ACCA FR FINANCIAL REPORTING
CONCEPTUAL FRAMEWORK
The Needs for Conceptual Framework
Key Questions
1. What is a conceptual framework?
2. Why is conceptual framework necessary?
3. Are there any alternative system?
What is a conceptual framework?
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Statement of generally accepted theoretical principals (objectives and fundamental principles)
Nature, function and limits of financial accounting and financial statements
Includes guidance on topics such as
o the objective of financial reporting
o the qualitative characteristics of financial information
o the definition, recognition and measurement of the elements of financial statements
o concepts of capital and capital maintenance.
Why is conceptual framework necessary?
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Standards can be developed in accordance with agreed principles
Avoids ‘fire-fighting’ approach to standard development
Guidance for preparers and auditors (in the absence of standard)
Accounting standards based on principles are harder to circumvent
Strengthen the credibility of the accounting profession
Reduce the chances for standard-setting process to be influenced by ‘vested interest’ (e.g.
political interference)
Fundamental principles, when stated in a single document, can help to eliminate contradictions
and inconsistencies
Help to resolve accounting disputes (framework can be a frame of reference)
Are there any alternative system?
The short answer is yes. In general, there are two main approaches to accounting:
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A principles-based or conceptual framework approach such as that used by the IASB.
A rules-based approach such as that used in the US. This is also known as a prescriptive
‘cookbook’ approach.
It is argued that principles are harder to circumvent and therefore preferable to a rules-based
approach.
Questions for Discussion
1. In the event of inconsistencies between the conceptual framework and IFRS standards, which
one would prevail?
2. Is the conceptual framework perfect?
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