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What is a conceptual framework?

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Introduction

Matriculation number: 074924420 Financial Reporting Coursework Essay C32FR1 What is a "conceptual framework" for financial accounting and why is it needed? For many years the need for a "conceptual framework" has been addressed by accountants form countries all over the globe including the UK. It was in 1973 when the FASB adopted a formal project to develop a conceptual framework in order to provide accountants with a guide to standard setting on a consistent basis. This framework was later published as the 'Statement for Principles for Financial Reporting' in 1999. This leads straight to the question, "What exactly is a 'conceptual framework'"? There is no straight forward answer to that question. Since the publication of the Statement of Principles many have attempted to define the term 'conceptual framework' in relation to accounting, however one has yet to succeed in achieving to put together one specific definition of this concept. It may well be defined as "a constitution, a coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function and limits of financial accounting and financial statements." ...read more.

Middle

underlying the accounting practice at that time were not always consistent and at times suggested solutions which at times contradicted each other when applied to new economic or financial developments. Influences which affected the development of the present conceptual framework in accounting include 'The Corporate Report' (ASB 1975), 'The Dearing Report' (The Making of Accounting Standards, CCAB, 1988), and 'The Solomons Report' (Guidelines for Financial Reporting Standards, 1989). Among many other criticisms which erupted at that time, these reports outlined the arguments against the existing standard setting process at that time and proposed some new ideas and suggestions in improving the process as a whole, improving its consistency and making it more efficient for its users. The ASB'S Statement of Principles for Financial Reporting was based on and built on their previous existing frameworks. It may be said that the statements intention is to produce financial statements that present a "true and fair view" and to be a comprehensive and reasonably detailed description of the fundamental approach the ASB should, in principle, underpin the financial statements of profit-oriented entities. ...read more.

Conclusion

The main components of the IASC conceptual framework are: - the objective of financial statements - the qualitative characteristics of financial information - the elements of financial statements - the recognition and measurement of the elements of financial statements. The exposure draft deals with each of these elements in detail, for example, Paragraph 87 provides statements and definitions regarding recognition. Despite its critisms I personally believe that a conceptual framework plays an extremely vital role in the development and implementation of accounting standards. Without doubt, the existence of such concepts as the 'Statement for Principles' and the 'Framework for the Preparation and Presentation of Financial Statements' reduced the need to debate fundamental issues each time a standard is developed or revised. I believe that the objectives set by the ASB and the IASC during the publication of both frameworks have been met. In my opinion, however, there are always more ways than one to improve a given situation, whether good or bad and of course this case is no exception. ...read more.

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