Conceptual Framework: Show In a broad sense, the conceptual framework can be seen as an attempt to define the nature and purpose of accounting. The conceptual framework considers the theoretical and conceptual issues surrounding financial reporting and form a coherent and consistent foundation that will underpin the development of accounting standards. It is a practical tool that helps the International Accounting Standards Board (IASB) to develop requirements in International Financial Reporting Standards (IFRS) based on consistent concepts. By definition, the conceptual framework represents the main ideas, concepts and principles upon which all IFRSs and therefore the financial statements are based. Purpose: The purposes of the Conceptual Framework are:
The Conceptual Framework is not an IFRS and so does not overrule any individual IFRS. In the (rare) case of conflict between an IFRS and the Conceptual Framework, the IFRS will prevail. Updates: The Conceptual Framework had been left largely unchanged since its inception in 1989. In 2004, the IASB and the FASB decided to review and revise the conceptual framework, however, changed priorities and the slow progress in the project led to the project being abandoned in 2010. As a result, the IASB officially added the project to its agenda again in September 2012, this time as an IASB-only project and no longer aimed at a substantial revision of the framework but focused on those topics that are not yet covered (e.g. presentation and disclosure) or that show obvious shortcomings that need to be dealt with. As a first step, a Discussion Paper covering all aspects of the framework project was published in July 2013, followed by a comprehensive Exposure Draft in May 2015. The revised Conceptual Framework for Financial Reporting (Conceptual Framework) issued in March 2018 is effective immediately for the International Accounting Standards Board (Board) and the IFRS Interpretations Committee. For companies that use the Conceptual Framework to develop accounting policies when no IFRS Standard applies to a particular transaction, the revised Conceptual Framework is effective for annual reporting periods beginning on or after 1 January 2020, with earlier application permitted. The revised Conceptual Framework will be available to after being published the Issued IFRS Standards in early 2019. The Conceptual Framework issued in 2010 is still available and applicable in the meantime. History of the Framework: Qualitative Characteristics: The conceptual framework emphasizes on the following two qualitative areas:
1. Fundamental Qualitative Characteristics: Fundamental qualitative characteristics distinguish useful financial reporting information from information that is not useful or misleading. Two fundamental qualitative characteristics are:
A complete depiction includes all information necessary for a user to understand the phenomenon being depicted, including all necessary descriptions and explanations. A neutraldepiction is without bias in the selection or presentation of financial information. This means that information must not be manipulated in any way in order to influence the decisions of users. Free from errormeans there are no errors or omissions in the description of the phenomenon and no errors made in the process by which the financial information was produced. It does not mean that no inaccuracies can arise, particularly where estimates have to be made. 2. Enhancing Qualitative Characteristics: Enhancing qualitative characteristics distinguish more useful information from less useful information.
Underlying Assumptions: The 1989 Framework identified two underlying assumptions – accruals and going concern. The Conceptual Framework emphasizes that the financial information should be prepared on an accruals basis but only identifies one underlying assumption – going concern. Accrual conceptis the most fundamental principle of accounting which requires recording revenues when they are earned and not when they are received in cash, and recording expenses when they are incurred and not when they are paid. An entity is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. All the above mentioned characteristics and assumptions are the qualitative aspects of useful information which foundation is laid out by the conceptual framework. The Revised Conceptual Framework: The revised Conceptual Framework, issued by the Board in March 2018, includes the following:
Limitations: Conceptual Framework definitely sets the standards for accounting practices and principles. However, there are some limitations as below:
What are the characteristics of a conceptual framework?The Conceptual Framework refers to comparability being the qualitative characteristic that enables users to identify and understand similarities in, and differences among, items.. comparability;. verifiability;. timeliness; and.. understandability.. What are the 4 qualitative characteristics?The four enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability. The characteristic of relevance implies that the information should have predictive and confirmatory value for users in making and evaluating economic decisions.
What are the examples of qualitative characteristics?What are qualitative characteristics of accounting information?. Relevance. ... . Representational faithfulness. ... . Verifiability. ... . Understandability. ... . Comparability. ... . Timeliness. ... . Extract relevant information. ... . Check your information.. What are the qualitative characteristic of financial statements according to the framework?According to the framework, qualitative characteristics are the attributes that meet the decision usefulness of financial information. The framework listed these attributes as; relevance, faithful representation, comparability, understandability, verifiability and timeliness.
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