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China Securities Regulatory Commission（CSRC）requires the listed companies disclose their annual reports within four months after the end date of each accounting period.Mark Yu，a student major in accounting，argued，“Nowadays，timeliness is a vital characteristic of information.Information provided four months later is useless because the situations have changed greatly.”Do you agree or not？Why？
Accountants are continually faced with new situations，technological advances，and business innovations that present new accounting and reporting problems.Accounting concepts and principles are the theoretical foundation keeping accounting practice in pace with the changing business environment.This chapter introduces the Conceptual Framework for Financial Reporting established by IASB.
The overriding objective of financial reporting is to provide useful information.This is a very complex objective which includes many characteristics.To assist in choosing among characteristics，IASB identifies two fundamental qualitative characteristics of useful information：relevance and faithful representation.
Relevant financial information is
capable of making a difference
in the decisions made by users.
If some users choose not to take advantage of it or are already aware of it from other sources，the information may still be capable of making a difference in a decision. To be capable of making a difference in decisions，financial information should has predictive value，confirmatory value or both.
1.Predictive Value and Confirmatory Value
Information helps users predict the ultimate outcome of past，present，and future events.That is，it has
predictive value
. “Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes.”
For example，a user may use an entity's revenue data in the last three years to predict the revenues in the future.So，financial information need not be a prediction or forecast to have predictive value.
Information also helps users confirm or change prior expectations；it has
confirmatory value
. “Financial information has confirmatory value if it provides feedback about（confirms or changes）previous evaluations.”
The predictive value of financial information is interrelated with its confirmatory value.Information that has predictive value often also has confirmatory value.For example，revenue information for the current year，which can be used as the basis for predicting revenues in future years，can also be compared with revenue predictions for the current year that were made in past years.The results of those comparisons can help a user to correct and improve the processes that were used to make those previous predictions.
2.Materiality
Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity.In other words， materiality concerns an item's impact on a company's overall financial operations.It is an entity-specific aspect of relevance based on the nature or magnitude，or both，of the items to which the information relates in the context of an individual entity's financial report.The point involved here is of relative size and importance.If the amount involved is significant when compared with the other revenues and expenses，assets and liabilities，or net income of the company，sound and acceptable standards should be followed in reporting it.
“To be useful，financial information must not only represent relevant phenomena，but also faithfully represent the phenomena that it purports to represent.”
Financial reports represent economic phenomena in words and numbers.
Faithful representation
means that the numbers and descriptions match what really existed or happened.If a company reports sales of $ 12 million when it had sales of $ 9.9 million，then it fails to faithfully represent the proper sales amount.
IASB further stated that：“To be a perfectly faithful representation，a depiction would have three characteristics.It would be
complete
，
neutral
and
free from error
. Of course，perfection is seldom，if ever，achievable.”
1.Complete
An omission can cause information to be false or misleading.A complete depiction includes all information necessary for a user to understand the phenomenon being presented，including all necessary descriptions and explanations.For example，a complete depiction of a group of assets would include，at a minimum，a description of the nature of the assets in the group，a numerical depiction of all of the assets in the group，and a description of what the numerical depiction represents（for example，original cost，adjusted cost or fair value）.For some items，a complete depiction may also entail explanations of significant facts about the quality and nature of the items，factors and circumstances that might affect their quality and nature，and the process used to determine the numerical depiction.
2.Neutral
A neutral depiction means without bias in the selection or presentation of financial information.The information is not designed in a way that intentionally leads the users of that information to make an economic decision that the preparer of the information would like them to make.A neutral depiction is not slanted，weighted，emphasized，de-emphasized or otherwise manipulated to increase the probability that financial information will be received favorably or unfavorably by users.
3.Free from Error
Free from error
means there are no errors or omissions in the description of the phenomenon，and the process used to produce the reported information has been selected and applied with no errors in the process.
In this context，free from error does not mean perfectly accurate in all respects.For example，an estimate of an unobservable price or value cannot be determined to be accurate or inaccurate.However，a representation of that estimate can be faithful if the amount is described clearly and accurately as being an estimate，the nature and limitations of the estimating process are explained，and no errors have been made in selecting and applying an appropriate process for developing the estimate.
