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The 12 Principles of CFA
Posted by Tim Reason | CFO.com | US
November 18, 2005 2:35 PM ET

What should financial reporting look like? Here are the 12 basic principles laid out in a recent paper the CFA Institute, and presented to FASB and the IASB last month:

  1. The Entity Must Be Viewed from the Perspective of an Investor in the Common Equity Issued by the Company
  2. Fair Value Information Is the Only Information Relevant for Financial Decision Making
  3. Recognition and Disclosure Must Be Determined by the Relevance of the Information to Investment Decision Making and Not Based Upon Measurement Reliability Alone
  4. Complete Recognition of All Economic Transactions and Events
  5. Investors’ Wealth Assessments Must Determine the Materiality Threshold
  6. Financial Reporting Must Be Neutral
  7. All Changes in Net Assets Must Be Recorded in a Single Financial Statement, the Statement of Changes in Net Assets Available to Common Shareowners
  8. The Statement of Changes in Net Assets Available to Common Shareowners Should Include Timely Recognition of All Changes in Fair Values of Assets and Liabilities
  9. The Cash Flow Statement Provides Information Essential to the Analysis of a Company and Should Be Prepared Using the Direct Method Only
  10. Changes Affecting Each of the Financial Statements Must Be Reported and Explained on a Disaggregated Basis
  11. Individual Line Items Should Be Reported Based Upon the Nature of the Items Rather Than by the Function for Which They Are Used
  12. Disclosures Must Provide All of the Additional Information Investors Require to Understand the Items Recognized in the Financial Statements, Their Measurement Properties, and Their Risk Exposures
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