goods and services between countries. Vodafone/Mannesmann. and Coordinate their future work programs to ensure that once achieved. Intel view the entire world as their market. then the information can be considered comparable.S standards are eliminated.g. It is an important attribute in useful decision making and should be included in conceptual framework. which is often known as the Norwalk Agreement. They put substantial effort to attract international customers to their product. The FASB and IASB formalized their commitment to the convergence of U. It allows users to recognize similarities and dissimilarities between economic activities and helps in making proper decisions. Primary reasons for convergence: Multinational corporations: Companies like Coca-Cola. political parties often oppose such changes in the accounting standards. Reference: http://www. Thus. there are many national standard setters such as AASB in Australia. Warfield .g.org/jsp/FASB/Page/SectionPage&cid=1176156245663 Nortwestern Journal of International Law & Business (Vol. Investors. changing loan covenants is very difficult to implement. Issue 3 Spring) Intermediate Accounting (13th Edition) (Interantional Student Version). Furthermore.com/Issues/2013/Feb/20126984.Financial Market: Financial markets are some of the most significant international markets today. Weygandt. Besides FASB and IASB. 25.journalofaccountancy. CNC in France and ASBJ in Japan. In some countries.htm http://www. Many companies find it costly to comply with different reporting standards in different countries. loan covenants may have to be changed. Kieso. There are certain challenges to convergence that must overcome before setting international standards. have become very interested in investing overseas. billions of dollars are transferred from one market to other using computers. any time a standard is issued that affects debt versus equity classifications. Institutional and legal barriers exist e.fasb. attempting to diversify their holdings and manage their risks. The benefit of applying accounting standards is that it reduces the chances of material misstatement in accounts. BFRS is a close representation of International Accounting Standards (IAS) which was issued by the International Accounting Standards Board.Discussion on Bangladesh Accounting Standards Accounting standards determines the country's accounting regulations and policies which recommends the content that should be reported in a company's financial statements within that expanse. except few exceptions is entailed to apply the standards. Accounting standards are set out by a country's law and all the companies existing within the country must maintain them. In accordance to the BAS. the BFRS was built up using older International standards as a basis. At recent times. It provides the requirements of presenting financial statements. Every company within the country. Also. it provides comparable information which helps the investor in making better decisions. principles and rules for the structure and the minimum requisite for the content. which holds the fundamental rules to be followed by the companies. In Bangladesh. the accounting and reporting standard followed by the companies are BFRS and BAS. The core reason for implementing accounting standards is to ensure nationwide adaptation of dependable and consistent accounting approaches. The institute of chartered Accountants in Bangladesh has set down the financial reporting standards which are called Bangladesh Financial Reporting standards (BFRS) that also includes Bangladesh Accounting standards (BAS). Both private and public companies in Bangladesh are controlled by the companies Act 1994. it has accepted the more updated IASB standards as BFRS. a complete set of financial statement must include: A statement of financial position at period end A statement of comprehensive income for the period A statement of changes in equity for the period A statement of cash flows for the period . Initially. Bangladesh Accounting Standards (BAS) suggests the foundation for the preparation of financial statements as to ensure the information is comparable with the organizations financial statements from prior years of operations and as well with other companies. Furthermore. Notes. an entity must give significance to including the following information: Name or other identification of the reporting organization and any change from previous year must be notified. It should be mentioned whether the reports belong to an entity or a group of entities. It is important for the procedures to run smoothly and it is greatly helpful to the users of financial reports. comprising a summary of significant accounting policies andother explanatory information A statement of financial position as at the beginning of the first period when the company has applied an accounting policy or makes a display of restatement of items in its financial statements. or when it re categorizes items in its financial statements A company should clearly identify each of the required financial statement along with the notes. in order to make the information provided useful and easily understandable. Bangladesh accounting standards plays a vital role in regulating the accounting system in our country. Date of the end period Presentation in currency The rounding that has been used to present the values in preparing the financial accounts. The standards displayed by BAS have been modified much more from the time of its commencement and the standards are expected to advance even more in the future .