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Explain the role of a conceptual framework in the development of financial reporting standards?

Explain the role of a conceptual framework in the development of financial

reporting standards?

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تم إضافة السؤال من قبل Mohammad Iqbal Abubaker , Jahaca Pty Ltd - Accounts Administrator , Jahaca Pty Ltd - Accounts Administrator
تاريخ النشر: 2017/03/12
Roxanne Almeida
من قبل Roxanne Almeida , Accountant , Pieter Holl & Associates Limited

Conceptual framework plays an important role in the development of accounting standards. A conceptual framework forms a theoretical basis for determining how transactions should be measured and reported – how they are presented or communicated to users. They provide users and preparers of financial statements an understanding of accounting practices and standards based on a common ideology.

Some benefits of a conceptual framework for financial reporting include:

  • Establishing precise definitions that facilitate discussion of accounting issues;
  • Providing guidance to accounting standard setters when developing and reviewing financial reporting rules;
  • Helping to ensure that accounting standards are internally consistent;
  • Helping preparers and auditors to resolve financial reporting problems in the absence of an accounting standard; and
  • Helping to limit the volume of accounting standards by providing an overarching theory of accounting that can be applied to specific reporting problems.  

 

Without a conceptual framework, accounting standards would be developed in a random, haphazard way to deal with issues as they arise. As a result, these standards would be inconsistent with each other or legislation.

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