Question

b) Outline five (5) purposes the IASB’s conceptual framework of accounting seeks to achieve.

Answer 1

A framework also provides guidance for unusual transactions, which may be otherwise open to interpretation. Some people believe that by having a conceptual framework, it improves the credibility of the accounting profession overall. The Conceptual Framework addresses:-

• The objective of financial reporting;
• the qualitative characteristics of useful financial information;
• the reporting entity
• the definition, recognition and measurement of the elements from which financial statements are constructed; and
• concepts of capital and capital maintenance.

The purpose of the Conceptual Framework is:-

1. to assist the IASB in the development of future accounting standards and in its review of existing accounting standards, ensuring consistency across standards
2. to assist the IASB in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by accounting standards,
3. to assist national standard-setting bodies in developing national accounting standards;
4. to assist preparers of financial statements in applying international financial reporting standards and in dealing with topics that have yet to form the subject of an accounting standard.
5. to assist users of financial statements in interpreting the information contained in financial statements prepared in compliance with international financial reporting standards
6. to assist auditors in forming an opinion on whether financial statements comply with international accounting standards; and
7. to provide those who are interested in the work of the IASB with information about its approach to the formulation of accounting standards.

An accounting standard may conflict with the Conceptual Framework, although this is rare. When this happens the requirements of the accounting standard override the requirements of the Conceptual Framework.