IASB distinguished between the fundamental qualitative characteristics that are the most critical and the enhancing qualitative characteristics that are less critical but still highly desirable.The enhancing qualitative characteristics enhance the usefulness of information that is relevant and faithfully represented.They are comparability ， verifiability ， timeliness and understandability . The enhancing qualitative characteristics may also help determine which of two ways should be used to depict a phenomenon if both are considered equally relevant and faithfully represented.
1.Comparability
Information about a reporting entity is more useful if it can be compared with similar information about other entities and with similar information about the same entity for another period or another date.
Comparability
is the qualitative characteristic that enables users to identify and understand similarities in，and differences among，items.
An important implication of comparability is that users be informed of the accounting policies employed in the preparation of the financial statements，any changes in those policies and the effects of such changes.
Although related to comparability，consistency is not the same. Consistency refers to the use of the same methods for the same items，either from period to period within a reporting entity or in a single period across entities.Consistency helps to achieve the goal-comparability.
2.Verifiability
Verifiability means that different knowledgeable and independent observers could reach consensus，although not necessarily complete agreement，that a particular depiction is a faithful representation.Verification can be direct or indirect.Direct verification means verifying an amount or other representation through direct observation，for example，by counting cash.Indirect verification means checking the inputs to a model，formula or other technique and recalculating the outputs using the same methodology.An example is verifying the carrying amount of inventory by checking the inputs（quantities and costs）and recalculating the ending inventory using the same cost flow assumption（for example，using the average cost method）.
3.Timeliness
Timeliness means having information available to decision-makers in time in order to be capable of influencing their decisions.To provide information on a timely basis，it may often be necessary to report before all aspects of a transaction or other events are known.Generally，the older the information is，the less useful it is.However，some information may continue to be timely long after the end of a reporting period because，for example，some users may need to identify and assess trends.
4.Understandability
Understandability means that the information provided in financial statements is readily understandable by users.The ability of users to understand financial information depends on two parts：the users' own capabilities and the way in which the information is displayed.Thus，it is not necessary that financial statements be understandable to“everyone”，but they should be understandable to a broad range of users.Users of financial information are assumed to have a reasonable knowledge of business，economic activities，and accounting，and a willingness to study the information with reasonable diligence.
To be understandable，classifying，characterising and presenting information clearly and concisely is needed.
Cost is a pervasive constraint on the information that can be provided by financial reporting.The benefits derived from information should exceed the cost of providing it.The evaluation of benefits and costs is，however，substantially a judgmental process.Furthermore，the costs do not necessarily fall on those users who enjoy the benefits.For these reasons，it is difficult to apply a cost test in any particular case.
The elements comprise the building blocks upon which the financial statements are constructed.IASB defines five elements.The elements directly related to the measurement of financial position are assets，liabilities and equity.And those directly related to the measurement of performance are income and expenses.
Assets，liabilities and equity are elements directly related to the measurement of financial position in balance sheet.
1.Assets
An
asset
is a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.
The definition of asset identifies three essential characteristics.
First，rights. The entity has a right that has the potential to produce economic benefits. Rights may take many forms，such as rights to receive cash，rights to receive goods or services，rights over physical objects（property，plant and equipment or inventories），etc.
Second，potential to produce economic benefits. For example，an economic resource could produce economic benefits for an entity by entitling or enabling it to：receive contractual cash flows；exchange economic resources with another party on favourable terms；receive cash or other economic resources by selling the economic resource；or extinguish liabilities by transferring the economic resource；etc. For that the potential to exist，it does not need to be certain，or even likely，that the right will produce economic benefits.
Third，control. The entity must have control over the future economic benefits such that it is able to enjoy the benefits and deny or regulate the access of others to the benefits. The future economic benefits from that resource must flow to the entity either directly or indirectly rather than to another party.
2.Liabilities
A
liability
is a present obligation of the entity to transfer an economic resource as a result of past events.
The definition of liability also identifies three essential characteristics.
First，obligations. An obligation is a duty or responsibility that an entity has no practical ability to avoid. Obligations are normally established by contract，legislation or similar means and are legally enforceable by the party（or parties）to whom they are owed.
Second，transfer of an economic resource. The obligations must have the potential to require the entity to transfer an economic resource to another party（or parties）. Such as obligations to pay cash，obligations to deliver goods or provide services，obligations to exchange economic resources with another party on unfavourable terms，etc. It does not need to be certain，or even likely，that the entity will be required to transfer an economic resource—the transfer may，for example，be required only if a specified uncertain future event occurs.
