Harmonizing to the FASB – “ A coherent system of interconnected aims and basicss that can take to consistent criterions and that prescribes the nature, map and bounds of fiscal accounting and fiscal statements ”
IASB – “ This Framework sets out the constructs that underlie the readying and presentation of fiscal statements for external users ”
The thought of a conceptual model surfaced long before it was officially recognized. FASB was created in 1973 for this intent. The board realized that the first thing it had to was to develop certain cardinal constructs that it could look to for consistent counsel in analysing and deciding issues such as inco me, liablity etc.
Between 1974 and 1985, the FASB issued 30 publications ( eight treatment memorandum, seven research studies, eight exposure bill of exchanges, one invitation to notice, and six constructs statements ) in its monolithic conceptual model undertaking.
The Statements of Financial Accounting Concepts issued by the FASB:
– SFAC No.1: Aims of Financial Reporting by Business Enterprises
– SFAC No.2: Qualitative Features of Accounting Information
– SFAC No.6: Elementss of fiscal Statements [ Replaced SFAC No.3 ]
– SFAC No.5: Recognition and Measurement in Financial Statements of Business Enterprises.
– SFAC No.7: Using Cash Flow Information and Present Value in Accounting Measurement.
The SFAC No.1 issued in November,1978 negotiations about the aims of fiscal coverage and that concern endeavors have the duty to print fiscal information demoing Financial public presentation and alterations in Financial place. The statement nevertheless, confines its attending to the demands of investors and creditors disregarding other groups such as labor and revenue enhancement governments.
The SFAC No.2 issued in May,1980 defines the features of utile fiscal information.
The properties that make information utile to users include:
The SFAC No. 6 issued in December, 1980 It replaces SFAC No. 3 and re-defines the basic elements of fiscal Statements. Financial statements consists of Balance sheet and Income statement. The balance sheet describes the fiscal place of the concern entity whereas the income statement potray ‘s its fiscal public presentation.
The elements of the Balance sheet which relate to fiscal place are: Assetss, Liability and Equity. And the elements of the Income statement which relate to Financial Performance are: Revenue ; Expenses. It is in this statement that the FASB favours “ Asset and Liability position ” over the “ Revenue and Expense position ” to specify net incomes Assetss: “ likely future economic benefits obtained or controlled by a peculiar entity as a consequence of past minutess or events ” Liabilitiess: ” likely future forfeits of economic benefits originating from present duties of a peculiar entity to reassign assets or supply services to other entities in the hereafter as a consequence of past minutess or events ”
Equity: ” Equity or net assets is the residuary involvement in the assets of an entity that remains after subtracting its liabilities. ” Grosss: ” influxs or other sweetenings of assets of an entity or colonies of its liabilities ( or a combination of both ) during a period from presenting or bring forthing goods, rendering services, or other activities that constitute the entity ‘s on-going major or cardinal operations ”
Expenses: ” escapes or other utilizing up of assets or incurrences of liabilities ( or combination of both ) from presenting or bring forthing goods, rendering services, or transporting out other activities that constitute the entity ‘s on-going major or cardinal operations. ”
Comprehensive income: “ the alteration in equity ( net assets ) of an entity during a period from minutess and other events and fortunes from nonowner beginnings ” The definitions provided are non consistent with the Accounting Standards in many instances. And in July, 2001 the FASB/IASB/ASB concluded that the definitions were lacking.
The SFAC No. 5 was issued in December,1984. This statement defines the standards to acknowledge and mensurate elements that can be used in the fiscal statements of Business Enterprises. To be recognized, it should be able to be defined under the elements of fiscal statement, it should be mensurable, relevant and dependable.
There are assorted ways for measuring and some of them are the undermentioned: Historical Cost Current Cost Realisable Value Present Value In the statement, the board did non reason as to which method concern entities should trust on to mensurate the elements of the Financial Statement. Therefore, the Statement was given a class “ F ” by Solomon [ 1986, p. 124 ] . The SFAC No. 7 was issued in 2000, this statement can be seen as a subset to SFAC No. 5. It applies to state of affairss where present market determined sums such as hard currency received or paid and current cost or market value are non available at the point of acknowledgment.
Alternatively estimated future hard currency flows must be used for plus or liability measuring. Harmonizing to the latest FASB/IASB ( May,2008 ) – “ To be consistent, rules must be rooted in cardinal constructs instead than a aggregation of conventions. To systematically accomplish utile fiscal coverage, the organic structure of criterions taken as a whole and the application of those criterions should be based on a model that is sound, comprehensive and internally consistent ”