A Conceptual Framework
Lectured by Dr. Siriluck Sutthachai
Accounting Department
Faculty of Management Science
Khon Kaen University
Khon Kaen, Thailand
A Conceptual Framework
What is a conceptual framework for?
Components of a Conceptual
Framework
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Objectives of financial statements
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Users of financial statements
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Qualitative characteristics
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Elements of financial statements
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Recognition and measurement
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A concept of capital maintenance
Qualitative Characteristics
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Understandability
Relevance (ความเกีย่ วข้ องกับการตัดสิ นใจ): the ability of
the information to influence the manager’s
decisions by changing or confirming their
expectations about the results or consequences
of actions or events.
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Materiality (ความมีนัยสาคัญ): a state of relative
importance.
Qualitative Characteristics

Reliability (ความเชื่ อถือได้ ): the quality which
permits users of data to depend on it with
confidence as representative of what it
proposes to present.
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Representational faithfulness (ความเป็ นตัวแทนอันเที่ยง
ธรรม)
Substance over form (เนื ้อหาสาคัญกว่ารูปแบบ)
Neutrality (ความเป็ นกลาง)
Conservatism (ความระมัดระวัง)
Completeness (ความครบถ้ วน)
Qualitative Characteristics

Comparability (including consistency) (ความ
สม่าเสมอและเปรียบเทียบกันได้): the use of the same
method over time by a given firm.
Pervasive Constraints
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Timeliness (ทันเวลา): the information must be
available to a decision maker before it loses its
capacity to influence decisions.
Benefits and Costs (ความสมดุลระหว่ างประโยชน์ ทไี่ ด้ รับ
และต้ นทุนทีเ่ สี ยไป): Financial accounting information
will be sought if the benefit to be derived from
the information exceeds its cost.
Pervasive Constraints

Balance of qualitative characteristics (ความ
สมดุลของลักษณะเชิงคุณภาพ)
Conceptual Framework Issues
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Which view of earnings are identified?
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The asset/liability view:
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The revenue/expense view
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The nonarticulated view
View of earnings determines definitions of
elements of financial statements.
Definitions of Elements of
Financial Statements

A definition of ‘assets’?

A definition of ‘liabilities’?

A definition of ‘earnings’?
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A definition of ‘equity’?
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A definition of ‘revenue’?
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A definition of ‘expenses’?
Recognition and Measurement
The recognition criteria include:
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Definition: the item meets the definition of an
element of financial statements.
Measurability: it has a relevant attribute
measurable with sufficient reliability.
Relevance: The information about it is capable
of making a difference in user decision.
Reliability: The information is representational,
faithful, verifiable, and neutral.
Recognition and Measurement
Two criteria for recognition
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It is probable that any future economic
benefit associated with the item will flow to
or from the enterprise; and
The item has a cost or value that can be
measured with reliability.
Recognition and Measurement
There are four different attributes of assets and
liabilities presented in the discussion
memorandum, namely:
 historical cost (ราคาทุนเดิม);
 current cost (ราคาทุนปั จจุบน
ั ) (replacement cost or
market cost);
 net realizable value (มูลค่าที่คาดว่าจะได้ รับ); and
 present (or discounted) value of future cash
flows (มูลค่าปั จจุบนั ).
Concepts of Capital Maintenance
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The concepts of ‘Capital’:
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Financial Capital (ทุนทางการเงิน)

Physical Capital (ทุนทางกายภาพ)
Both concepts use measurements in terms of:
 Units of money (หน่วยเงินตามอานาจซื ้อเดิม)
 Units of the same general purchasing power (หน่วยเงิน
ตามอานาจซื ้อคงที่)
Concepts of Capital Maintenance
Capital
Financial Capital
Units of Money
Units of GPP
Physical Capital
Units of Money
Units of GPP
Concepts of Capital Maintenance
Four concepts of capital maintenance:
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Money maintenance: financial capital measured in
units of money
General-purchasing-power money maintenance:
financial capital measured in units of the same general
purchasing power
Productive-capacity maintenance: physical capital
measured in units of money
General purchasing-power, productive-capacity
maintenance: physical capital measured in units of the
same purchasing power.
Capital Maintenance and Income
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The concept of capital maintenance implies
that income is recognised after capital has
been maintained or costs have been
recovered.
Return on capital (income) is distinguished
from return of capital (cost recovery).
Capital Maintenance and Income
Example:
A given firm has
 $1,000 in net assets at the beginning
 $2,000 in net assets at the end of a given period
 $1,500 in net assets are required to maintain the firm’s
actual physical productive capacity
 the GPP level increased ten percent during the period.
According to each of the concepts of capital
maintenance, How much would the firm’s income be
presented?
Capital Maintenance and Assets and
Liabilities
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Under the money-maintenance concept,
conventional accounting, which relies on
historical cost for the valuation of assets and
liabilities, is mainly applied, as income is equal to
the change in net assets adjusted for capital
transactions expresses in terms of dollars.
GPP money-maintenance concept requires assets
and liabilities be adjusted according to the GPP
level.
Capital Maintenance and Assets and
Liabilities
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Productive-capacity maintenance is the
concept of capital maintenance used in
current-value accounting that discloses assets
and liabilities in the financial statements at
their current values.
GPP productive-capacity maintenance is the
concept of capital maintenance used in
general price-level-adjusted, current-value
accounting.