Third，present obligations as a result of past events. A present obligation exists as a result of past events only if：（1）the entity has already obtained economic benefits（such as goods or services）or taken an action；and（2）as a consequence，the entity will or may have to transfer an economic resource that it would not otherwise have had to transfer.
3.Equity
Equity
is the residual interest in the assets of the entity after deducting all its liabilities.
Defining equity as a residual is based on the view that equity cannot be defined independently of the assets and liabilities.Equity ranks after liabilities as a claim to the assets of an entity.Also，equity bears the results of operations and the consequences of other events affecting the entity.
Performance is the proficiency of a reporting entity in acquiring resources economically and using those resources efficiently in achieving specified objectives.
1.Concepts of Performance
Economists have generally adopted a wealth maintenance concept of performance.Under this concept，performance is the amount that can be consumed during a period and still leave the entity with the same amount of wealth（or capital）at the end of the period as existing at the beginning.Wealth is determined with reference to the current market values of the net assets at the beginning and end of the period.Therefore，this definition of performance would fully incorporate market value changes.
In addition，accountants have generally defined performance by reference to specific events that gives rise to recognizable elements of income and expenses during an accounting period.This approach to measuring performance is called transaction approach，sometimes referred to as matching method.Under this approach，performance，referred to as profit in income statement，is measured as the difference between resource inflows（income）and outflows（expenses）over a period of time.
2.Income
Income
is increases in assets，or decreases in liabilities，that result in increases in equity，other than those relating to contributions from holders of equity claims.
Income may result from the receipts or enhancements of various kinds of assets；examples include cash，receivables and goods and services received in exchange for goods and services supplied.Income may also result from the settlement of liabilities.For example，an entity may provide goods and services to a lender in settlement of an obligation to repay an outstanding loan.
Income encompasses both revenue and gains. Revenue arises in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales，fees，interest，dividends，royalties and rent.Whereas gains represent other items that meet the definition of income and may，or may not，arise in the course of the ordinary activities of an entity.Gains include，for example，those arising on the disposal of non-current assets.The definition of income also includes unrealized gains；for example，those arising on the revaluation of marketable securities and those resulting from increases in the carrying amount of long-term assets.When gains are recognized in the statement of profit or loss，they are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions.Gains are often reported net of related expenses.
3.Expenses
Expenses
are decreases in assets，or increases in liabilities，that result in decreases in equity，other than those relating to distributions to holders of equity claims.
Expenses encompass losses as well as those expenses that arise in the course of the ordinary activities of the entity.Expenses include，for example，cost of sales，wages and depreciation.Losses represent other items that meet the definition of expenses and may，or may not，arise in the course of the ordinary activities of the entity.Losses represent decreases in economic benefits and as such they are no different in nature from other expenses.Hence，they are not regarded as a separate element in IASB's Framework.
Losses include those resulting from disasters such as fire and flood，as well as those arising on the disposal of non-current assets.Expenses also includes unrealized losses，for example，those arising from the effects of increases in the exchange rate for a foreign currency in respect of the borrowings of an entity in that currency.Losses are usually displayed separately because knowledge of them is useful for the purpose of making economic decisions.Losses are often reported net of related income.
The definitions of the elements of financial statements identify their essential characteristics，whereas the recognition criteria specify the conditions under which an item which satisfies the definition of an element should be included in financial statements.Measurement is closely related to recognition.How much an element appears in financial statements relies on which measurement basis is used.
Recognition is the process of capturing for inclusion in the statement of financial position or the statement of financial performance an item that meets the definition of one of the elements of financial statements—an asset，a liability，equity，income or expenses.
Two recognition criteria set out by IASB are：（1）the item meets the definition of an element-asset，liability or equity，income or expense；and（2）the recognition of that item provides information useful to the users of financial statements.
Recognition of a particular asset or liability is appropriate if it provides not only relevant information，but also a faithful representation of that asset or liability and of any resulting income，expenses or changes in equity. It may be a combination of factors and not any single factor that determines whether an item should be recognized or not.
For example，a receivable owed to an entity is recognized as an asset. The recognition provides relevant information. For a large population of receivables，some degree of non-payment is normally considered；hence an expense representing the expected reduction in economic benefits is recognized. It is also a faithful representation.
