By: Tyler Suter, Brian Garrett, Chris
Koucheki, John DeClemente
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

Since the 1930’s there have been serious
attempts to develop a theoretical foundation
for accounting.
The American Accounting Association (AAA)
began issuing publications in 1936, the last of
which was published in 1965.
During this period (1936-1973), there were
several other publications issued by the
AICPA, which also attempted to develop a
conceptual foundation for accounting.
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In 1973, FASB was established and it
responded to the need for a general theoretical
framework by undertaking the project called
“The Conceptual Framework”.
The process was slow, but by 2000, the FASB
issued the last of 7 Statements of Financial
Accounting Concepts; which provide the basis
for the conceptual framework.
1.
2.
3.
4.
Build on and relate to an established body of
concepts and objectives
Provide framework for solving new and
emerging practical problems
Increase financial statement users’
understanding of financial reporting
Enhance comparability among companies
financial statements
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The seven Concept Statements address three
major levels of accounting
1.
First Level: goals and purposes of accounting
2.
Second Level: qualitative characteristics and the
basic elements
3.
Third Level: the “how” implementation
The basic objectives are to provide information that:
1) Is useful to those making investment and
credit decisions.
2 Is useful in assessing future cash flows.
3) Is about enterprise resources, claims to
resources, and changes in them.
Primary Qualities of Accounting:
 Relevance
 Reliability
Secondary Qualities of Accounting
 Comparability
 Consistency
1. Assets
2. Liabilities
3. Equity
4. Investment by Owners
5. Distribution to Owners
6. Comprehensive Income
7. Revenues
8. Expenses
9. Gains and Losses
Three Main Areas:
1. Assumptions
2. Principles
3. Constraints
1.
2.
3.
4.
Economic Entity: the activity of a company is
separate from owners
Going Concern: the company will have a long
life
Monetary Unit: money is the common
denominator by which activities are conducted
Full Disclosure: Companies provide
supplemental information for their financial
statements
1.
2.
3.
4.
Historical Cost: GAAP requires that
companies account for and report purchases
on basis on acquisition price
Revenue Recognition: recognize revenue
when realized or earned
Matching Principle: recognizes expenses
when it actually makes its contribution
Full Disclosure: Companies provide
supplemental information for their financial
statements
1.
2.
3.
4.
Cost-Benefit: the cost of providing information
must be weighed against the benefits
Materiality: Information is material if its omission
or misstatement could influence the economic
decision of users taken on the basis of the financial
statements.
Industry Practices: follow general practices in the
company’s industry
Conservatism: when in doubt, choose the
solution that will be least likely to overstate
financial statements
1.
What is the conceptual framework?
2.
What are the primary qualities of qualitative
characteristics?
3.
What does the term full disclosure mean?
4.
What are the three objectives?