Conceptual
Framework is a document that sets out generally accepted principles with the
aim of assisting Standard Setters (IASB) in reappraising existing standards and
issuing new standards and also to aid preparers of financial reports in
developing consistent accounting policies. It serves as a major frame of
reference for financial reporting.
Wait! Don’t get it twisted
It
was previously called ‘Framework’ when it was issued in July 1989 by the defunct
International Accounting Standard Committee (IASC). It was later revised and
re-issued by the International Accounting Standard Board (IASB) in September
2010 as ‘The Conceptual Framework for Financial Reporting’.
The
Conceptual Framework was basically issued for the purpose of providing
assistance in the development of accounting standards. It serves as a source of
reference for the IASB in the development of new accounting standards or in
revisiting previously issued standards.
SCOPE OF THE FRAMEWORK
The current Conceptual Framework
comprise the following matters. It is divided into different chapters:
Chapter 1 Objectives of financial statements
Chapter 1 Objectives of financial statements
Chapter 3 Qualitative
characteristics of financial statements
Chapter 4 Definition
of Elements of financial statements;
Underlying Assumptions;
Recognition of elements of financial statements;
Measurement of the elements of financial statements; and
Concepts of capital and capital maintenance.
Recognition of elements of financial statements;
Measurement of the elements of financial statements; and
Concepts of capital and capital maintenance.
Note: Chapter 2 is yet to be updated by the IASB and is a work in
progress. It is expected to deal with the reporting entity concept.
Wait! Don’t get it twisted
Imagine
you are a contractor. You are paid to construct a hospital for your community.
It is obvious that you will definitely need to create a blueprint for the
construction. You can’t just build it haphazardly.
This
is in no way different from the essence of the Conceptual Framework. The IASB
is in charge of producing and issuing standards. These standards have to be
carefully created. What then should be the basis for preparing these standards?
Your guess is as good as mine –the conceptual framework.
It
is important to note that the Conceptual Framework is not a Standard (IAS/IFRS)
and so does not overrule any individual IAS/IFRS. In the (rare) cases of
conflict between an IAS/IFRS and the Conceptual Framework, the IAS will
prevail. These cases will diminish over time as the Conceptual Framework will
be used as a guide in the production of future Standards. The Conceptual
Framework itself will be revised occasionally depending on the experience of
the IASB in its use.
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