0 Chapter Conceptual framework Conceptual framework االطار الفكري للمحاسبة: Is like a constitution دستورit is a coherent system of interrelated objectives and fundamentals اساسياتthat can lead to consistent standards معاير ثابتهand that prescribes تصف the nature, function, and limits of financial accounting and financial statements The need for a conceptual framework : Establish body of concepts and objectives Increasing financial statements users understanding and confidence ثقهin financial reporting Enhancing تعزيزcomparability among companies financial statement Quickly solving new and emergency طارقةpractical problems N.B Objectives of financial reporting are to provide information Development of a conceptual framework : Objectives of financial reporting a) Useful to those making investments and credit decisions اصحاب االتمانwho have a reasonable منطقيunderstanding of business and economic activities b) Helpful in assessing تحديدthe amounts, timing, and uncertainly of cash flows c) Determine economic resources, the claims احتياجاتto those resources and the changes in them N.B the objectives focus on the financial statements which provide information useful in assessing future cash flow ; this approach is referred to as decision usefulness االستفادة من القرارات Fundamental concept المفاهيم االساسية The second level provides conceptual building blocks that explain the qualitative characteristics of accounting information and define the elements of financial statements Two qualities to provide useful information: a) Primary qualities : relevance b) Secondary qualities : Faithful Representation 1- Relevance : information must have effect on user`s decision maker so it must have : a) Predictive value : it will improve the decision maker capacity to predict future actions b) Confirmatory value: it will confirm or correct past expectations and performance c) Materiality is a company-specific aspect of relevance Information is material if omitting it or misstating it would influence decisions that users make on the basis of the reported financial information.( it must make a difference or a company need not report it) 2- Faithful Representation: makes accounting information useful for decision-making a) Free from Error An information item that is free from error will be a more accurate b) Completeness means that all the information that is necessary for faithful representation is provided c) Neutrality الحياديه: means that company can`t select information to favor one set of interested parties over another (Unbiased information must be the overriding consideration) Enhancing qualities : Comparability المقارنه: information that is measures and reported in similar manner for different companies is considers comparable it enables users to identify the real similarities and difference in economic events between companies Consistency الثبات: when the company applies the same accounting method for the accounting events from period to period Verifiability القدرة على التحقق: occurs when independent measures using the same methods obtain similar results to make sure it is correct or not Timeliness التوقيت: information must be available before it loses its capacity to influence decision Which of the following is a characteristic describing the fundamental quality of relevance? a Predictive value b Neutrality c Verifiability d Understandability 32 Which of the following is a fundamental quality of useful accounting information? a Comparability b Relevance c Neutrality d Materiality 33 Which of the following is a fundamental quality of useful accounting information? a Conservatism b Comparability c Faithful representation d Consistency 34 What is meant by comparability when discussing financial accounting information? a Information has predictive or confirmatory value b Information is reasonably free from error c Information is measured and reported in a similar fashion across companies d Information is timely 35 What is meant by consistency when discussing financial accounting information? a Information presented by a company applies the same accounting treatment to similar events, from period to period b Information is timely c Information is classified, characterized, and presented clearly and concisely d Information is verifiable 36 Which of the following is an ingredient مكوناتof relevance? a Completeness b Neutrality c Timeliness d Materiality 37 Which of the following is an ingredient of faithful representation? a Predictive value b Materiality c Neutrality d Confirmatory value