Question

Question 5                                                                                                                   6 marks

What do you understand by the term the Conceptual framework?

Discussion should center around its objectives and its component parts.

Answer 1

A conceptual framework is an analytical tool with multiple variations and contexts. It can be applied in different areas of work where an overall picture is required which is used to make conceptual distinctions and organize ideas. Strong conceptual frameworks capture a thing real and do this in such a way which is easy to remember and apply.

Objectives:

a) To help the accounting standards boards in the development of future accounting standards and in its review of existing standards.

b) Facilitating in developing accounting policies for transactionsor events not covered by existing standards.

c) To describe the impact that the cost constrainthas on reporting accounting information.

Components:

a) In the statement of financial position – assets, liabilities and equity

b) In the statement of comprehensive income – income and expense

c) In the statement of changes in equity – income, expense, contributions of equity, distributions of equity, transfers between classes of equity, as well as the opening and closing amounts of equity

d) In the statement of cash flows – cash inflows and cash outflows as well as the opening and closing cash balances.