What is the objective of financial reporting as per the conceptual framework?

WHAT IS THE CONCEPTUAL FRAMEWORK?

What Is the Conceptual Framework?

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WHAT IS THE CONCEPTUAL FRAMEWORK?
What Is the Conceptual Framework?
HOW DOES THE FRAMEWORK AFFECT THE APPLICATION OF ACCOUNTING
How Does the Framework Affect the Application of Accounting Standards?
WHO BENEFITS FROM A FRAMEWORK AND WHY IS IT NEEDED?
Who Benefits from a Framework and Why Is It Needed?
WHY IS THE FASB WORKING ON A CONCEPTUAL FRAMEWORK PROJECT?
Why Is the FASB Working on a Conceptual Framework Project?
What is the main objective of Conceptual Framework?
What are the objectives of financial reporting?
How does the Conceptual Framework describe a reporting entity?

The Conceptual Framework (or “Concepts Statements”) is a body of interrelated objectives and fundamentals. The objectives identify the goals and purposes of financial reporting and the fundamentals are the underlying concepts that help achieve those objectives. Those concepts provide guidance in selecting transactions, events and circumstances to be accounted for, how they should be recognized and measured, and how they should be summarized and reported.

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HOW DOES THE FRAMEWORK AFFECT THE APPLICATION OF ACCOUNTING

How Does the Framework Affect the Application of Accounting Standards?

Concepts Statements do not affect practice directly. They do not change existing generally accepted accounting principles (GAAP). Certain aspects of existing GAAP conflict with the framework. For example, museum collections meet the Concepts Statements definition of an asset, but existing GAAP does not require those assets to be recognized in the financial statements. The framework affects practice over time because of its influence in the development of new accounting standards.
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WHO BENEFITS FROM A FRAMEWORK AND WHY IS IT NEEDED?

Who Benefits from a Framework and Why Is It Needed?

The FASB is the most direct beneficiary of the framework. The framework provides the FASB with a foundation for setting standards and concepts to use as tools for resolving accounting and reporting questions. The FASB staff is guided by pertinent concepts that might provide guidance in developing its analysis of issues for consideration by the FASB, as well as in making its recommendations to the FASB when developing accounting standards. Consequently, those concepts are an important aspect of the FASB’s discussions of issues and for making its decisions about a specific standard.

The framework provides a basic reasoning on which to consider the merits of alternative solutions to complex financial accounting or reporting problems. Although it does not provide all the answers, the framework narrows the range of alternative solutions by eliminating some that are inconsistent with it. It thereby contributes to greater efficiency and consistency in the standard-setting process by avoiding the necessity of having to redebate fundamental issues such as “what is an asset?” time and time again.

A guiding principle of the Board is to be objective in its decision making and to ensure, insofar as possible, the neutrality of information resulting from its standards. The use of an agreed-upon framework reduces the influence of personal bias on standard-setting decisions. Without the guidance provided by an agreed-upon conceptual framework, standard-setting would be quite different because it would be based on the personal frameworks of individual members of the Board. A framework also should reduce political pressures in making accounting judgments.

The FASB is not the only beneficiary of the framework. The credibility of financial reporting is enhanced when objectives and concepts are used to provide direction and structure to financial accounting and reporting. The framework helps by leading to the development of standards that are not only internally consistent but also consistent with each other. As a result, both preparers and users of financial statements benefit from financial statements that are based on a body of accounting requirements that are more internally consistent.

The framework further helps users of financial reporting information to better understand that information and its limitations. It also provides a frame of reference for understanding the resulting standards. That frame of reference is useful to preparers who apply those standards and to auditors who examine the resulting reports, as well as to students who study accounting and the faculty who teach it.
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WHY IS THE FASB WORKING ON A CONCEPTUAL FRAMEWORK PROJECT?

Why Is the FASB Working on a Conceptual Framework Project?

The framework is not complete. For example, matters of financial presentation, derecognition, disclosure, and the definition of a reporting entity are not addressed. Furthermore, certain aspects of the framework that were addressed, such as recognition and measurement, remain incomplete.

The FASB’s framework was, for the most part developed three decades ago. Since then, business and financial activities have become increasingly complex. As a result, many of today’s standard-setting issues are different and more complex than those that were contemplated when the framework originally was developed. For that reason, some updating of the framework may be both desirable and necessary to enable it to continue to contribute toward the FASB’s solutions for future issues.

After performing a comprehensive review of the framework, the Board decided to add a project to its agenda to address presentation and measurement concepts. The Board concluded that those areas were the most deficient and could provide significant benefits in addressing current and future financial reporting problems. The lack of concepts in these areas has led to inconsistent decisions in the presentation and measurement requirements in GAAP.

The Board also is developing a framework for disclosures. The objective of that project is to improve the effectiveness of disclosures in notes to financial statements by clearly communicating the information that is most important to users of a reporting organization’s financial statements.

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What is the main objective of Conceptual Framework?

The primary purpose of the Conceptual Framework was to assist the IASB in the development of future IFRSs and in its review of existing IFRSs. The Conceptual Framework may also assist preparers of financial statements in developing accounting policies for transactions or events not covered by existing standards.

What are the objectives of financial reporting?

The main objective of the financial reporting for any company is to present the necessary information concerning the financial position of the company, the cash flow position of the company, and the various obligations of the company that is relevant for its users for tracking business performance, the understanding ...

How does the Conceptual Framework describe a reporting entity?

The Board has proposed the description of a reporting entity as: an entity that chooses or is required to prepare general purpose financial statements. It is useful to users to understand that the general purpose financial statements are prepared on the assumption that the reporting entity is a going concern.

What is the objective of financial reporting as per the conceptual framework?

WHAT IS THE CONCEPTUAL FRAMEWORK?

What Is the Conceptual Framework?

HOW DOES THE FRAMEWORK AFFECT THE APPLICATION OF ACCOUNTING

How Does the Framework Affect the Application of Accounting Standards?

WHO BENEFITS FROM A FRAMEWORK AND WHY IS IT NEEDED?

Who Benefits from a Framework and Why Is It Needed?

WHY IS THE FASB WORKING ON A CONCEPTUAL FRAMEWORK PROJECT?

Why Is the FASB Working on a Conceptual Framework Project?

What is the main objective of Conceptual Framework?

What are the objectives of financial reporting?

How does the Conceptual Framework describe a reporting entity?

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