GAAP Framework and Conceptual Framework
U.S. Generally Accepted Accounting Principles (GAAP) are the authoritative standards for financial reporting by nongovernmental entities, codified in the FASB Accounting Standards Codification (ASC).
Explanation
The FASB ASC is the single source of authoritative U.S. GAAP for nongovernmental entities. It organized thousands of individual pronouncements into a searchable, topic-based structure. The FASB Conceptual Framework provides the foundation for standard-setting, defining the objective of financial reporting, qualitative characteristics of useful information, and recognition and measurement concepts.
The qualitative characteristics include fundamental qualities (relevance and faithful representation) and enhancing qualities (comparability, verifiability, timeliness, and understandability). These concepts guide the FASB in developing new standards and help preparers apply judgment when specific guidance is absent.
Key Points
- •FASB ASC is the single source of authoritative nongovernmental U.S. GAAP
- •Fundamental qualities: relevance and faithful representation
- •Enhancing qualities: comparability, verifiability, timeliness, understandability
- •Cost constraint: benefits of reporting must justify costs
Exam Tip
Know the hierarchy of qualitative characteristics and that the ASC superseded all prior individual FASB Statements, EITF consensuses, and AICPA pronouncements.
Frequently Asked Questions
Related Topics
Balance Sheet (Statement of Financial Position)
The balance sheet reports an entity's assets, liabilities, and equity at a specific point in time, following the fundamental accounting equation: Assets = Liabilities + Equity.
Income Statement
The income statement reports an entity's revenues, expenses, gains, and losses over a period of time, resulting in net income or net loss.
Fair Value Measurement (ASC 820)
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
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