Friday, July 26, 2013

Conceptual Framework of Financial Accounting

The Discussion Paper “Conceptual Framework of Financial ...The Discussion Paper “Conceptual Framework of Financial Accounting” Accounting Standards Board of Japan December 2006 ( Tentative translation: 16 Mar. 2007) Contents Preface・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 1 Chapter 1 “Objectives of Financial Reporting” ・・・・・・・・・・・・・・・ 4 Chapter 2 “Qualitative Characteristics of Accounting Information” ・・・・・ 12 Chapter 3 “Elements of Financial Statements” ・・・・・・・・・・・・・・ 22 Chapter 4 “Recognition and Measurement in Financial Statements” ・・・・ 30 1 Preface The Role of the Conceptual Framework Conceptual frameworks, in general, organize the premises and concepts that underlie corporate accounting, particularly financial accounting. It offers a conceptual basis for accounting standards and, as a result, is expected to help provide a better understanding of these standards and enhance foreseeability in their interpretation. Moreover, conceptual frameworks, in general, aid users of

financial statements and should have the effect of preventing unnecessary costs that those users might incur when attempting to interpret accounting standards. Because it also has the role to provide guidelines for future standard setting, this Conceptual Framework is not merely a summary of existing fundamental premises and concepts, but also reflect an analysis and reexamination of those premises and concepts. Therefore, this Conceptual Framework includes parts that cannot explain some of the existing accounting standards and parts that have yet to become standards. However, this Conceptual Framework does not immediately propose developing or amending individual and specific accounting standards. Rather, its role is to provide basic guidelines. Environments Surrounding Accounting Standards This Conceptual Framework builds on premises and concepts underlying existing accounting standards and reflects current constraints surrounding financial reporting. Constraints include market practices, investors' ability to analyze information, the current legal system and basic ideas underlying such system, and social value judgments regarding the economic impact of standard setting. Today, these constraints are becoming common around the world, and the differences among countries are at least partly disappearing. This trend is particularly prominent in the business environment, where barriers to the cross-border transfers of goods, services, money and people have been removed and free trade based on common rules is successfully underway. As part of this trend, global convergence of accounting standards is under progress. The ASBJ believes that the development of this Conceptual Framework, which establishes the fundamental concepts that underlie accounting standards and financial 2 reporting in Japan, would facilitate discussions in international settings aimed to achieve global convergence of accounting standards. However, a concern may exist that releasing this Conceptual Framework as an Exposure Draft at this time may not be appropriate, considering the joint project between the IASB and the FASB, which is working towards developing a common conceptual framework. Thus, to avoid unnecessary confusion and misunderstanding, the ASBJ decided to release this Conceptual Framework as a Discussion Paper and not to seek public comments. In that sense, this Conceptual Framework presents the results of discussions at the ASBJ in recent years as part of its efforts to provide a conceptual basis for the various accounting standards in Japan. The ASBJ believes that this Discussion Paper will further evolve through its participation in discussions in international settings, particularly the active participation in joint project between the IASB and the FASB to develop a common...

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