Question 1 (a)
Two main distinctions between accounting conceptual framework & accounting standard are:
a)
Function
The function of accounting standards is to help encourage and champion the use of
sound financial systems in the local sector while promoting financial solidity globally.
These standards help to strengthen how finances are regulated and supervised, while
at the same time increasing transparency. Conceptual frameworks, on the other hand,
function to assist in the formulation of future International Financial Reporting Standards.
They also promote the harmonization of the regulations and the standards of accounting
through the reduction of alternative financial accounting methods. The conceptual
framework also serves to assist auditors and preparers of financial reports.
b)
Flexibility
The conceptual framework is an articulate system of interconnected objectives and
essentials that can lead to constant standards which would describe financial accounting
and financial statements. The Accounting standards, on the other hand, are the ways
that you follow while preparing accounts. These standards are usually decided upon by
professional bodies that at as oversight in financial accounting. They reduce the variety
of options that can be used in making financial reports, increase the level of disclosure,
and provide a focal point that levels debates in accounting.
Question 1 (b)
a)
Guidance in Recognitions and Derecognition
Conceptual framework provides the treatment and criteria for including assets and
liabilities in financial statements (recognition) and guidance on when to remove them
(derecognition) for the purpose of financial reporting. Recognition criteria provides that
an entity should recognise an item that met the definition of an element if it was
probable that economic benefits would flow to the entity and if the item had a cost or
value that could be determined reliably. Recognition is appropriate if it results in both
relevant information about assets, liabilities, equity, income and expenses and a faithful
representation of those items, because the aim is to provide information that is useful
to investors, lenders and other creditors. Derecognition, on the other hand, refer to the
removal of all or part of a recognised asset or liability from an entity’s statement of
financial position. Its normally occurs when the entity loses control of all or part of the
recognised asset and when the entity no longer has a present obligation for all or part
of the recognised liability. Both recognitions and derecognition guidance provides by
conceptual framework is important for financial reporting.
b)
Guidance in Measurement
Conceptual Framework describes what information measurement bases provide and
explains the factors to consider when selecting a measurement basis. Accounting
conceptual frameworks also explain the needs in selecting the measurement basis,
which it is necessary to consider the nature of the information in both the statement of
financial position and the statement(s) of financial performance. The relative importance
of the factor to be considered depends upon the facts and circumstances of individual
cases. The measurement basis is crucial as it may effects the financial reporting and
decision derived from it.
c)
Structures in Presentations and Disclosures
Accounting conceptual frameworks provides concepts on presentation and disclosure
and guidance on including income and expenses in the statement of profit or loss and
other comprehensive income. For instance, accounting conceptual frameworks
principally provides that all income and expenses are classified and included in the
statement of profit or loss. Thus, it is undeniable that accounting conceptual frameworks
significantly provides the guidance and structure to financial reporting.