Essay About Conceptual Frameworks And Conceptual Framework

Conceptual Frameworks
‘The conceptual framework (CF) is intended to be a coherent conceptual basis for the International Accounting Standards Board (IASB 2013) in developing accounting standards’ Brouwer et al. (2015)1 . Consider the purposes of conceptual frameworks and discuss the extent to which you agree with this statement?In very broad terms, a conceptual framework is defined as an analytical tool[1]. In the world of accounting, it is a “theory of accounting prepared by a standard-setting body against which practical problems can be tested objectively”[2]. The conceptual framework covers and tackles issues found in financial reporting such as definitions of the basic components, recognition quota, prudence and how to measure appropriate financial elements that are to be included in the financial statements. It is intended to be a theoretical basis that the IASB can utilise in furthering its accounting standards yet one that also listens to feedback from users and compilers of the standards in regards to its improvement. The IASB is the creator of what is regarded as one of the most “pervasive and legally binding economic standards in the world”[3]. The IFRS also refers to the conceptual framework and uses this to mould its standards too. The importance of the conceptual framework is undeniable – if this is what is used as a basis for forming the various standards present in accounting, then it is essential that there exists a single set of high quality economic standards to ensure that the users of statements. The conceptual framework should also assist standard setters, auditors and other users. Accounting standards that lack sufficient rigour and discipline can provide opportunities for misinformation.

The conceptual framework must serve the public’s interest.[4] This is something that has been amended in more recent times as the definition of the users of financial statements is given as ‘present and potential investors, lenders and creditors’.[5] This has come under criticism from some for being too broad – they believe only existing investors should constitute the primary audience – while others have argued that this definition is too narrow.  Although we are able to deduce from further analysis that the IASB does intend to serve the public with its aims, articulating these is made difficult due to the different interpretations made by different users of the conceptual framework. Since the conceptual framework is ever-evolving and works as a guideline, one of the ways in which it has attempted to create further coherence and transparency is through re-defining some of the core elements of financial statements. Previous definitions had been viewed as too clunky, vague and misleading with a particular focus on the probability of occurrence and the recognition quota in previous definitions; the IASB had struggled to fit its intended outcomes into existing definitions and criteria and it has had to change what it defines as being an asset and a liability.