To be recognized in financial statements，an item should possesses a cost or value that can be measured.In many cases，cost or value must be estimated；the use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine the usefulness of the information if the estimates are clearly and accurately described and explained. Faithful representation of a recognized asset，liability，equity，income or expenses involves not only recognition of that item，but also its measurement as well as presentation and disclosure of information about it.
Measurement is the process of determining the monetary amounts at which the elements are to be recognized and carried in the financial statements.IASB describes two categories of measurement bases：historical cost and current value. Current value includes three factors：fair value；value in use and fulfilment value；and current cost.
1.Historical cost
The
historical cost of an asset
when it is acquired or created is the value of the costs incurred in acquiring or creating the asset，comprising the consideration paid to acquire or create the asset plus transaction costs.
For example，the historical cost of inventory purchased would be the total price plus freight. The historical cost is updated over time to depict：（1）the consumption from depreciation or amortisation；（2）payments received that extinguish part or all of the asset（such as accounts receivables）；（3）the effect of impairment；and（4）accrual of interest to reflect any financing component of the asset（such as interest accrued on bonds investments）；etc.
The historical cost of a liability when it is incurred or taken on is the value of the consideration received to incur or take on the liability minus transaction costs. For example，the historical cost of bonds payable is the price received minus commission fees. The historical cost is updated over time to depict：（1）payment of part or all of the liability；and（2）accrual of interest to reflect any financing component of the liability；etc.
2.Fair value
Fair value
is 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.
The fair value is measured using the same assumptions that market participants would use when pricing the asset or liability if those market participants act in their best economic interest.In some cases，fair value can be determined directly by observing prices in an active market. For example，the market price of a certain company's shares is the best estimate of fair value of investment in those shares. In other cases，it is determined indirectly using measurement techniques，for example，cash-flow-based measurement techniques.
Note that fair value does not reflect the transaction costs because fair value is not derived from the price of the transaction or other event that gave rise to the asset or liability.
3.Value in use and fulfilment value
Value in use for an asset
is the present value of the cash flows，or other economic benefits，that an entity expects to derive from the use of an asset and from its ultimate disposal.
Fulfilment value for a liability
is the present value of the cash，or other economic resources，that an entity expects to be obliged to transfer as it fulfils a liability.
Different from fair value，value in use and fulfilment value reflect entity-specific assumptions rather than assumptions by market participants. In practice，there may sometimes be little difference between the assumptions that market participants would use and those that an entity itself uses.
Value in use and fulfilment value are based on future cash flows，so they do not include transaction costs incurred on acquiring an asset or taking on a liability. However，they include the present value of any transaction costs an entity expects to incur on the ultimate disposal of the asset or on fulfilling the liability.
4.Current cost
The current cost of an asset
is the cost of an equivalent asset at the measurement date，comprising the consideration that would be paid at the measurement date plus the transaction costs that would be incurred at that date.
The current cost of a liability
is the consideration that would be received for an equivalent liability at the measurement date minus the transaction costs that would be incurred at that date.
Current cost，like historical cost，is an entry value：it reflects prices in the market in which the entity would acquire the asset or would incur the liability. Hence，it is different from fair value，value in use and fulfilment value，which are exit values.
Unlike historical cost，current cost reflects conditions at the measurement date. In some cases，current cost cannot be determined directly by observing prices in an active market and must be determined indirectly by other means. For example，if prices are available only for a new fixed asset，the current cost of a used fixed asset might need to be estimated by adjusting the current price of the new one to reflect the current age and condition of the old one held by the entity.
In financial statements，different measurement bases are employed to different degrees and in varying combinations. Historical cost is the most commonly adopted measurement base by entities in preparing their financial statements.However，other measurement bases are also frequently combined with historical cost.For example，an impaired asset is usually carried at the value in use（which is lower than historical cost）；marketable securities may be carried at their fair values；and long-term liabilities may be carried at their fulfilment values.
