accounting and financial reporting.pptVIP

Accounting and Financial Reporting Recognition Criteria For an item to be formally recognized, it must meet one of the definitions of the elements of financial statements. An item must also be reliably measurable in monetary terms to be recognized. Disclosure is preferable to recognition in situations in which relevant information cannot be reliably measured. Accounting and Financial Reporting Measurement There are five different measurement attributes currently used in practice. Historical cost is the cash equivalent price exchanged for goods or services at the date of acquisition. Current replacement cost is the cash equivalent price that would be exchanged currently to purchase or replace equivalent goods or services. Accounting and Financial Reporting Current market value is the cash equivalent price that could be obtained by selling an asset in an orderly liquidation. Net realizable value is the amount of cash expected to be received from the conversion of assets in the normal course of business. Present (or discounted) value is the amount of net future cash inflows or outflows discounted to their present value. Accounting and Financial Reporting Current accounting practice in the United States is said to be based on historical costs, although each of the five measurement attributes is used. Still, historical cost is the dominant measure and is used because of its high reliability. In recent years we have seen an increasing emphasis on relevance and thus a movement away from historical cost. Accounting and Financial Reporting Reporting The conceptual framework indicates that a “full set of financial statements” is necessary to meet the objectives of financial reporting. Financial position at the end of the period Earnings (net income) for the period Cash flows during the period Investments by and distributions to owners during the period Comprehensive income for the period Accounting and Financial Reporting For financial reporting to be most effective, al