While there are lots of other users of financial information (government, employees, etc) the most important is considered to be investors. The primary audience for financial information reported under these principles is investors – those looking to make a return on their money by either loaning or buying stock in a company.Question: What broad principles could be considered part of Generally Accepted Accounting Principles?Īnswer: General principles about who the financial information is for and what they will look for in that information are as follows: Generally accepted accounting principles (GAAP) refers to both the broad principles (constitution) and the more specific rules as found in the codification mentioned earlier. This framework includes broad principles rather than specific descriptions so that they can be adapted to the wide range of situations encountered in making accounting rules. This conceptual framework helps to define the elements of accounting (which will be discussed in the next section) and describes additional principles that should help the FASB as they make important decisions. To be consistent in the making of rules, the FASB has established a sort of constitution or conceptual framework that is to be used to help in deliberating what the accounting rules should look like in a world of ever changing business needs. The constitution provides overall guidance for the making of laws and regulations. Those decisions include the laws that affect all the citizens or members of those organizations. Many of you are familiar with the concept that organizations or countries are governed by constitutions or general principles that guide leaders in those organizations or countries as they make important decisions. Question: What kind of framework does the FASB use to guide the setting of accounting standards in the United States? Give examples of the application of principles contained in the conceptual framework.Explain how the conceptual framework informs the setting of standards in accounting.Identify the conceptual framework of accounting.\)Īt the end of this section, students should be able to meet the following objectives
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