assets 资产
comparability 可比性
completeness 完整性
confirmatory value 确证价值
consideration 对价
consistency 一致性
cost constraint 成本约束
current cost 现行成本
current value 现行价值
enhancing qualitative characteristics 增强的质量特征
equity 权益
expense 费用
fair value 公允价值
faithful representation 如实反映
free from error 免于差错
fulfilment value 清偿价值
fundamental qualitative characteristics 基本的质量特征
gain 利得
historical cost 历史成本
income 收入
income tax 所得税
inventory 存货
liabilities 负债
loss 损失
materiality 重要性
measurement basis 计量基础
measurement date 计量日
neutrality 中立性
predictive value 预测价值
present value 现值
qualitative characteristics 质量特征
receivable 应收账款
relevance 相关性
reliability 可靠性
revenue 收入
substance over form 实质重于形式
timeliness 及时性
transaction cost 交易成本，交易费用
understandability 可理解性
value in use 在用价值，使用价值
verifiability 可验证性
《国际财务报告准则第13号——公允价值计量》（IFRS 13）
关于公允价值的争议一直不断。公允价值计量可靠吗？公允价值信息有用吗？符合成本效益原则吗？与其他计量属性之间是什么关系？2011年5月，国际会计准则委员会发布第13号准则——公允价值计量。该准则没有回答上述问题，但是为多个具体准则中已经出现的公允价值计量提供了统一的指导框架和披露要求。
公允价值的定义
IFRS 13将公允价值定义为“市场参与者之间在计量日进行的有序交易中出售一项资产所收到的价格或转移一项负债所支付的价格”。这有时被称为“脱手价”。
IFRS 13指出，公允价值是在主要市场（即该资产或负债拥有最大交易量及交易水平的市场）中向市场参与者出售资产（或转移负债）所使用的价格。如果不存在主要市场，则应使用在最有利市场（即主体可获得最有利价格的市场）中的价格。在不存在相反证据的情况下，假设主体通常进行交易的市场为其主要市场或最有利市场。交易成本不应纳入公允价值计量。
公允价值的确定：估值技术
当交易可直接从市场观察时，公允价值的确定可能相对较为简单；但当交易无法直接从市场观察时，应使用估值技术。IFRS 13阐述了主体可用于确定公允价值的3项估值技术。
●市场法：主体采用涉及相同或可比（即类似）资产、负债或一组资产和负债的市场交易所使用的价格。
●收益法：主体将未来现金流量金额转换成单一的折现后的金额。
●成本法：主体确定一个反映当前取代资产的服务能力所需金额（即当前重置成本）的价值。
IFRS 13要求主体选择能够以最大限度地使用相关可观察变量的估值技术，即尽量采用非主观变量来增强公允价值的可靠性。
我国企业会计准则的概念框架
2006年2月，我国企业会计准则体系发布，包括基本准则、具体准则和应用指南。在发布的基本准则
中，建立了与IASB概念框架类似的概念体系。基本准则第一章第四条，“财务会计报告的目标是向财务会计报告使用者提供与企业财务状况、经营成果和现金流量等有关的会计信息，反映企业管理层受托责任履行情况，有助于财务会计报告使用者作出经济决策”。第五条至第八条分别反映了会计主体、持续经营、会计期间、货币计量4个基本假设。第九条反映了作为会计基础的权责发生制。基本准则第二章是会计信息质量要求，包括如实反映、相关性、明晰性（可理解性）、可比性、实质重于形式、重要性、谨慎性、及时性。在我国的概念框架中，没有对信息质量划分层次。基本准则第三章至第八章规定了6个会计要素及其确认标准，这6个要素是：资产、负债、所有者权益、收入、费用和利润。基本准则第九章是会计计量，规定了可采用的计量属性包括历史成本、重置成本、可变现净值、现值和公允价值。基本准则第十章是财务会计报告，规定了会计报表至少应当包括资产负债表、利润表、现金流量表等报表。
1.One characteristic of useful accounting information is understandability. Understandable to whom？
2.Distinguish between the qualities of relevance and faithful presentation.
3.Does faithful presentation imply absolute accuracy？Explain.
4.Define comparability.
5.Why is it so difficult to measure the cost and the benefit of accounting information？
6.For each item below，indicate to which category of elements of financial statements it belongs.
（a）Retained earnings
（b）Sales
（c）Additional paid-in capital
（d）Inventory
（e）Depreciation
（f）Dividends
（g）Gain on sale of investment
（h）Interest payable
（i）Loss on sale of equipment
（j）Issuance of common stock
7.What three elements are contained in a balance sheet？
8.What are the two measurement methods of performance that may be used to determine income？How do they differ？
9.Identify the criteria that an item must meet to qualify for recognition.
10.Identify and describe four different measurement bases.