Far 1-Conceptual Framework

1. to provide information that is useful to existing and potential investors,lendors,creditors in making decisions about providing resources to the entity. 

2. info about a reporting entity's economic resources and claims against the entity(B/S)

3. changes in economic resources and claims.

4. financial performance reflected by accrual accounting

5. financial performance reflected by past cash flows.

6. changes in economic resources and claims, not resulting from financial performance(ex. issuing addition stock). 

• 1. Relevance-capable of making a difference in a user's decision making process. 2 ingredients are:
• -Predictive value-helps decision makers predict or forecast future results.
• -Confirmatory value-confirm or correct prior predictions or both
• -Materiality-capable of making a difference in the users decision making process if omitted or misstated. 

• 2. Faithful Representation- the information depicts what it purports to represent. the 3 ingredients are:
• -free of error- no errors or omissions of info. 
• -neutrality-the info is free from bias
• -completeness- info is presented in a way that users can understand. 

1. Comparability- same principles being used with business enterprises in similar industry. 

2. Understandability- classifying, characterizing and presenting info clearly and concisely.

3. Timeliness- info is available to a decision maker when it is useful to make the decision

4. Verifiability- Different sources agree on an amount through either direct or indirect verification. 

Cost/Benefit- cost of obtaining and presenting information shouldn't excced the potential benefit derived. 

1. Identify the asset or liability to be measured.

• 2. Determine principle or most advantageous market. 
• -Principle market-greatest volume and level of activity.
• -Most advantageous market- maximizes price received for the assets or minimizes amount paid to transfer the liability. 
• *use the principle if possible if not then advantageous market.

• 3. Determine the valuation premise. use the best premise possible of the in-use or in exchange premise. 
• -in-use- if maximizes value by using it with other assets as a group. 
• -in exchange- if assets provides max value alone. 

• 4. Determine the appropriate valuation technique.
• -Market approach- uses prices and relevant information from market transactions for identical or comparable assets/liabilities. 
• -Income approach- uses present value techniques to discount cash flows or earnings. 
• -Cost approach- uses current replacement costs. 
• *change in method is considered a change in estimate.

• 5. obtain inputs for valuation
• -Level1- uses quoted prices from active markets.
• -Level2- directly or indirectly observable inputs such as bank prime rates interest rates, ect. 
• -Level3- unobservable inputs are used if level 1 or level 2 are not available. 

• 6. Calculate the fair value of the asset. 
• -Disclosures- disclose the inputs used to develop measurements and any other relevant info

This is a fair value option made for certain assets and liabilites such as A4S securities, HTM securities, ect. However, Fair value option does not apply to consolidations, pensions, leases, ect. 

when using cash flow information for present value and impairment analysis SFAC 7  introduces how to measure and when to measure for cash flow information. These factors can be found in FAR 1 NOTES.PDF FILE

• ASC 275 requires disclosure in financial statements  of risks and uncertainties existing as of date of those statements. The four areas of disclosure are:
• -nature of operations- major products, services and markets served. 
• -Use and extent of estimates in preparation of financial statements.
• -Certain significant estimates, and their potential impact on the amount and value of assets, liabilites, gains and losses
• -Current vulnerabilities associated with concentrations with respect to certain customers, geographic areas, sources of materials, revenues from certain products, ect. 

The big difference between US GAAP and IFRS is that GAAP employs a rules based approach as the standards are usually explicit as to precise rules that must be followed for recognition, measurement, and Financial statement presentation. IFRS is considered a principles approach as it attempts to set general prinicples for recognition, measurement and reporting, and allows professional judgement in applying these. 

The objective of financial statements is to provide info about the financial position, performance, and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. 

• 1. Relevance
• -Predicitive value
• -Confirmatory value
• -Materiality

• 2. Reliability- info that is reliable and free from material error and bias if it has the following
• -Faithful Representation-info should be presented fairly
• -Neutrality-free of error or bias
• -Completeness- complete info
• -Substance over form-Accounting should reflect whats going on vs whats legally going on
• -Prudence- Use caution in exercising judgement when uncertainty exists(like conservatism)

3. Understandability- info must be understandable to users

4. Comparability- the info must be comparable.

1. Timeliness- info must be presented timely

2. Cost benefit- Benefit must outweigh cost.