FASB

GROUP 3
CONCEPTUA Gladys W.Y
(B200164007)
Silvinia A.F

L (B200164008)
Renada P.I.M
(B200164022)

FRAMEWORK
FASB Conceptual Framework

A theoretical basis that is consistent and adequate to the

accounting standard setters, the compiler of the financial
statements, users of financial statements, and other parties
involved in the financial reporting process. In 1976, the FASB
began to develop a conceptual framework on which the
accounting standard-setting and problem-solving.

7 FASB issued Statement of Financial Accounting Concept

(SFAC):
SFAC 1 : Objectives of Fonancial Reporting by
Business Enterprises
SFAC 2 : Qualitative Characteristics of Accounting
Information
SFAC 3 : Elements of Financial Statements of Business
Enterprises
SFAC 4 : Objectives of Financial Reporting by Non-
Business Organizations
SFAC 5 : Recognition and Measurement in Financial
Statements of Business Enterprises
SFAC 6 : Elements of Financial Statements
SFAC 7 : Using Cash Flow Information and Present
Value in Accounting Measurement.
Financial Reporting Goals

To provide information about assets, liabilities, and company capital to help investors and
creditors and other parties to evaluate the strengths and weaknesses of the company's finances
and liquidity and solvency.

The purpose of financial reporting for profit-seeking companies:

1. Receive information to make decisions.
2. Receive information to determine the amount, time and acquisition of revenues.
3. Receive information about resources (received) by the company.
4. provide information about the company's financial performance.
5. Receive information about how to get and spend cash.
6. Receive information on company management for resource use (buying).
7. Receive information to make decisions for owners of company interests.

The purpose of financial reporting for non-profit-seeking companies

8. As a basis for decision making regarding resource alloys (assets)
9. To assess the ability of the organization in providing services to the public
10. To assess how management conducts financing and investment activities.
11. Providing information about resources (assets), liabilities, company assets, and changes
12. Provide information about organizational performance.
13. Provide information about the organization's ability to pay off short-term obligations.
14. Contains management's explanation and interpretation.
Qualitative Characteristics of Accounting
Information and Constraints

The FASB (SFAC No.2) has identified qualitative

characteristics, namely:
1. Understandable
2. Relevance
3. Reliability
4. Comparability
5. Consistency

The FASB has identified 2 obstacles, namely:

1. Relationship between costs and benefits
2. Materiality
3. Industrial characteristics (practices)
4. Conservatism
Elements of financial statements

10 financial elements formulated by FASB in SFAC No.6:

1. Assets.
2. Obligations.
3. Equity.
4. Investment by the owner.
5. Disputed with the owner.
6. Comprehensive earnings.
7. Revenue.
8. Expenses.
9. Benefits.
10.Losses.
Recognition, Measurement and Reporting

According to SFAC No.5, to be recognized, an

item (transaction or event) must fulfill one of the
definitions of the element of financial statements
in SFAC No.6. recognition (recognition) of the
process of recording items in a journal entry,
where each item that is recognized must fulfill
one of the definitions of the element of financial
statements. For items that have met the
element definition, but cannot be measured,
then the item is not recorded until it is qualified.
Regarding the measurement criteria there are 5
attributes used
2.6 Accounting Postulates
The accounting postulate is a basic assumption
regarding the accounting environment. There are
four basic assumptions that underlie the process
of preparing the overall financial report. The
basic assumptions are:

2.6.1 Monetary Unit Assumption

(Assumption of Monetary Units)
This assumption allows accounting to quantify
(measure) every business transaction or
economic event into the value of money. In this
case, money is considered a common
denominator of economic activity and is the right
basis for the interests of accounting
measurement and analysis. Qualitative data
(data that can be measured and expressed in
currency units) will be useful in communicating
economic information and making rational
economic decisions.
The monetary unit assumption is also directly
related to the application of the historical cost
concept. The concept of historical costs is used
as a basis in the preparation of financial
2.6.2 Economic / Business Entity
Assumption
There is a separation of recording
between company transactions as an
economic entity with the transaction
of the owner as an individual and with
other economic entity transactions. In
other words, the activity of a business
entity must be separated and
differentiated from the activities of the
owner and the activities of each other
business unit.

