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The need for a conceptual framework - Coggle Diagram
The need for a conceptual framework
Scope and purpose
A conceptual framework is a statement of generally accepted theoretical principles
It's the underlying basis of the framework for the preparation and presentation of financial statements
Provides the basis for the development and evaluation of new and existing accounting standards
The framework forms the theoretical basis for determining which events should be accounted for, how they should be measured and how they should be communicated to users
Accounting standards tend to be produced in a haphazard wy in the absence of a conceptual framework
Standards developed from a conceptual framework will be less open to criticism than national standards which are subject to considerable political interference from interested parties
Limitations
Financial statements devised based on a single conceptual framework may not suit all users given the diversity of user requirements
There may be a need for a variety of financial reporting and accounting standards with different concepts as a basis, each produced for a different purpose
It is not clear that a conceptual framework makes the standard setting process any easier than without a framework
Deals with
The objective of general purpose financial reporting
The qualitative characteristics that determine the usefulness of information in financial statements
Financial statements and the reporting entity
The definitions, recognition, derecognition and measurement of the elements from which financial statements are constructed
Concepts and guidance related to presentation and disclosure
Concepts of capital and capital maintenace
Purpose
To assist the IASB in the development of future IFRS and in its review of existing IFRS and IAS
To provide a basis for reducing the number of alternative accounting treatments permitted by IFRS thus assisting the harmonisation of regulations, accounting standards and proceeders relating to financial reporting
To assist national standard setting bodies in developing national standards
To assist preparers of financial statements in applying IFRS or when dealing with topics that are not covered ny a standard or where there is choice of accounting policy
To assist auditors in forming an opinion as to whether financial statements comply with IFRS
To assist users of financial statements in interpreting the financial statements prepared in accordance with IFRS
To provide those who are interested in the work of the IASB with information about its approach to the formulation of IFRS