Conceptual framework for financial accounting
A conceptual framework can be defined as a constitution. This is an organized pattern of interconnected goals and principles. Determines the nature, limits and purpose of financial accounting. In addition, it deals with theoretical and conceptual issues, the surrounding financial accounting and logical and consistent funds that justify the accounting standard. Lists the reasons for determining how the transaction should be represented to the intended users. For example: An asset should be measured at cost or market value.
The greatest contribution and benefit of the conceptual framework is to help you understand and interpret accounting information in your financial statements. Some other important reasons why this is useful is:
Helps the user of financial information to understand the accounting standard and the IASB concept behind the wording. It allows further development of accounting standards. It also assists the IASB by providing guidance on reducing the use of alternative accounting practices permitted by IFRS in a given situation. It establishes the reliability of financial statements, reports, and accounting.
The conceptual framework has addressed a number of issues that have not been solved by accounting standards for a very long time. Events and transactions that are not eliminated by the developed financial accounting standards will be solved with the help of the conceptual framework. Provides guidance on the quality characteristics of financial information. Organizations have also been supported by conceptual frameworks for selecting the most appropriate treatment permitted by the financial accounting standard. The new accounting standards are elaborated by the conceptual framework of the National Accounting Standards Body.
Helps the auditor to express an opinion on the financial statement whether or not it is in accordance with IFRS. It helps the management in the preparation of the financial statements when applying IFRS and deals with situations where there is no appropriate standard. It also introduces users involved in the work of the IASB.
The IASB and the FASB considered that it was very important to develop a common conceptual framework, as it is very important that sound, reliable and internationally recognized accounting standards provide a strong basis. To make a financial decision, it is very important that the decision is based on the principles of the principles and not the individual concepts of each committee. The problem of the personal conceptual framework of the individual standard setter can be a positive conclusion in the short term, but as these concepts can lead to the thoughts, conflicts, or revisions of personal and standard current members. the new members outdo the standardization body over time, resulting in irregularities and make it difficult for users to make a decision. This is why both bodies have decided to use their efforts to develop a common conceptual framework.
The IASB and the FASB considered that rethinking all concepts would not be an effective use of their knowledge and research. The main aspects of the framework of the two bodies are similar and do not require any changes. Prior to the conclusion by the bodies that they would focus on improving existing frameworks rather than revising all standards and frameworks, priority should be given to problems and issues that would destroy the standardization objective.
The IASB and FASB believe that if this is done, it will be a document that discusses all standards and issues. The objective of the IASB and the FASB is generally accepted common standards. Since 2002, both bodies (IASB and FASB) have been working together to achieve this goal by eliminating differences between IFRS and generally accepted accounting principles (GAAP). Another objective of the accession conceptual framework is to keep existing concepts up to date with market trends, business practices these days. In general, the IASB and the FASB did not complete the reliability of the common conceptual framework; but they are sure and believe that the common conceptual framework will not be the same as the financial reporting standards. The common conceptual framework does not make existing standards effective, although some of the current standards may clash with the accession framework, but the board must consider these standards in line with their agenda.
There were many holes within the conceptual framework of each table, for example, both forums did not continue to report on the concept of reporting unit. After developing a common conceptual framework, these conceptual holes were discussed and a globally accepted standard developed. Filling the gaps is the motif of the signboard, both within the forum.
Revenue is an important aspect for the user of the financial statements as it describes how the company performs. Although such an important aspect, recognition in the financial statement can be very confusing, as the IFRS and GAAP frameworks have conflicts in recognition. Therefore, the IASB and the FASB decided to initiate a project to clarify the principles of revenue accounting and to develop a single standard. If both forums did not work to develop a common framework, it would be very difficult for users of financial statements to understand the underlying concept, and thus financial statements could lose their credibility in the long run.