2.6.3 Accounting / Time Period

Assumption
Accounting information is needed on
the basis of timely basis. The age of
company activity can be divided into
several accounting periods, such as
monthly, quarterly or annual. Users of
financial statements need to be
informed of the performance results
and financial position of the company
2.6.4 Going Concern
Assumption
The company was established with
the intention of not being liquidated
(dissolved) in the near term, but the
company is expected to continue to
operate for a long period of time.
Although many experience business
failures, it is assumed that the
company will live long enough or
have a long survival to carry out its
vision and mission.
If there is no assumption, it means
that there will be no depreciation of
fixed assets, because the fixed
assets purchased will not be
recorded at their acquisition, but
are recorded at the value when the
company is liquidated. The principle
or concept of historical costs will be
useless if the company is assumed
to be liquidated. So, there is no
assumption of business continuity,
2.7 Basic Principles of Accounting
Principles are general approaches used
in recognizing and measuring business
transactions and economic events
(accounting events). There are four
basic accounting principles used to
record transactions, namely:

2.7.1 Principles of Historical Costs

(Objectivity)
Generally accepted accounting
principles require that most assets and
liabilities be required and reported
based on cost. Cost (historical cost) has
advantages compared to other
measurement attributes, which are
more reliable. When the cost of buying
the same item at this time (market
price) is smaller than the cost of the
goods when it was first purchased, the
price method is the lowest between the
acquisition price and market price
(lower of cost or market method) used
to assess inventory.
2.7.2 Revenue Recognition
Principles
FASB conceptual framework
identifies two criteria that should be
considered in determining when
revenue should be recognized,
namely: (1) have been realized or
realizable and (2) have been
produced / has occurred. Income is
said to have been realized if the
goods or services have been
exchanged for cash. Revenue is
considered to have been earned or
earned if the company has done
what it should do to obtain the right
to that income.
Revenues can also be recognized
when received if the collectibility
(collectible) of the receivables for
the product or service sold is
doubtful. In this case, income will be
recognized when cash is received
2.7.3 Matching Principles
If the basis for accounting records used is a
cash basis, then income and expenses will
be reported in the income statement in the
period in which cash is received (for income)
or cash is paid for expenses. So, it can be
concluded here that transactions
involving cash flow space (for income)
or cash flow out (for expenses).
With accrual basis, expenses related to
revenue generation must be reported in the
same period in which the income is also
recognized. The accounting concept that
supports reporting of related income and
expenses in the same period is referred to as
the matching concept.
The basis of recording cash basis is generally
still applied to small companies, where
capital ownership is only owned by one or
several people. As for companies classified
as middle up, especially for companies
whose capital is owned by many investors
(shareholders), are required by generally
2.7.4 Principles of Full Disclosure
In order for financial reporting to be
more effective, all relevant
information should be presented in
an impartial, understandable and
timely manner. However, often due
to constraints (i.e. the relationship
between costs and benefits), it is
impossible to report all relevant
information. Therefore, financial
statement makers should be able to
sort out and use various
considerations that exist in
determining reporting information in
accordance with the principle of full
disclosure.
It can also be concluded that
financial statements are information
tools that connect companies with
interested parties, which indicate the
company's financial health condition
and company performance.
COMPANY

Objectives and Roles

01. This basic framework formulates
concepts that underlie the preparation
and presentation of financial
statements for external users.
02. This basic framework is not a
financial accounting standard and
therefore does not define a standard
for certain measurement or disclosure
problems
03. In this case there is a conflict
between the basic framework and
financial accounting standards, then
the provisions of financial accounting
standards must be relative to this
basic framework.
04. This revised basic framework will
be carried out from time to time in
accordance with the experience of the
financial accounting standards drafting
Scope
05. This basic framework addresses:
(a) the purpose of financial statements
(b) qualitative characteristics that determine the
benefits of information in financial statements
(c) definition, recognition, and measurement of the
elements that make up financial statements and
(d) capital concepts and maintenance of capital
06. This basic framework discusses general purpose
financial statements, which should only be called
"financial statements" including consolidated financial
statements. The financial statements are prepared and
presented at least once a year to meet the needs of a
large number of users. Special purpose financial
statements such as prospectuses and calculations
carried out for tax purposes are not included in this
basic framework.
07. Financial statements are part of the financial
reporting process. Complete financial statements
usually include a balance sheet, a loss statement, a
statement of changes in financial position (which can be
presented in various ways, for example, as a cash flow
statement, or a flow statement), notes and other
reports and explanatory material that is an integral part
of financial statements .
08. This basic framework applies to financial statements
for all types of commercial entities, both the public
08. This basic framework applies to financial
statements for all types of commercial entities, both
the public sector and the private sector. The reporting
company is an entity whose financial statements are
used by users who rely on these financial statements
as the main source of financial information for the
entity.

Users and Information Needs

09. Users of financial statements include current
investors and potential investors, employees, lenders,
suppliers and other business creditors, customers,
government and institutions, and the public. They use
financial statements to meet several different
information needs. Some of these needs include:
(a) Investors, (b) Employees, (c) Lenders, (d)
Suppliers and other business creditors, (e) Customers,
(f) Government, (g) Communities
10. Information presented in financial statements is
general. Thus, it cannot fully meet the information
needs and users. Since investors are risk investors to
the entity, the provisions of financial statements that
meet their needs will also meet most of the needs of
other users.
11. The management of the entity carries the main
responsibility in the preparation and presentation of
the entity's financial statements. Management is also
The purpose of financial statements
Providing information regarding financial position,
performance and changes in the financial position
of an entity that benefits a large number of users
in decision making.
1. Financial position, performance, and changes in
financial position
Economic decisions taken by users of financial
statements require an evaluation of the entity's
ability to generate cash (and cash equivalents) and
the time and capacity of the results. This ability
ultimately determines, for example, the ability of
payments to employees and suppliers, ability to
pay interest, repayment of loans and distribution of
income to owners.
Information on entity performance, especially
profitability, is needed to assess potential changes
in economic resources that may be controlled in
the future.
Information on changes in the entity's financial
position, is useful for assessing investment
activities, funding, and operations during the
reporting period.
2. Additional schedule notes
Basic
assumption

1. Basic Accruals
Giving transactions to
users not only uses
transactions in the past
that involve cash receipts
and payments, but also
future cash payment
obligations and resources
that represent cash
received in the future.
2. Business continuity
Financial statements
are usually prepared on
the basis of the
assumption of the
business continuity of the
entity and will continue
Qualitative Characteristics of
Financial Statements
1. Understandable
Users are assumed to have adequate
knowledge of economic and business activities,
accounting, and the willingness to learn
information with reasonable diligence.
2. Relevant
Information has quality that is relevant if it can
influence the economic decisions of users by
helping them evaluate past, present and future
events, affirming or correcting the results of
past user evaluations.
• Materiality
Information is seen as material if negligence to
include or error in recording such information
can affect the user's economic decisions taken
on the basis of financial statements.
3. Reliability (reliable)
Information may be relevant but if the
nature or presentation is unreliable,
the user of the information can
potentially be misleading.
• Honest presentation
Information must honestly
describe other transactions and
events that should be presented
or reasonably expected.
• Substance outperforms form.
• Neutrality
Information must be directed to
the general needs of users.
• Healthy considerations
Financial report compilers
sometimes face uncertainties in
certain events and circumstances
that are recognized by revealing
the nature and level and by using
prudence in preparing financial
statements.
• Completeness
4. Can be compared
Users must be able to
compare the entity's financial
statements between periods
to identify trends and financial
performance.
• Relevant and reliable
information constraints
o On time
o Balance between
costs and benefits
o Balance between
qualitative
characteristics.
• Fair presentation
Elements of financial statements
1. Financial position
a) Assets
b) Liabilities
c) Equity
Future economic benefits that are shuddered in assets
are the potential of these assets to contribute, directly or
indirectly, cash flows and cash equivalents to the company.
Future economic benefits that are realized in assets
can flow into the entity in several ways. For example, assets
can:
a) Used either alone or with other assets in producing
goods and services sold by the entity
b) Exchange with other assets
c) Used to settle liabilities, or
d) Shared with company owners
2. Performance
The elements of income and expenses are defined as
follows:
a)Income, is an increase in economic benefits during
an accounting period in the form of income and addition of
assets or obedience of liabilities resulting in an increase in
equity that does not come from the contribution of
investors.
b)Expenses, decreases in economic benefits during one
accounting period in the form of outflows or reduced assets
or the occurrence of liabilities resulting in a decrease in
equity that does not involve the distribution to investors.
3. Income
Recognition of elements of
financial statements
Posts that meet the definition of an
element must be recognized if:
a)It is possible that economic
benefits are related to the post from or
into the company
b)The post has a value or cost
that can be measured reliably.
Recognition of elements of financial
statements
1. The probability of future
economic benefits
2. Measurement constraints
3. Recognition of assets
4. Recognition of liabilities
5. Income recognition
6. Load recognition
Measurement of elements of
financial statements
The various basic measurements are as
follows:
a) Historical cost
b) Current cost
c) Realization / settlement value
d) Present value
The concept of capital and
capital maintenance
1. Concept of capital
The choice of the concept of capital that
is appropriate for the company must be
based on the needs of the users of
financial statements
2. The concept of capital
maintenance and profit determination
Two capital maintenance concepts:
a) Maintenance of financial
capital
b) Maintenance of physical
capital
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